The true cost of Labour’s net zero plans is slowly being revealed – and the sums are staggering

Sir Keir Starmer has promised that a new Labour government would decarbonise the UK’s electricity system by 2030 and would, at the same time, reduce average energy bills by up to £300 or roughly 20 per cent of their current level. We know that senior politicians and lawyers see visions that not granted to mere mortals. But is there any connection between this vision and reality?

Accelerating the current decarbonisation strategy would imply building about 35 GW of new offshore wind plants, 10 GW of new onshore wind plants, and 55 GW of new solar capacity in six years. As context, between 2009 and 2023 the UK built 14 GW of offshore wind, 12 GW of onshore wind, and 16 GW of solar plants. The vision implies building new plants at rates between two and six times what was achieved in the last 15 years. Where would the skills, other resources and finance come from?

Recent experience tells us that crash programmes of this kind incur costs that are anything from 50 per cent to 100 per cent higher than “normal” costs. Since Britain is not alone is trying to build lots of new wind and solar plants in next five years, it is a certainty that the costs will be much higher than claimed. Even at current costs, such a program is likely to require investment of £200-£250 billion. Adjusting for probable cost inflation, actual costs are likely to be £300-£350 billion. The sum of £8 billion promised for GB Energy is a rounding error in such a programme.

This is only the start. Huge investments are required in both transmission and distribution to deliver the large increase in electricity generation. National Grid has announced that it needs to spend £50-60 billion over five years in England and Wales to enhance its transmission network to meet decarbonisation targets. Scaling that up to cover the rest of the UK and allowing again for cost inflation yields an estimate of investment in transmission at least £150 billion by 2030. Roughly the same amount will be required to expand the distribution network.

Financing such investments will only be possible with strong government guarantees which means that, setting aside accounting fictions, real public debt will increase by 20-25 per cent of GDP for the decarbonisation programme. The cost of servicing that debt under current arrangements plus operating and maintaining the assets will about £40 billion per year for generation and about £25 billion per year for transmission and distribution.

Households account for a little more than one-third (36 per cent) of final electricity consumption. The same share of the cost of decarbonising the electricity system would be about £23 billion per year. To put that sum in context, in mid-2024 there are about 28.7 million households in the UK with an average electricity bill of £850 per year giving a total cost of electricity for households of about £24 billion per year.

In broad terms, electricity bills would have to double by 2030 to achieve Labour’s goal of decarbonising our electricity system with the costs incurred being passed on to electricity customers. The extra costs could be met in other ways but these are variants of robbing Peter to pay Paul – using taxes or deferring payments.

In addition, it is very unlikely that manufacturing and other industries would be willing to pay a 100 per cent increase in their electricity bills. Either such businesses must be protected in some way or they will simply close down. The result will be larger increases in bills for households.

No-one should believe that decarbonisation of the electricity system means literally that. Solar and wind power are highly intermittent sources of generation. Detailed modelling of the electricity system using many years of weather data suggests that some gas generation would be required for 50 per cent to 60 per cent of hours in the year even after the heavy investments outlined above and allowing for potential imports from other countries.

The options for preventing power blackouts in the early 2030s are either storage – mostly batteries – or carbon capture and storage (CCS). The first option is extremely expensive. It is only economic for load shifting from the middle of the day to the evening, so that gas generation would still be required for 40 per cent to 50 per cent of hours in the year. CCS is an experimental technology which up to now has failed everywhere it has been deployed on a commercial scale. Still, visions being what they are, this is the get-out-of-jail card for Labour policy.

Stepping back, there is an underlying trend that few appreciate. When we discuss energy prices most assume that the major component of what we pay is the market cost of energy – electricity or gas. That is wrong. In the period 2005-10 the wholesale price of electricity was an average of 38 per cent of the retail price paid by households. The figure for 2024 is 21 per cent, which reflects the typical value since 2019 excluding the 2021-22 when prices were subsidised. The share of the wholesale price of gas in the retail price paid by households is currently 36 per cent but has also been falling.

Over nearly two decades governments have used levies on energy prices as a form of taxation, both to subsidise investments in renewable energy and to fund a variety of programmes. A Labour government is likely to go further down this road. It could reduce energy bills by removing levies on energy consumption. That is about as likely as any of us being struck by lightning, because it would have to raise taxes to fund the change.

Instead, the prospect is for a very large increase in energy levies and bills to pay for the very high costs of pursuing the vision of rapid decarbonisation.

Professor Gordon Hughes is a retired Professor of Economics at the University of Edinburgh, and a former senior adviser on energy and environmental policy at the World Bank