A long way of saying that policy making has been done in silos - with inadequate focus or understanding of what each intervention does to total system costs.
Good analysis that draws attention to a lot of the major issues (levies dumped on energy bills being the biggest one imo). Good that you mention rooftop solar as well - this really distorts the demand figures as self-generation essentially appears as 'negative demand', so in reality the electrification figures will be a bit better than presented here. Although still doesn't help with the problem of higher grid costs spread across fewer kWh - in fact it creates a negative feedback loop that exacerbates the problem (higher electricity prices = better incentive to get rooftop solar). Also, electricity usage as % of final or useful energy demand is a much better metric for electrification (primary energy fallacy and all that).
On CfDs, I think its also important to point out the flipside to the argument - when wholesale prices peak (as in 2022, or during the recent heatwave), CfDs return the excess to the LCCC, which offsets some of the cost. Essentially they provide a hedging strategy against wholesale price volatility, which we are seeing more and more of due to geopolitical and climate-driven events. Most importantly though, the CfD contracts only last for 15 years (20 for more recent ones), whereas most windfarms have an economic lifetime of 30-35 years, meaning once these contracts end we'll still get 15 plus years of merchant operation out of these assets where they just receive the market clearing price. At which point they will just be displacing gas generation at no cost to the consumer.
But on the whole you're dead right: electrification is the future, and if we don't get electricity bills down we'll be left behind
UK has a habit of over forecasting dating back many decades. We over built coal in the 60's although ironically it was masked at the time because of the problems with the AGRs. The CEGB then say there were vindicated to keep all the smaller old stations on the bars as that saved the day with miners strike. It took privatisation to cut into how many stations just sat there sometimes all year doing nothing
It would be helpful to look at the different sectors where demand is expected to grow in relation to the wider policy environment.
For example, the CCC is modelling increased demand for electricity from heat pumps, but only on the basis that (a) new gas boilers are banned from 2035 and (b) that significant policy costs associated with the development of electricity infrastructure and decarbonisation are moved onto taxation. Their analysis on this point is probably correct. But unless a government is prepared to commit to these policy changes, they probably should not be forecasting increasing demand for electricity from the introduction of heat pumps.
There appears to be stronger policy commitment to resolving some of the barriers to moving to increased proportions of electric vehicles, and the underlying economics here are also more favourable - so increased demand from this source seems a more defensible proposition.
A long way of saying that policy making has been done in silos - with inadequate focus or understanding of what each intervention does to total system costs.
Good analysis that draws attention to a lot of the major issues (levies dumped on energy bills being the biggest one imo). Good that you mention rooftop solar as well - this really distorts the demand figures as self-generation essentially appears as 'negative demand', so in reality the electrification figures will be a bit better than presented here. Although still doesn't help with the problem of higher grid costs spread across fewer kWh - in fact it creates a negative feedback loop that exacerbates the problem (higher electricity prices = better incentive to get rooftop solar). Also, electricity usage as % of final or useful energy demand is a much better metric for electrification (primary energy fallacy and all that).
On CfDs, I think its also important to point out the flipside to the argument - when wholesale prices peak (as in 2022, or during the recent heatwave), CfDs return the excess to the LCCC, which offsets some of the cost. Essentially they provide a hedging strategy against wholesale price volatility, which we are seeing more and more of due to geopolitical and climate-driven events. Most importantly though, the CfD contracts only last for 15 years (20 for more recent ones), whereas most windfarms have an economic lifetime of 30-35 years, meaning once these contracts end we'll still get 15 plus years of merchant operation out of these assets where they just receive the market clearing price. At which point they will just be displacing gas generation at no cost to the consumer.
But on the whole you're dead right: electrification is the future, and if we don't get electricity bills down we'll be left behind
UK has a habit of over forecasting dating back many decades. We over built coal in the 60's although ironically it was masked at the time because of the problems with the AGRs. The CEGB then say there were vindicated to keep all the smaller old stations on the bars as that saved the day with miners strike. It took privatisation to cut into how many stations just sat there sometimes all year doing nothing
Wouldn't it be fair to assume that, since 2014, policymakers have been using non-DECC projections?
Just because nothing is published by the Govt doesn't mean there's no consideration of those factors. Or is that naive on my part?
Thanks for this very good analysis. It's depressing, though, to see yet another example of how badly we are governed.
A lot of words to say: Net zero has been a disaster. Now let's try to sweep the evidence under the general taxation rug.
It would be helpful to look at the different sectors where demand is expected to grow in relation to the wider policy environment.
For example, the CCC is modelling increased demand for electricity from heat pumps, but only on the basis that (a) new gas boilers are banned from 2035 and (b) that significant policy costs associated with the development of electricity infrastructure and decarbonisation are moved onto taxation. Their analysis on this point is probably correct. But unless a government is prepared to commit to these policy changes, they probably should not be forecasting increasing demand for electricity from the introduction of heat pumps.
There appears to be stronger policy commitment to resolving some of the barriers to moving to increased proportions of electric vehicles, and the underlying economics here are also more favourable - so increased demand from this source seems a more defensible proposition.
Lovely porcupine graph. Just what forecasters love to see.