Onward’s Firm Foundations: the case for cheap and reliable power paper argues for a major reset of UK power policy, with a bigger role for gas and nuclear.
True North’s Allister Thomas and Eilidh Whiteford assess the policy implications and ask what it means politically.
Analysis from Allister Thomas
The report is strongest on one basic point: the cheapest power to generate is not always the cheapest power system overall. Wind and solar may look cheap on a simple generation-cost basis, but the system still has to pay for the grid, balancing and back-up needed to keep the lights on. It also makes a fair point that cheaper electricity could encourage people and businesses to electrify without relying so heavily on mandates. Its modelling then points to very large savings, although the household headline needs some context. Claire Coutinho presents the £320bn saving as equivalent to £540 per household per year, while the report itself estimates around £200 of electricity-system cost reductions for an average household between 2027 and 2035, with a further £90 relying on measures such as VAT cuts or shifting costs into taxation.
The catch is that quite a lot has to go right for those savings to materialise.
The Alternative Policy Pathway (APP) would end policy support for new renewables, hydrogen, CCS, storage and interconnectors from 2030, while putting much more weight on gas and nuclear. It assumes a major expansion of nuclear and 45GW of gas by 2050, with nuclear backed by consumers through their energy bills, and new gas offered 20-year Capacity Market contracts. The report itself says large-scale nuclear is unlikely to be built competitively without support, accepts higher nuclear subsidy costs later on, and says nuclear construction costs need to fall if APP is to deliver its full potential. That is a big delivery bet. Their APP requires 20GW of nuclear by 2050, more than three times current capacity, while the National Audit Office says no nuclear plant of the type being built at Hinkley Point C and Sizewell C has yet been delivered without delays or cost increases. EDF’s latest reported Hinkley scenarios point to a five-to-seven-year delay and around a 100% cost overrun.
It also accepts that the pathway would be more exposed to another gas price shock.
The last energy crisis led the UK Government to spend an estimated £44bn supporting household and business energy bills. While that is not directly comparable with the APP’s £320bn saving, it shows why greater exposure to gas prices matters when prices spike. APP’s own modelling suggests a 2022-scale gas shock in 2040 would add around £6bn to its fuel costs versus Business As Usual. Even so, APP saves £43bn on generation subsidies overall, despite higher nuclear subsidy costs, while extra Capacity Market spending on gas brings the combined saving across the two areas to £22bn.
For Scotland’s offshore energy sector, that policy choice is the big issue.
From 2030, new offshore wind and other renewable, hydrogen and CCS projects would lose the policy support they currently rely on, while nuclear and gas would continue to receive long-term backing. Existing CfD contracts would be honoured. That matters particularly in north and north-east Scotland, where offshore wind, hydrogen and CCS are expected to pick up more of the economic load as North Sea production declines. Recent history also shows how quickly energy policy can change: a Conservative government put net zero into law in 2019 and introduced the oil and gas windfall tax in 2022; the APP now assumes repeal of the Climate Change Act and an end of support for new renewables. The APP meanwhile assumes new gas projects receive 20-year contracts partly to protect them from future changes in net zero policy. That is the tension: investors need long-term certainty, but it is much easier to design a settlement to 2050 than to guarantee that several future governments will stick to it.
Commentary from Dr Eilidh Whiteford
Claire Coutinho’s intervention via Conservative-aligned thinktank Onward’s new report leans into a live and contentious debate around the future direction of UK energy policy. Coutinho, who served as Secretary of State for Energy Security and Net Zero in Rishi Sunak’s government, until this week's reshuffle had been shadowing DESNZ from the Official Opposition front bench in the House of Commons.
The Firm Foundations report argues that the UK should pivot away from net zero policies and towards more gas and nuclear power to meet the UK’s future energy needs but can be best be understood as an exercise in political positioning.
Energy policy has become a political flashpoint as the UK political landscape recalibrates following the departure of Keir Starmer from No.10, with all parties seeking to reposition themselves after an eventful Summer.
Labour is enjoying something of a ‘Burham bounce’ which has seen them edge just ahead of Reform in some recent opinion polls, but their position is far from secure and they have a lot of ground to make up if they are really to restore public confidence. The new PM is widely expected to grant the go-ahead for Jackdaw and, maybe, Rosebank in the coming weeks, but will be bracing himself for a backlash from within his own party as well as from a wider Green lobby who will accuse him of abandoning net zero ambitions and acquiescing to the oil and gas industry.
The perils of framing energy policy choices as an either/or, renewables versus oil and gas zero-sum game have long been apparent to industry but should now also be obvious to the UK Government too. Burham seems to be coming to the realisation that projects like Jackdaw and Rosebank offer an opportunity to boost a stubbornly sluggish UK economy and strengthen domestic energy security while buying time to deliver longer term renewables ambitions.
Meanwhile, the UK economy continues to languish and ongoing geopolitical instability is fuelling calls to improve domestic energy security and divert resources towards defence spending; the cost-of-living crisis, which is real, continues to pressurise household finances, especially in the deciles of the income distribution where Labour needs to maintain support.
The problem is that Burham has inherited an energy policy that cannot be delivered within a political cycle. When the new Labour government adopted Clean Power 2030 as a flagship policy that would underpin an era of reindustrialisation across mainland Britain while decarbonising the energy system, they greatly underestimated the delivery challenges in terms of the time, cost and new infrastructure required. They know now.
Labour has also focused heavily – too heavily – on reducing consumer energy costs, which is coming back to bite them because they have limited scope to deliver reductions. The Conservatives might be well advised not to back themselves into the same corner, however tempting it may be.
As Labour attempts to regroup after the Starmer premiership, the Conservatives and Reform are still locked in an existential struggle for the soul of the right. The Conservatives have rallied a bit. Over recent months, Kemi Badenoch has looked and sounded more confident and commanding in her leadership role – but the Tories still have some way to travel to re-establish themselves as the natural opposition to the Labour government and are still lagging Reform in the polls, even if the trends look more hopeful for them.
The highlight of their Summer was a decisive by-election win in Aberdeen South, a campaign dominated by energy-related issues. However, the Conservatives need not to make the mistake of thinking that energy issues will play out in a similar way in other parts of the UK, or even in other parts of Scotland. Aberdeen South is almost unique in the high concentration of energy sector workers among its residents. Just a few weeks previously, having invested heavily in a renewables-sceptic campaign, they suffered their worst ever Scotland-wide set of results at the Holyrood elections.
But Coutinho’s intervention can be seen as an attempt to grab the political agenda around energy away not just from her opponents in Labour but from the usurpers in Reform who are attempting to displace the Conservatives.
Of all the parties, Reform has been the most overtly antagonistic to net zero policies, the most explicitly anti-wind (offshore and onshore), and the most climate sceptic. They have raised pertinent questions about the cost of CfDs whilst using a MAGA playbook to exploit NIMBY resistance to new infrastructure developments.
Yet, even before his embarrassing encounter with a bin in Clacton-on-Sea, Nigel Farage’s appeal was waning with voters; Reform’s support is on a downward trajectory. The Conservatives badly need to seize the opportunity to reassert themselves in the space vacated if they are to position themselves for the next General Election. Nature abhors a vacuum.