As if to underline the scale of the challenge ahead, the UK Government’s 2030 Clean Power Plan was launched on a cold, grey December day with little wind or sun, and with gas providing c2/3 of our power.
That figure needs to come down to <5% in 5 years’ time if the Government’s ambitions for Clean Power are to be met. This will require building renewables, other low carbon technologies and grids at a rate never previously seen in the GB market.
2025 will have to be a year of delivery on Clean Power.
Much of the focus will be on the various enabling measures, including reforms to the planning system, consenting, the connections queue, and measures to tackle skills and supply chain constraints.
Some of these, like speeding up planning and re-prioritising the grid queue, will be controversial and fraught with legal risks.
Meanwhile the Government has to make some final decisions on the future electricity market arrangements (REMA) early in 2025 in order to enable developers to bid into the next renewables auction round (AR7), which will be key to hitting the 2030 goal. The Government will also need to say more about its plans for decarbonisation beyond the power sector, in particular in transport, industry, heating and agriculture if future carbon budgets (which are legally-binding) are to be hit. Meanwhile, Ofgem will need to set out its determinations for the Transmission Network Operators (TOs) in the ‘T3’ settlement.
All this will be happening against an increasingly volatile and unpredictable geopolitical backdrop. The political cross-party consensus on decarbonisation and the need to tackle climate change, that has broadly been in place in the UK for over 20 years, appears to be breaking down, with the Leader of the Opposition openly questioning the UK’s commitment to Net Zero. In Europe, we see populist parties on the rise, promising to row back on green policies. In the US, President Trump has indicated that he will once again withdraw the US from the Paris Agreement process. In times of heightened geopolitical security, concerns about energy security and affordability tend to come to the fore.
These developments won’t stop the Energy Transition from happening on the ground, because wind and solar are already the cheapest forms of generation in many parts of the world – including across much of the US. But they will allow sceptics to question whether the UK should continue to press on with action to tackle climate change, when other countries appear to be pulling back.
Much will depend on what happens to energy prices and energy bills. Bills are rising, not falling, and remain well above their levels pre Russia’s invasion of Ukraine. The outlook for gas prices remains very uncertain. Forward markets suggest continued elevated price levels. If the long-predicted LNG glut happens, then maybe gas prices could fall, which could provide some temporary relief on bills. However, this would have the downside of making renewables look relatively more expensive vs gas generation.
Then there is the wild card of AI. This is a double-edged sword for energy. AI is already changing how our energy system works, leading to productivity gains and lower costs. But, on the flip side, there is the additional power needed – one Chat GPT search takes 10x the power of a Google search. These two worlds – energy and AI - will increasingly collide in 2025, with unpredictable results.
By the time we get to COP30 in Brazil in November, the world will almost certainly have passed the 1.5 degree threshold for global warming, that was the aim of the Paris Agreement. On the UN’s latest assessment ahead of COP29, the world could be heading for double that level of global warming, with unimaginable consequences. It will require more focus on adaptation to a changing climate, alongside continued efforts at mitigating climate change.
Strap yourselves in, 2025 will be a pivotal year for the energy sector!
