The Energy Transition | Climate Change Committee releases Seventh Carbon Budget

This week we look at the Climate Change Committee's Seventh Carbon Budget, Ofgem granting urgency to NESO's CMP448 proposal, the 12^th round of the Offshore Transmission Owner regime, and more.

Climate Change Committee releases Seventh Carbon Budget

The Climate Change Committee (CCC) has published its Seventh Carbon Budget, which outlines a comprehensive strategy to reduce greenhouse emissions for the period from 2038 to 2042.

The budget aims, by 2040, to reduce greenhouse gas emissions by 87% compared to 1990 levels and recommends that between 2038 and 2042, the UK's greenhouse gas emissions should be limited to 535 MtCO2e.

It is based on what is known as the "Balanced Pathway," which is an emissions reduction pathway to net zero by 2050. This pathway targets five key areas, informed by the CCC's modelling and data:

• Electricity: Expansion of the supply of low carbon energy, including growing offshore wind capacity from 15GW to 88GW and doubling onshore wind capacity to 32GW by 2040. Electric vehicles are predicted to be a major form of private and public transport, and half of UK homes are expected to be using heat pumps for heating rather than boilers. The pathway also states that 61% of industrial energy demand will need to be electricity.
• Low-carbon fuels and carbon capture and storage: Low-carbon fuels like hydrogen and synthetic fuels are expected to reduce emissions in areas where the ability to supply and store electricity typically faces challenges, such as within the aviation and shipping markets. By 2040, these fuels are predicted to make up a significant part of the aviation and shipping fuel supply. In tandem, carbon capture and storage are also set to play a vital role in decarbonising these industries.
• Nature-based solutions: Nature-based measures like planting new woodlands and restoring peatlands help absorb carbon from the air. By 2050, these natural solutions are expected to offset remaining emissions from farming and land use. To achieve this, the UK aims to increase woodland coverage and restore more peatlands by 2040.
• Engineered carbon removals: The CCC reports that balancing the remaining emissions, especially in sectors like aviation, requires technologies such as carbon capture from air and biomass to become increasingly vital as 2040 approaches. The CCC speculates that other methods, like enhanced weathering and biochar, are set to contribute to the removal of carbon. Additionally, the CCC expects that building the necessary infrastructure and business models will enable the budget's primary aim to be achievable and deliverable.
• Demand reduction: While the UK government continues to deploy low-carbon technologies, there are increasing efforts aimed at encouraging the public to make lifestyle changes to further reduce emissions. These include encouraging the public to increase efficiency in homes and industries and reduce waste. The pathway also predicts that the public will be expected to continue making lifestyle changes ranging from maximising public transport usage to adopting plant-based diets.

The CCC reports that significant investment and government support are crucial to achieving these targets. Although the budget would absorb about 0.2% of the UK's GDP annually, the CCC expects to bring about job creation in green industries, improve air quality, and boost energy security.

Ofgem opens tender process for £4billion of electricity links  

Ofgem has announced the opening of the 12th round of the Offshore Transmission Owner (OFTO) regime, inviting bids from investors to own and operate the electricity transmission link connecting RWE's Sofia wind farm to the grid in North Yorkshire.

The Sofia wind farm has a generating capacity of 1.4GW and is capable of powering close to 1.2 million homes. Ofgem aims, by running this tender process, to keep costs down for consumers but also drive investment.

Ofgem assesses bids, with successful bidders being granted offshore transmission licences for specific assets connected to offshore windfarms. In parallel to the granting of a licence, the assets themselves will be sold by the developer to the winning bidder.

To date the OFTO regime, launched in 2009, has attracted £11 billion of investment used to connect 27 offshore wind farms. As the demand for energy (specifically electricity) continues to rise, Ofgem anticipates that by 2030, £30 billion of OFTO assets may be on the market.

Ofgem aims to launch the 13th round later this year, which is expected to be the largest tender to date, including assets for Dogger Bank C which has a generation capacity of 1.2GW, Inch Cape which is made up of 72 wind turbines generating close to 1.1GW, and East Anglia 3, which is expected to generate up to 1.4GW.

Ofgem consults on the Regional Energy Spatial Plan Impact Assessment

Ofgem has published a consultation on the Regional Energy Spatial Plan (RESP) Impact Assessment (IA). The RESP framework is a key initiative by Ofgem aimed at improving the management of the UK energy system. The IA seeks to address the current limitations in energy system planning that focus predominately on individual energy vectors (such as electricity, heat, hydrogen). A broader system is envisaged with a revised aim of providing a more integrated approach on a regional level. 

NESO will deliver the RESP through its "hub and spoke model". This approach is designed to ensure that the distribution system is well-coordinated. The RESP aims to facilitate timely investment, maximise local potential and accelerate the transition to a net-zero economy.

The IA for the RESP framework provides a detailed analysis of the expected costs and benefits. While the direct benefits of the RESP are challenging to quantify due to uncertainties in predicting energy infrastructure investments and efficiency gains, the IA suggests that the quantified benefits are likely to significantly outweigh the costs. The analysis covers the period up to 2050 and uses a discount rate of 3.5% to monetise these impacts.

Ofgem is currently seeking stakeholder feedback on the draft IA through a consultation process. The consultation invites views on whether the potential impacts of the RESP have been adequately identified and understood, including its effects on various stakeholders and the potential costs and benefits associated with its implementation. Additionally, stakeholders are asked to identify potential unintended consequences that may arise from the RESP. Stakeholders may submit their responses to resp@ofgem.gov.uk.

Following the consultation period, closing on 10 March 2025, Ofgem will review feedback and publish the final impact assessment. The policy will be reviewed again in 2028 to assess its effectiveness and address necessary improvements.

Ofgem grants urgency to CMP448 proposal: introducing a progression commitment fee

Ofgem has granted urgent status to the National Energy System Operator's (NESO)CMP448, which introduces a Progression Commitment Fee (PCF) to the Gate 2 connections queue.  

Urgent status can be granted where a proposal meets one of the three criteria set out by Ofgem in its Guidance on Code Modification Urgency Criteria. In this case, Ofgem is granting urgent status on the basis that the CMP448 proposal may have "significant commercial impact on parties, consumers or other stakeholder(s)". The proposer who requested urgent status highlighted that CMP448 has "significant commercial implications for generation projects resulting from the failure to urgently address the defects that the [P]roposal is seeking to correct", and Ofgem agrees with this justification. 

Granting urgent status is not a decision on the merits of the proposal, nor does it pre-determine Ofgem's decisions on whether to approve related code modifications. However, Ofgem has noted that although it has set the date as Q3 2025 for a decision on CMP448, it will endeavour to publish its decision at the earliest possible opportunity. This move underlines the importance it places on grid reforms grid reforms and code modifications, with the granting of urgent status, in order to align dates on decisions.

This article was written with the assistance of Harry Warren, trainee solicitor, and Tomi Agbonifo, paralegal.