The UK government has committed to amend the Climate Change Act 2008, obligating the UK to ensure that the net UK carbon account for 2050 is at least 100% lower than the 1990 baseline (effectively the UK has net zero greenhouse gas emissions). Inevitably there will be costs in meeting this challenge, but with all radical policy changes come opportunities.
Energy Efficiency and Heat
The recent BEIS consultation on future heating technologies in new homes, including a potential ban on the installation of new gas boilers by 2025, highlights the importance of tackling both energy efficiency and the heating and cooling of the built environment as part of the net zero target. The Committee on Climate Change (CCC) suggest there will need to be a decision as to whether switching to a hydrogen based system, or one based on efficient use of electricity via heat pumps is best by 2025. In addition, repeated extensions to deadlines for the implementation of zero carbon efficiency standards for housing are now likely to bite in the short term. This will lead to opportunities for innovative developers using low emission building technologies, and utilising on site energy production to lead the way in achieving new planning permissions. This is already being seen within the industry, due to attractive returns on investment being available from low carbon energy generation, as well as reducing build costs for modular passive standard housing.
The Electricity Sector
The decarbonisation of the electricity grid in the UK has been a success story in recent years. In 2018 low carbon generation accounted for approximately 33% of electricity produced nationally. In order to meet the new target, the CCC report underpinning the net zero target, outlines that generation from low carbon sources will need to quadruple by 2050, paving the way for significant investment opportunities in subsidy free, low carbon generation. Of this approximately 75GW is predicted to come from offshore wind. This will require significant deployment of traditional and new renewable energy projects, the repowering of existing renewable generating stations, and the roll out of more flexible generation and storage assets. In addition, investment will be needed in the distribution and transmission network as these are now at saturation point. Proposed changes in connections policy and a move to more co-ordinated and flexible network management will assist in this regard, but issues will remain.
As a consequence opportunities for land owners to participate in the market will increasingly open up, not only for large scale generation and storage projects, but also smaller scale, ‘behind the meter’ schemes using batteries and renewable generation, as part of the future ‘smart grid’. At present government policy has become fragmented following the phasing out of subsidies and changes to the Capacity Market Mechanism, as well as the lack of geographically targeted flexibility contracts for storage schemes offered by National Grid. In addition the Contracts for Difference (CfD) mechanism has focussed primarily on the offshore wind and nuclear markets, and could be used constructively to reduce consumer costs in the onshore wind and solar sectors by offering fixed, longer term power purchase contracts at low wholesale prices, bringing down the financing costs of projects. These areas of policy will need to addressed in order for the new target to be met and it is hoped it will act as a catalyst to allow the private sector to provide the required innovation and investment.
Transport
There will need to be a radical overhaul of the transport sector to meet the new target. Focus in the CCC report is on three areas:
all new cars and vans on sale from 2035 will need to be fully electric. This creates a new set of challenges including those around charging and fuelling infrastructure;
the majority of HGVs will either need to be electric or hydrogen powered, with an estimated 800 hydrogen refuelling stations being built by 2050 and 90,000 depot based electricity charges being deployed; and
emissions from aviation and shipping will need to be considered and reduced
The real estate sector will have to accommodate this new infrastructure requirement and there will be increasing opportunities to receive income from these developments, through either the sale of energy directly to consumers, or by receiving rents or a profit share for new charging and fueling stations. Dwell time created by consumers waiting for vehicles to charge in new locations also creates retail and leisure opportunities.
An Evolving Market
There is much uncertainty as to how government policy will evolve following the net zero commitment, but it is clear that opportunities exist for innovative companies and investors across the UK economy and beyond to rise to the challenge.