What the manifestos say about energy: Labour Party

In the second in my series on the energy policies outlined in the election manifestos of the three main UK political parties, I take a look at the main opposition party and likely winner of this year’s General Election – the Labour Party. My previous post on the Conservative Party can be found here.

For readers outside the UK, the Conservatives are generally regarded to be a centre-right party, Labour centre-left having moved away from the far-left days of the Corbyn leadership, and the Lib Dems are also centre-left. The UK has a “first-past-the-post” electoral system meaning that coalition governments are rare. This denies more fringe parties political power since they cannot act as king-makers. The Scottish Nationalist Party (“SNP”) was the third largest party in the recently dissolve Parliament, but its MPs are located only in Scotland and they do not vote on matters that do not pertain to Scotland (ie matters which are devolved to the Scottish Government meaning Westminster legislation only applies in England and Wales). For that reason I do not include the SNP in this analysis.

It is generally considered to be bad form for parties to depart from their manifesto commitments once in office, so the manifestos are expected to provide a clear indication of the policies the party would enact if elected. It is possible for manifesto promises to be jettisoned, but there tends to be a political cost to that.

The manifestos can be found here:

• Conservatives https://public.conservatives.com/static/documents/GE2024/Conservative-Manifesto-GE2024.pdf
• Labour https://labour.org.uk/change/
• Liberal Democrats https://www.libdems.org.uk/manifesto

Labour has more to say about the Conservatives than its own policies

Labour’s manifesto spends as much time discussing the perceived failures of Conservative energy policy as it does setting out its own plans (the word “Conservative” is mentioned 85 times in the manifesto as a whole!). Unlike the other main parties, Labour has not produced a PDF version which is annoying.

It is also short on the sort of detail you would want to see from a party that is expected, if the opinion polls are to be believed, to win a convincing majority and adds little to a taster version published in January. In fact, the manifesto is less detailed, so it is unclear how far it actually intends to go with the plans outlined in that document, which are discussed below.

Labour has set the creation of a “publicly owned clean energy company” as one of its five key election pledges. It believes that a reliance on imports is bad for the country, and that the solution to our energy problems including expensive bills is “clean, homegrown power that we can produce and control at home in Britain”.

“…if we need to create a publicly owned clean energy company, Great British Energy, in order to get bills down and give us independence from tyrants like Putin, then we must do the hard yards to make that happen….”

Labour’s manifesto quotes Sir Patrick Vallance, former Chief Scientific Officer, who has no background whatsoever in energy markets as saying a net zero electricity system in 2030 is possible. With all due respect to the likes of Fintan Slye and Jonathan Brearley, were I to suffer a heart attack, I would not consult them on my treatment options. Similarly, I do not believe Sir Patrick, whose is a clinical pharmacologist, to opine sensibly on energy policy.

In detail, Labour’s plan for energy (according to the January document) is:

• A “proper” windfall tax on oil and gas companies to “support families with the cost of living”
• Creation of Great British Energy, a publicly owned energy “champion” that will invest in clean energy for example by making the UK a world leader in floating offshore wind.
• Creation of a National Wealth Fund that will invest in the jobs that can rebuild Britain’s industrial strength, and attract private investment in ports, gigafactories, hydrogen, and the steel industry. Labour identifies a need to upgrade the national grid infrastructure but does not specifically say that the Fund will provide the capital for this. Labour also plans to build a Clean Power Alliance with like-minded countries to “seize the opportunities of clean energy, tackle climate change and provide lasting benefits to the country and the generations to come”.
• Creating “warmer homes” by upgrading the housing stock.
• Ensuring “Clean Power by 2030” which would involve:
  • Fast-tracking at least 5 GW of floating off-shore wind capacity
  • More than doubling on-shore wind capacity to 35 GW
  • More than tripling solar power to 50 GW
  • Quadrupling off-shore wind with an ambition of 55 GW by 2030
  • Getting new nuclear projects at Hinkley and Sizewell over the line, extending the lifetime of existing plants, and backing new nuclear including Small Modular Reactors
  • Doubling the government’s target on green hydrogen, with 10 GW of production for use particularly in flexible power generation, storage, and industries like green steel.

The commitment to Sizewell C is interesting because it had been widely understood that Labour was lukewarm on the project.

Misleading promises about household energy bills

Great British Energy already has its own website, claiming that most regions (if you click on the map) will see savings of £300 per year on their energy bills from a move to clean energy. According to David Turver, this figure comes from a report by think-tank Ember, which used the Q3 2023 price cap level as its starting point. However, the price cap has already fallen by £214 as a result of falling gas prices, so this claim of £300 in savings from clean energy is deeply misleading.

Ember also assumes that the necessary new clean energy will be delivered at the same price as the AR4 Contracts for Difference Allocation Round, despite the failure of AR5, pressure from developers for higher prices, and a promised increase for AR6. The Administrative Strike Price for off-shore wind has increased from £46 /MWh in AR4 to £73 /MWh in AR6! I have also written in detail about how renewables are not cheap. Even if it were possible to build the amount of renewables set out in the Ember report – which is highly doubtful – the cost will be higher than it states and the result for consumer will not be lower bills – quite the opposite in fact.

Many people assume Great British Energy will be a supplier, but there is nothing in the manifesto or its predecessor document to suggest that is the plan. It appears to be an investment vehicle for renewable energy with a focus on the upstream rather than downstream segment of the sector. This may well be a source of disappointment for voters as it is unlikely such an organisation would result in any reduction in household bills.

Economically incoherent policies

Aurora Energy describes Labour’s plans to decarbonise the power sector by 2030 as “infeasible in the timeframe”, given the necessity of planning reform, supply chain challenges and the lack of a skilled work force – see below for more detail.

“… the extremely rapid and concurrent overhaul of the power system components would require a policy, planning and investment shift that is infeasible in the timeframe, and is unlikely to be supportable by existing supply chains and workforce skills,”
– Aurora Energy

The plan for an increased windfall tax is another populist move that will backfire. The existing tax is already forcing companies to reduce investment in the North Sea, which will inevitably lead to increased imports – the exact opposite of Labour’s stated aim to reduce reliance on imported energy. It is fanciful to believe we can replace fossil fuels with renewables, particularly in the next six years, so this plan of Labour’s is both incoherent and irrational.

It is also unclear how the tax will lead to lower bills. This would only be possible if the tax income was used to subsidise retail gas and electricity prices through a new subsidy to consumers. But it may well be the case that the increased tax accelerates the reduction in North Sea tax receipts as developers direct their activities to other parts of the world with less punitive tax regimes.

The idea of creating “green jobs” and insulating homes is more motherhood and apple pie – no-one objects to it, but the plans are too vague for there to be any confidence in delivery. How exactly will homes be made warmer? I have written before about the lack of knowledge about which measures to reduce heat losses are actually effective – many can cause problems with damp which lead to higher energy consumption due to the increased need for mechanical ventilation and heating to dry out or de-humidify damp homes.

It is very likely that different types of houses, built in different eras, using different building methods will need different solutions to make them warmer – how will Labour address these questions? The manifesto mentions solar panels, batteries and low carbon heating, none of which reduce heat losses – perhaps Labour just hopes cheap onsite energy will make heat losses less relevant, but many households will not be able to access these technologies eg those living in high-rise or rented buildings.

Labour is abusing its large lead in the polls to avoid providing a detailed and credible plan for the energy sector under its leadership. Voters should press for more information before deciding that Labour’s energy policy is worth supporting.

A net zero power system in 2030, 2035 or not until 2051

The Aurora report mentioned above describes a three scenarios for net zero: the Business as Usual scenario which assumes a trajectory based on the current economic and policy landscape, which Aurora believes would result in a net zero power system by 2051. The Conservative Party’s ambition of a net zero system in 2035, for which Aurora believes several deviations from BAU would be required, but which could potentially be achieved if “coherent policy action, market design and financial support is enacted at a large scale and high speed”. And finally, Labour’s net zero 2030 scenario.

To reach net zero in 2035, Aurora believes a number of deviations from BAU would be necessary, including:

• Increased demand, reflective of a wider net zero landscape
• Increased renewables buildout
• Higher carbon pricing
• Reduction in generation for unabated thermal assets
• Increased grid capacity to allow for effective integration of renewables

Unabated gas would still be required for security of supply, with the associated carbon emissions offset by BECCS.

Compared to the Business as Usual scenario, Net Zero 2035 would require £8.2 billion /year of additional investment until 2030 and £11.1 billion /year of additional investment from 2031 – 2035, giving a total of £104.6 billion of additional investment over the next 11 years.

However Aurora describes the Net Zero 2030 scenario as requiring “more extreme policy action”, and “a massive acceleration in deployment which is considered infeasible”. Key scenario changes over the Net Zero 2035 case are:

• Accelerated renewables buildout, reaching 118 GW by 2030
• Grid buildout accelerated to match
• Active measures are taken to remove unabated gas, including higher carbon prices and the removal of CHP plants – CHP must be replaced or converted to biomass, with alternate low-carbon heating provision
• BECCS (biomass with carbon capture and storage) must run at baseload due to the limited availability of alternatives to unabated thermal generation

“Despite this scenario reaching Net Zero on paper, the required deployment of renewables, flexible generation and abated technologies alongside the removal of gas-fired CHP, mean this is not a feasible timeline for decarbonisation of the power sector,”

In addition, the rapid deployment of renewables envisaged by Labour would challenge system stability. According to Aurora, with falling thermal generation and Hinkley Point C not yet online, 2030 will be a “pinch-point” in system inertia. The Net Zero 2030 scenario has 39% more time where system inertia is below National Grid ESO’s 2025 limit of 96 GVA.s. Addressing this could require additional use of synchronous generation, particularly CCGTs, which would undermine the net zero target. Failing to do so would risk blackouts.

Compared to the Business as Usual scenario, Net Zero 2030 requires £15.6 billion /year of additional investment until 2030 and £4.4 billion /year of additional investment from 2031 – 2035, giving a total of £116 billion of additional investment over next 11 years.

In 2022, the amount of new low-carbon investment in the UK from the public and private sectors already totalled £23 billion. In 2023-24 the public paid £15.8 billion in environmental taxes including:

• the Climate Change Levy – £2.0 billion
• the Renewables Obligation renewables subsidy – £7.4 billion
• the Contracts for Difference scheme – -£0.7 billion (a rebate because the market price of electricity was higher than the strike price which represents the level of income guaranteed by the government to renewable generators)
• the UK Emissions Trading Scheme – £5.8 billion, and
• the capacity market – £1.3 billion

There is widespread disbelief within the energy industry that Labour’s plan is achievable, but its huge lead in the polls and widespread dis-satisfaction with the incumbent Conservative Party means it is likely to win a large majority in the new Parliament. Then it will discover that governing parties must make trade-offs that opposition parties have the luxury of ignoring. In opposition, a party is free to criticise every policy and claim it will do things better, and it can make these claims across every aspect of public life.

However in government, parties must make trade-offs because not every policy can be implemented at the same time, due to cost and bandwidth considerations. It is necessary to balance the books. It is necessary to find Parliamentary time for new legislation which cannot all be passed at once. Plans can be disrupted by external factors such as wars, pandemics and global supply chain disruptions. The Labour Party will have to decide whether the cost of meeting its net zero 2030 goal is affordable when it comes down to making real life decisions and not just the hypotheticals with which its manifesto is filled.