The Energy Transition | What does the general election mean for upcoming changes to energy regulation?

This week we look at the implications of the upcoming general election on existing net zero and energy regulation initiatives, the UK government's decision not to roll forward surplus greenhouse gas emissions savings into the next carbon budget, predictions of a continued increase in the cost of balancing the grid from the Electricity System Operator, and more.

What does the general election mean for upcoming changes to energy regulation?

Rishi Sunak's recent announcement to hold a general election on Thursday 4 July has raised questions about the impact of the election for the UK's net-zero targets, and what it might mean for policy developments that are currently in the pipeline.

Irrespective of the outcome of the election, the recent prorogation and subsequent dissolution of Parliament (which will take place on 30 May) risks grinding any ongoing developments by the Department for Energy Security and Net Zero (DESNZ) to a halt in the run up to the election. The effect of this remains to be seen, but it may be safe to assume that the DESNZ's immediate plans will be delayed. This includes ongoing projects such as:

• publication of the response to its consultation (which closed on 7 March) to amend the Contracts for Difference scheme in advance of its latest auction (known as Allocation Round Seven) (reported on here);
• the response to the second consultation on the ongoing review of electricity market arrangements (REMA) (reported on here); and
• finalisation of the Carbon Capture, Usage and Storage contracts, which was expected in September (reported on here).

The election is also likely to cause delays to regional programmes. Ofgem is reaching the final stages in developing the regional energy strategic planners programme which was first announced in November of last year. The Electricity System Operator (ESO) is actively recruiting regional energy strategic planners for the local rollout. Despite this degree of progress, the election is certain to disrupt the conclusion of this programme as well as other initiatives, including the ESO's transition to the National Energy System Operator (NESO) which the government project manager, Teresa Carney, had previously committed to establishing "as soon as we can this year". This timescale appears to be in danger in light of the election timetable.

In terms of grid connection reforms, TMO4 – the ESO's proposed grid connections overhaul which introduces the "first ready, first connected" principle (reported on here) – remains unaffected, as it is subject to Ofgem code modification measures and not changing legislation.

On a broader scale, with only six years to go for the UK to meet its 2030 climate and nature targets, including achieving a 68% reduction of carbon emissions compared to pre-industrial levels, net zero is expected to play an important role in the upcoming election.

UK government declines to bank surplus greenhouse gas emissions savings

The UK government has announced that surplus greenhouse gas emissions savings will not be rolled forward into the next carbon budget.

As part of Carbon Budget 3, the UK has overachieved in meeting its emissions target by 15% between 2018 to 2022. Under the Climate Change Act 2008, the government has the power to allow the surplus emissions which have fallen below the legal emissions limit to be banked for later carbon budgets. However, DESNZ has decided that past emissions savings will not be carried forward to Carbon Budget 4.

Energy Security and Net Zero Minister, Justin Tomlinson, said that in not carrying forward over-performance, "we are doubling down on our commitment to reach net zero, and we're already halfway there". This sentiment is echoed by the Climate Change Committee (CCC), who have congratulated the government for deciding, "not to kick the can down the road" and to continue to progress its commitment to meeting carbon targets.

The government's announcement of the success of Carbon Budget 3, confirms that the UK has over-achieved against three carbon budgets. The UK has set an ambitious target of reducing emissions by 77% on 1990 levels by 2035 and is one of a few major economies which has a legally binding emissions target. The CCC has however pointed out that most of the surplus achieved in the Third Carbon Budget was due predominantly to external factors, such as the Covid-19 pandemic. In its letter of advice to the government on whether to carry over surplus emissions, the CCC noted that "in most other sectors, such as transport and buildings, the UK is not on track and progress will need to accelerate rapidly".

Grid balancing costs to reach a peak of £4.5 billion by 2030, including £3 billion of curtailment costs

In an assessment published by the ESO, a continued increase in the cost of balancing the grid was predicted until 2030, at which point the ESO expects such costs to reach a peak of £4.5 billion in total, including £3 billion of curtailment costs.

In the last financial year, balancing costs totalled £2.4 billion and, according to the ESO, currently make up around 4% of customer's bills. Around 40% of balancing costs relate to constraints which require the ESO to balance the grid by paying for generators to cease generating in constrained areas and to fire-up in constraint free areas. This balancing mechanism is known as grid curtailment.

Beyond 2030, the ESO assessment predicts that balancing costs will fall to £4 billion by 2031/32 and £3 billion by the 2040's. This decrease will largely be attributed to the completion of major infrastructure projects under the Accelerated Strategic Transmission Investment (ASTI) scheme, including National Grid's Eastern Green Link 1 and Eastern Green Link 2 projects. These projects are intended to relieve pressure on the B6 boundary pinch point on the Scottish-English border which, as previously reported, rarely operates at a utilisation rate of more than 50% and contributed to the majority of 2023 curtailment costs.

The additional capacity provided by the Eastern Green Link projects is central to the reduction of curtailment costs, with the ESO reporting that delay to these projects could lead to additional costs of £409 million per year. More broadly, without the ASTI framework in general, balancing costs were on track to reach £6 billion by the mid-2030's.

Anglesey, Wales set to power up with large-scale nuclear power station

The government has chosen Wylfa, Anglesey as its preferred site for the UK's third mega-nuclear power station, in its first acquisition of land for nuclear power since the 1960s. Located on the north coast of Wales, site at Wylfa was chosen on the basis of its proximity to cooling water. The government states that the location will allow North Wales to increase its economic prosperity and support the progress to long-term domestic energy security and quadrupling nuclear power capacity by 2050.

The government is in conversation with major energy companies including South Korea's state-owned nuclear developer which is understood to be in early-stage discussions. Both Westinghouse and Bechtel have also submitted proposals for the development of the project.

Secretary of State for Energy Security and Net Zero, Claire Coutinho, reflected on what will be the "biggest expansion of nuclear energy in 70 years", stating that " Wylfa would not only bring clean, reliable power to millions of homes – it could create thousands of well-paid jobs and bring investment to the local area".

The successful bidders will be announced by Great British Nuclear at the end of the year.

Plans announced for £3 billion pumped storage hydro project near Loch Ness

Glen Earrach Energy (GEE) has recently unveiled plans to develop a £3 billion pumped storage hydro project at the Balmacaan Estate near Loch Ness in Scotland. GEE and a consortium of advisors and experts, including Aecom, LCP-Delta and Frontier Economics, have submitted a scoping request for the project to the Scottish Government's Energy Consents Unit, claiming that the project will reduce the carbon footprint of the energy grid by 10% and save £2 billion in grid running costs.

The planned facility, which proposes to deliver up to 30GW hours of clean energy, is said to be bigger than any other proposed or existing facility on Loch Ness in terms of size and power generation capacity (2GW power/30GWh storage). It will also possess a height difference exceeding 480 metres between the upper and lower reservoirs which will, according to GEE, "maximise power generation while minimising its impact on Loch Ness water levels".

Director at GEE, Roderick MacLeod, states that international experts have "identified Glen Earrach Energy's pumped storage hydro project as the most efficient in the UK, possibly even Europe."

This article was written with the assistance of Khushal Thobhani, Jessica Sawford, Charlotte D'Arcy, Luke Hopper and Hannah Bradley, trainee solicitors.