Source · Select Committees · Public Accounts Committee
Recommendation 9
9
Accepted
Uncertainty creates investment hiatus despite billions needed for power sector decarbonisation.
Conclusion
The government estimated in its 2021 Net Zero Strategy that £280 to £400 billion of public and private investment in new generating capacity would be needed by 2037 to decarbonise the power sector. These costs represent the construction costs for power generation only, and do not include the costs for all aspects of decarbonising the power sector, such as network construction or research and innovation on technologies.25 Private investment will be a major contributor to the financial capital required to decarbonise.26 A clear delivery plan could increase the confidence of investors to fund new infrastructure, which could reduce their costs of capital.27 We received written evidence from Energy UK that flagged a negative impact on investment in the UK, given it is seen as less favourable when compared to the USA and EU, and spoke of a coming ‘investment hiatus’ in the UK due in large part to uncertainty.28 The Department believes that the UK will never be able to compete financially with the USA; however, it believes the UK has the market mechanisms, business models and regulation to provide confidence to investors and attract the necessary investment.29 19 Qq 5, 41; C&AG’s Report, Figure 8 20 DPS0013 21 Qq 5–7; C&AG’s Report para 1.9 and Figure 8 22 Qq 7, 32, 42, 74; C&AG’s Report, paras 1.13 and 2.6 23 Q 39 24 Q 40 25 Department for Business, Energy & Industrial Strategy, Net Zero Strategy: Build Back Greener, 19 October 2021, page 99; C&AG’s Report, para 6 26 C&AG’s Report, para 2.17 27 Q 88; C&AG’s Report, para 11 28 DPS0019 29 Q 88 Decarbonising the power sector 11
Government Response Summary
The government agrees with the committee's observation, recognizing the importance of clear plans for private investment. It has published several strategies, committed £20 billion for CCUS, launched annual Contracts for Difference rounds, and is producing sector-specific investment roadmaps to provide investor clarity.
Government Response
Accepted
HM Government
Accepted
3.1 The government agrees with the Committee’s recommendation. Target implementation date: December 2023 3.2 The department recognises the importance of giving clarity to the private sector to encourage investment. Earlier this year the government published Mobilising Green Investment: the 2023 Green Finance Strategy, alongside the Powering Up Britain: the Net Zero Growth Plan and Powering up Britain: the Energy Security Plan. 3.3 The Green Finance Strategy provides clarity on pathways for investment across net zero, and communicates to businesses, investors and the finance sector the UK’s plan to grow investment. These publications set out plans to grow green investment across all parts of the UK, which include providing up to £20 billion funding for early deployment of Carbon Capture, Usage and Storage, and launching the fifth Contracts for Difference allocation round, the first round to run on an annual basis. These provide investor clarity on the government’s overall approach to enhance our country’s energy security, seize the economic opportunities of the transition, and deliver on our net zero commitments. 3.4 In addition, the department is also communicating more detailed investment needs and opportunities on a sector-by-sector basis. In March 2023 it published the Offshore Wind Net Zero Investment Roadmap, the Heat Pump Net Zero Investment Roadmap, and the Hydrogen Net Zero Investment Roadmap, as well as an updated version of the Carbon Capture Usage and Storage Investment Roadmap. The department considers that this is an appropriate way to provide detail relevant to particular groups of investors and plans to publish further roadmaps for other sectors that need private sector investment later in 2023.