by the Secretary of State for Business, Energy and Industrial Strategy

The government presents this white paper at a time of unprecedented peacetime challenge to our country. Coronavirus has taken a heavy toll on our society and on our economy. But we will overcome COVID-19 and rebuild our economy, building back better and levelling up the country. As we do so, we must address the inter- generational challenge of climate change. Unchecked, the impact of rising global temperatures represents an existential threat to the planet. So, building back better means building back greener. The UK has set a world–leading net zero target, the first major economy to do so, but simply setting the target is not enough – we need to achieve it. Failing to act will result in natural catastrophes and changing weather patterns, as well as significant economic damage, supply chain disruption and displacement of populations. Tackling climate change will require decisive global action and significant investment and innovation by the public and private sectors, creating whole new industries, technologies, and professions. But fighting climate change offers huge opportunity for both growth and job creation. The global markets for low-carbon technologies, electric vehicles and clean energy are fast zero emission vehicles could support 40,000 jobs by 2030, with exports of new technologies such as CCUS having the potential to add £3.6 billion GVA by 2030. The time is now to seize these opportunities. This white paper puts net zero and our effort to fight climate change at its core, following the Prime Minister’s Ten Point Plan for a Green Industrial Revolution. The Ten Point Plan sets out how government investment will leverage billions of pounds more of private investment and support up to 250,000 jobs by 2030. This includes building on our leadership in offshore wind to target 40GW by 2030 – enough to power every home in the UK – which alone will support up to 60,000 jobs. The way we produce and use energy is therefore at the heart of this. Our success will rest on a decisive shift away from fossil fuels to using clean energy for heat and industrial processes, as much as for electricity generation. These are more than academic considerations; the shift to net zero will affect us all. This white paper presents a vision of how we make the transition to clean energy by 2050 and what this will mean for us as consumers of energy in our homes and places of work, or for how businesses use energy to produce goods and services. It sets out the changes which will be required. We will reduce emissions through shifting from gas to electricity to heat our homes and by better insulating the buildings in which we live and work. We will end the sale of petrol and diesel cars and vans, and accelerate the transition to clean, zero tailpipe emission vehicles. We will start to capture carbon emissions from power generation and from industry. And we will switch to new, clean fuels such as hydrogen for heat, power and industrial processes. As we leave fossil fuels behind us and increasingly rely on clean electricity, our experiences as energy consumers will be very different. Smart technologies are revolutionising how we can engage the market. Smart meters and a range of smart appliances, backed by new smart tariffs, will give us control about how we use energy and help us manage our bills – running the washing machine or charging the electric vehicle when demand is low and electricity is cheap, even selling surplus power back to the grid at a profit. And we will do this with affordability at the front of our minds. The costs of renewables have fallen sharply over the last five years. Offshore wind prices in renewable Contracts for Difference auctions have fallen from £120/MWh in 2015 to around £40/MWh in last year’s auction. Greater competition and more innovation will drive down the costs of our energy system even further. We expect energy companies to ensure that the benefits of a more efficient system result in a fair deal for consumers. Where we use taxpayers’ money to fund the transition to clean energy, we will leverage private capital as much as we can. Across the board, as a result of our polices, energy bills will remain affordable over the 2020s. A major push on improving the energy efficiency of our homes will mean households can significantly reduce demand and save money on their bills. We understand the effect that COVID-19 has had on household incomes, and therefore commit to protecting those who are particularly vulnerable. Lower income households can receive up to £10,000 to improve the energy efficiency of their homes via the Green Homes Grant scheme, saving up to £600 each year on bills on average. Through this white paper, we are expanding the Warm Home Discount to around three million homes to provide £150 a year off electricity bills, representing £1.9 billion of extra support for households in fuel poverty. This builds on the Ten Point Plan’s commitment to extend the Energy Company Obligation to 2026. This is an ambitious domestic agenda on which we will also seek to secure equally ambitious international action, through the UK’s presidency of COP26, the UN’s climate conference being held in Glasgow in November 2021. The actions we take as a result of this white paper, as part of our wider climate agenda, are intended to show leadership and vision and demonstrate to our partners around the world that now is the time to take the bold steps to tackle climate change. The UK is leading from the front in the transition to clean energy, while ensuring that we leave no one behind as we build back greener.
Secretary of State for Business, Energy and Industrial Strategy

The Prime Minister’s Ten Point Plan has set out the measures that will help ensure the UK is at the forefront of this revolution, just as we led the first over two centuries ago. As nations move out of the shadow of coronavirus and confront the challenge of climate change with renewed vigour, markets for new green products and services will spring up round the world. Taking action now will help ensure not just that we end our contribution to climate change by achieving our target of net zero emissions. It will help position UK companies and our world class research base to seize the business opportunities which flow from it, creating jobs and wealth for our country. Following on from the Ten Point Plan and the National Infrastructure Strategy, the Energy White Paper provides further clarity on the Prime Minister’s measures and puts in place a strategy for the wider energy system `Transforms energy, building a cleaner, greener future for our country, our people `Supports a green recovery, growing our economy, supporting thousands of green jobs across the country in new green industries and leveraging new green export `Creates a fair deal for consumers, protecting the fuel poor, providing opportunities to save money on bills, giving us warmer, more comfortable homes and balancing investment against bill impacts

We are reminded on a daily basis why we need this Green Industrial having a real effect on our planet. The melting of glaciers and ice sheets is accelerating, contributing to rising sea levels across the globe, with melting rates of ice sheets in Greenland and Antarctica matching the Intergovernmental Panel on Climate Change’s worst-case climate warming scenarios.1 All ten of the warmest years in the UK’s temperature record have taken place since 2002.2 Rainfall over Scotland is up 10 per cent from the start of the 20th century.3 The record-breaking European summer heatwave of 2003 resulted in at least 70,000 deaths across the continent,4 and such heatwaves are projected to become the norm in the UK by the 2040s at current rates of warming. 5 We need to act urgently. The future impacts of climate change depend upon how much we can hold down the rising global temperature. To minimise the risk of dangerous climate change, the landmark Paris Agreement of 2015 aims to halt global warming at well below 2°C, while pursuing efforts to limit it to 1.5°C, increasing measures to adapt to climate change, and aligning financial systems to these goals. 6 At the global scale, however, we are not presently on track to reach the temperature goal of the Paris Agreement. Based on current national pledges, and assuming the level of ambition does not change, the world is heading for around 3°C of warming by the end of the century. 7 The cost of inaction is too high. 8 We can expect to see severe impacts under 3°C of warming. Globally, the chances of there being a major heatwave in any given year would increase to about 79 per cent, compared to a five per cent chance now. 9 Many regions of the world would see what is now considered a 1-in-100-year drought happening every two to five years. 10 At 3°C of global warming, the UK is expected to be significantly affected, seeing sea level rise of up to 0.83 m.11 River flooding would cause twice as much economic damage and affect twice as many people, compared to today,12 while by 2050, up to 7 ,000 people could die every year due to heat, compared to approximately 2,000 today.13 And, without action now, we cannot rule out 4°C of warming by the end of the century, with real risks of higher warming than that.14 A warming of 4°C would increase the risk of passing thresholds that would result in large scale and irreversible changes to the global climate, including large-scale methane release from thawing permafrost and the collapse of the Atlantic Meridional Overturning Circulation.15 The loss of ice sheets could result in multi-metre rises in sea level on time scales of a century to millennia. 16 To meet the temperature goal of the Paris Agreement, the world must collectively and rapidly reduce global emissions to net zero over the next 30 years. Success will mean we are less exposed to flood and heat risks and preserve our national security, our prosperity, and our natural world which are threatened by the global disruption of climate change. As we tackle climate change, we will have the interests of consumers at the front of our mind, now and for future generations. We are committed to ensuring that the cost of the transition to net zero is fair and affordable. We have consistently balanced spending on measures that decarbonise the energy system with the need to help consumers save money on their bills. Thanks to early investment, many low-carbon technologies are now cheaper than their fossil fuel counterparts. Our vision is of a system with consumers at its heart, able to make money or save on bills through using the new technologies net zero will require. So our approach means not just deploying measures that save energy and reduce bills, but also ensuring the energy system is fit for a net zero world, making markets efficient, incentivising people to move to clean energy solutions, or making sure system rules are agile and flexible to accommodate new technologies and new ways of doing things. But affordability does not mean compromising our ambition. Achieving our 2050 goal requires action across the economy. The measures in this white paper will reduce emissions from power, buildings, industry, upstream oil and gas, and address the implications for the energy system of electrifying surface transport. We will publish our wider Transport Decarbonisation Plan in the spring. Action on energy will be consistent with our wider environmental commitments, as we balance new technologies and the need for new infrastructure with protecting the environment, including air quality.
Our 25 Year Environment Plan aims to improve the environment within a generation. Through the Environment Bill, we are placing this ambitious set of proposals on a legal footing, including a commitment to bring forward new legally binding environmental targets (on air quality, biodiversity, water, and resource efficiency and waste reduction) by October 2022. Our National Adaptation Programme, which was updated in 2018, sets out the actions which the government is, and will be taking, to address the risks and opportunities posed by climate change in response to the Climate Change Risk Assessment. This includes a dedicated chapter on infrastructure, including actions to build the energy sector’s resilience to climate change. No one doubts the challenge of achieving net zero emissions, but the UK is able to build on 30 years of successfully reducing emissions while simultaneously growing our economy. Between 1990 and 2018, emissions fell by 43 per cent while GDP rose by 75 per cent, with the UK decarbonising faster than any Energy has led the way. In 2019, greenhouse gas emissions (MtCO 2e) from electricity generation were down 13 per cent on 2018 levels and 72 per cent lower than 1990 levels,19 as we have switched from coal to gas and renewable power together with the continued contribution of nuclear. In April 2017 , the UK experienced its first coal free day since the industrial revolution. From April to June 2020, the total coal-free period lasted 67 days. 20 Over the past decade, and with government support, the amount of renewable capacity connected to the grid has increased from 8GW in 2009 to 48GW at the end of June this year, an increase of 500 per cent. 21 The share of low-carbon electricity generation has risen to 54 per cent in 2019, with renewables at a record 37 per cent. 22 Through a mix of early policy action, increased competition, innovation, and growth in deployment, our sustained support for clean electricity has helped secure dramatic falls in the costs of some renewables and provided developers and private investors with long term certainty. The cost of offshore wind projects contracted in 2019 fell by 30 per cent for example, relative to those contracted in 2018.23 There are even early signs of some renewable technologies deploying without direct policy support. 24 But there is still much more to do. Our energy system is dominated by the use of fossil fuels and will need to change dramatically by 2050 if we are to achieve Decarbonising the energy system over the next thirty years means replacing - as far as it is possible to do so - fossil fuels with clean energy technologies such as renewables, nuclear and hydrogen. This is a significant and historic undertaking. It means ending our dependency on oil to power nearly half of our economy. It means largely eliminating the use of natural gas to heat our homes, and make them considerably more efficient – but as 20 per cent of homes currently overheat even in cool summers we will need to ensure that our homes are not just efficient, but adapted to the future climate. 25 This will apply throughout the system. Clean electricity will become the predominant form of energy, entailing a potential doubling of electricity demand and consequently a fourfold increase in low-carbon electricity generation. We must secure this transition while retaining the essential reliability, resilience and affordability of our energy, as the bedrock of a modern, productive economy driving almost every facet of our home and working lives. Delivering this transition will require billions of pounds of investment in clean energy infrastructure or new low-carbon technologies, and a major shift away from spending in fossil fuels. As set out in the National Infrastructure Strategy,26 delivering this volume of private investment will require multiple policy levers and the right market frameworks to encourage competition and drive down costs. This challenge is set against the backdrop of an economy which has been hit by the largest recession in 300 years as a result of the COVID-19 pandemic. Our commitments to new and improved buildings, infrastructure and energy sources will support near-term investment and jobs in the UK. It will also establish world- leading capabilities in the new technologies which will be needed globally to tackle climate change, growing our capability to trade UK expertise around the world. Across the UK almost half a million people are already employed in the low-carbon These jobs are frequently outside the South East of England, including electric vehicle manufacturing in the Midlands and North East, and reconditioning and recycling in the North East and West Midlands. The offshore wind sector supports an estimated 7 ,200 direct jobs as a whole, with a burgeoning industry on the north east coast of England, centred around the Humber and the Tees. But this is just the beginning. In November 2020, the Prime Minister announced his Ten Point Plan to lay the foundations for a Green Industrial Revolution. We will start by supporting 90,000 jobs across the UK in this Parliament, and up to 250,000 by 2030. The response to the pandemic has been a reminder of the excellence of British science, a research and development (R&D) capability which engineers, fitters, construction workers and many others will harness to develop the clean energy technologies of the future and forge new industries to service new markets at home and abroad. We will generate new clean power with offshore wind farms, nuclear plants and by investing in new hydrogen technologies. We will use this energy to carry on living our lives, running our cars, buses, trucks and trains, ships and planes, and heating our homes while keeping bills low. And to the extent that we still emit carbon, we will pioneer a new British industry dedicated to its capture and return to under the North Sea. Together these measures will reinvigorate our industrial heartlands, creating jobs and growth, and pioneering world-leading SuperPlaces that unite clean industry with transport and power.
We will accelerate the transition to more active and sustainable transport by investing in rail and bus services, and in measures to help pedestrians and cyclists. We will fund thousands of zero- emission buses and give our towns and cities cycle lanes worthy of Holland. Working with industry the UK is aiming for 5GW of low-carbon hydrogen production capacity by 2030. We are also pioneering hydrogen heating trials, starting with a Hydrogen Neighbourhood and scaling up to a potential Hydrogen Town before the end of this decade. Nuclear power provides a reliable source of low-carbon electricity. We are pursuing large-scale nuclear, whilst also looking to the future of nuclear power in the UK through further investment in Small Modular Reactors and Advanced Modular Reactors. By 2030 we plan to quadruple our offshore wind capacity so as to generate more power than all our homes use today, backing new innovations to make the most of this proven technology and investing to bring new jobs and growth to our ports and coastal regions. By taking immediate steps to drive the uptake of sustainable aviation fuels, investments in R&D to develop zero- emission aircraft and developing the infrastructure of the future at our airports and seaports, we will make the UK the home of green ships and planes. Making our buildings more energy efficient and moving away from fossil fuel boilers will help make people’s homes warm and comfortable, whilst keeping bills low. We will go with the grain of behaviour, and set a clear path that sees the gradual move away from fossil fuel boilers over the next fifteen years as individuals replace their appliances and are offered a lower carbon, more efficient alternative, supporting 50,000 jobs. Our ambition is to capture 10Mt of carbon dioxide a year by 2030 - the equivalent of four million cars’ worth of annual emissions. We will invest up to £1 billion to support the establishment of CCUS in four industrial clusters, creating ‘SuperPlaces’ in areas such as the North East, the Humber, North West, Scotland and Wales. We will bring forward details in 2021 of a revenue mechanism to bring through private sector investment into industrial carbon capture and hydrogen projects via our new business models to support these projects. We will safeguard our cherished landscapes, restore habitats for wildlife in order to combat biodiversity loss and adapt to climate change, all whilst creating green jobs. From 2030 we will end the sale of new petrol and diesel cars and vans, 10 years earlier than planned, and provide a £2.8 billion package of measures to support industry and consumers to make the switch to cleaner vehicles. We have committed to raising total R&D investment to 2.4 per cent of GDP by 2027 and in July 2020 published the UK Research and Development Roadmap. The next phase of green innovation will help bring down the cost of the net zero transition, nurture the development of better products and new business models, and influence consumer behaviour. The UK accounts for less than one per cent of annual global emissions. 28 We therefore need to help other nations reduce their emissions in line with the Paris Agreement. Our leadership is based on taking practical domestic action, which in turn creates business opportunities for the UK to export clean technology, skills and know-how. We use our international partnerships and work through multilateral fora to influence international agreements on climate change and clean energy issues which help reinforce our domestic and international priorities. The principal vehicle we work through is the United Nations Framework Convention on Climate Change (UNFCCC), which delivered the Paris Agreement. We will continue to demonstrate international leadership by building on the policies set out in the UK’s National Energy and Climate Plan (NECP) and a number of other publications. This white paper goes even further than the ambitions set out in the NECP for renewables and energy efficiency. Our presidency of the UN Climate Change Conference of the Parties (COP26), which will meet in Glasgow in November 2021, provides the opportunity to drive further ambitious action on climate change and unite the world on a path to a net zero economy, including through our COP26 Energy Transition Campaign and co-leadership of the Powering Past Coal Alliance. We are already seeing encouraging signs. In March, the European Union (EU) Commission proposed the first European Climate Law, which would commit the EU to achieving net zero greenhouse gas (GHG) emissions by 2050. In September, China announced that it would achieve carbon neutrality by 2060 and enhance its 2030 Nationally Determined Contribution (NDC). In October, both Japan and South Korea committed to achieving net zero by 2050. And thanks to the efforts of the UK, the EU, and other nations, there are now around 120 countries that are committed to, are developing plans or advancing consultations on long- term climate or carbon neutral targets. 29 The countries delivering on these commitments will need to radically change their energy, transport, buildings and land use sectors. By driving forward UK action now, we can build companies that can win the lion’s share of these new global markets in the future. the Prime Minister’s Ten Point Plan to set the energy-related measures the Plan announced in a long-term strategic vision for our energy system, consistent with It establishes our goal of a decisive shift from fossil fuels to clean energy, in power, buildings and industry, while creating jobs and growing the economy and keeping energy bills affordable. It addresses how and why our energy system needs to evolve to deliver this goal. And it provides a foundation for the detailed actions we will take in this Parliament to realise our vision. We estimate the measures in this paper could reduce emissions across power, industry and buildings by up to 230MtCO 2e in the period to 2032 and enable further savings in other sectors such as transport. In doing so, they will support up to 220,000 jobs per year by 2030.
These figures include the energy measures from the Prime Minister’s Ten Point Plan as well as additional measures provided in this white paper. 30 We recognise that more will need to be done to meet key milestones on the journey to net zero, including our ambition for Carbon Budget 6, which we will set next year, taking into account the latest advice from the Climate Change Committee. In the run- up to COP26 we will bring forward a series of sectoral strategies, and our overarching Net Zero Strategy, which will set out more detail on how we will meet our net zero target and ambitious carbon budgets. This white paper sets out the government’s policies and commitments that will put us on course to net zero, levelling up the country and strengthening the union as we achieve this goal. We Building a cleaner, greener future for our country, our people and our planet, by measures `Targeting 40GW of offshore wind by 2030, including 1GW floating wind, alongside the expansion of other low-cost `Supporting the deployment of CCUS in four industrial clusters including at least one power CCUS project, to be operational by 2030 and putting in place the commercial frameworks required to help stimulate the market to deliver a future `Establishing a new UK Emissions Trading System, aligned to our net zero target, giving industry the certainty they need to invest in low-carbon technologies. `Aiming to bring at least one large- scale nuclear project to the point of Final Investment Decision by the end of this Parliament, subject to clear value for money and all relevant approvals. connections to new homes being built from 2025 , in favour of clean energy `Growing the installation of electric heat pumps, from 30,000 per year to `Building world-leading digital infrastructure for our energy system based on the vision set out by the independent Energy Data Taskforce, publishing the UK’s first Energy Data Strategy in spring 2021, in partnership Growing our economy, supporting thousands of green jobs across the country in new green industries and creating new export opportunities, by measures `Increasing the ambition in our Industrial Clusters Mission four-fold , aiming to deliver four low-carbon clusters by 2030 and at least one fully net zero

`Investing £1 billion up to 2025 to facilitate the deployment of CCUS in two industrial clusters by the mid- 2020s, and a further two clusters by 2030, supporting our ambition to capture 10MtCO2 per year by the end of the `Working with industry, aiming to develop 5GW of low-carbon hydrogen Protecting the fuel poor, providing opportunities to save money on bills, giving us warmer, more comfortable homes and balancing investment against bill impacts, by measures `Creating the framework to introduce opt-in switching , consulting by March 2021 on how it should be designed, tested auto-renewal and roll-over tariff arrangements could be reformed to facilitate greater competition, consulting by March 2021 on how opt-out switching could be tested as part of any future `Assessing what market framework changes may be required to facilitate innovative tariffs and products that work for consumers and contribute to net zero, engaging with industry and consumer groups throughout 2021 before a formal `Ensuring the retail market regulatory framework adequately covers the wider market , consulting by spring 2021 on regulating third parties such as energy brokers and price comparison websites. `Establishing the Future Homes Standard which will ensure that all new- build homes are zero carbon ready. `Consulting on regulatory measures to improve the energy performance of homes, and are consulting how support homeowners in making these `Requiring that all rented non-domestic buildings will be Energy Performance Certificate (EPC) Band B by 2030 , Obligation to 2026 and expanding the Warm Home Discount to £475 million per In addressing these issues we respect the devolution settlements with Scotland, Wales and Northern Ireland. All proposals in this white paper which touch on devolved matters will be progressed in accordance with those settlements. We are committed to making the right reforms that will protect the interests of consumers and create opportunities to reduce bills and carbon emissions. In partnership with the Office of Gas and Electricity Markets (Ofgem), we ` Create a fair deal for consumers ` Provide opportunities to make

Energy is integral to everything we do, from work, to travel, to leisure, to just relaxing at home. Whether it be for heating and lighting our homes or powering appliances, we all rely on secure, affordable energy energy in the home is changing. Smart technologies, enabled by our increasingly digital world, offer new products and services which help us to take control of our energy use and reduce bills. And, over the next 30 years, electricity will become a significant proportion of the energy we use at home, powering electric cars, replacing petrol and diesel, and enabling the installation of electric heat pumps which reduce the need for oil and gas to heat our homes. This transformation of energy in our homes will only accelerate over the coming decade. The government and Ofgem have an important role to play, making regulatory reforms which place fairness and affordability at the heart of our efforts to protect the interests of consumers and create opportunities to save money. `Creating a fair deal for consumers. We will increase competition throughout the energy retail market to benefit consumers and, as we transition to net zero, we will make sure the costs of doing so are distributed fairly; `Protecting the fuel poor. We will offer additional protections to the vulnerable and fuel poor, through our Energy Company Obligation (ECO) and expanded Warm Home Discount (WHD) schemes and the Green Homes Grant, providing financial support of at least £6.7 billion over the next six years (see ‘Buildings’ chapter); `Providing opportunities to make savings on energy bills.
We will create opportunities for consumers to reduce bills and carbon emissions by upgrading the energy performance of homes (see ‘Buildings’ chapter), switching to clean energy, or using energy when it is cheapest thanks to smart technology. Traditionally, households have Smart technology is unlocking new opportunities to give consumers more control, choice and flexibility over their energy use. We are seeing retail offers that will help consumers engage in the market and save money in the process. The real-time information about energy use, recorded by smart meters, ensures that consumers are accurately charged by their suppliers. Smart meters also enable consumers to access innovative solutions such as smart tariffs, including ‘time of use’ tariffs. These tariffs reward consumers financially for using less electricity at peak times of demand or using more when overall demand is low and there is surplus generation available, for example on a sunny or windy weekend. This can reduce the cost of using clean electricity to power homes, businesses and electric vehicles, making the system more efficient and saving consumers money. Smart meters are replacing traditional gas and electricity meters in homes and small businesses across Great Britain as part of an essential infrastructure upgrade to make the energy system more efficient and flexible, helping to deliver net zero emissions cost-effectively. Smart meters are also modernising energy services by ending manual meter readings, delivering accurate bills and enabling prepayment customers to conveniently track their usage and top-up credit without leaving home. The In-Home Display (IHD), which households are offered when they have smart meters installed, gives accurate information about energy consumption and costs so consumers can easily understand how to save money on their bills. Smart tariffs tariffs where costs vary by the time of use, based on the cost of electricity; export tariffs, for those with generation technology such as solar panels; load control tariffs that can manage when appliances are used to ensure consumers use the cheapest energy; and tariffs designed for consumers with low-carbon technology, for example, electric vehicles, to ensure they can charge at the cheapest times. There are now new ways for households to find the best energy products and services to match their specific needs. This ensures consumers are getting the best deal available and can help them choose new ways to engage with the energy system. Consumers can be rewarded for playing a bigger role in our energy system. There are plenty of ways to save money, from installing energy saving measures to making the most of new technologies, such as batteries, heating controls or smart washing machines and dishwashers. Consumers can also generate their own electricity through roof-top solar panels, store it in batteries, and even sell any excess power back to the grid to generate a profit at times of higher demand. Vital Energi is leading a consortium of experts to develop a comparison tool that gives consumers an easy way to find the most suitable smart tariff. Smart tariffs are often not included on price comparison websites and consumers have little visibility of their benefits. For example, many electric vehicle owners are unaware that there are dozens of tariffs designed specifically for them. Supported with government funding, the project is developing a tool which will help people find the best smart tariff to match their needs. Consumers can use their actual smart meter data as an input to get personalised, accurate comparisons and, after they switch, see if they have achieved the expected savings. It eliminates the need to manually provide estimated electricity bills and integrates time- of-use tariffs and use of low-carbon technologies in the tariff search. Consumer research indicates that many people would be more likely to use a smart comparison tool such as this. At the end of the project in March 2021, the proof of concept will be free for anyone to reuse. This means that suppliers, comparison websites and others will be able to integrate it into their services or reuse it. The research findings will be made public so they can be used by innovators in the market. Agile Octopus Tariff, Octopus Energy Agile Octopus is a ‘time-of-use’ tariff, which gives consumers access to half- hourly electricity prices, tied to wholesale prices, which are updated daily. So when energy prices drop, so could bills. Sometimes prices even go ‘negative’ - meaning that consumers can be paid to use energy during that period. Octopus also cap prices at 35p/kWh to protect consumers during price spikes. Octopus calculate that, on this tariff, customers could save £120 a year by shifting electricity use outside of the 4pm to 7pm peak.31 This is best suited for households with lots of electricity demand during those periods. For example, households with electric heating or electric vehicles. Through the ‘Core4Grid’ trial, battery storage and smart meters have been installed in 24 houses that already had solar panels, electric heating or electric vehicle chargers. Using Core - its “energy brain” - the technologies have been integrated to run as a whole system within each home. Core responds to signals from the electricity system to make decisions on when to use energy or charge the batteries, using either excess solar generated by the household’s panels or grid electricity imported The trial has been running since March, with participating homes sourcing over half of the energy they used from their solar and batteries. The houses have generated almost 30MWh of local generation (equivalent to ten times a typical dual fuel household’s annual electricity use 32) for the period. Electric vehicles will accelerate this trend (see Transport breakout box). By using a smart charger when powering up their electric vehicle, consumers will play an essential role in helping manage electricity demand, avoiding the expensive peak periods. Increasingly, consumers will also be able to export energy from their electric vehicle back to the grid. In doing so, they could significantly reduce their energy costs and help maximise the amount of solar and wind energy used to charge their vehicle.
Project Sciurus, Kaluza, Ovo Energy Project Sciurus is the largest domestic ‘vehicle-to-grid’ (V2G) demonstration in the world - with 323 V2G chargers supplying electricity to the grid at times of high energy demand. These operate on the ‘Kaluza’ platform, which receives live signals from the grid so that consumers can charge their vehicle when prices are low, and sell electricity back to the grid at times of peak The Sciurus project is part of a £30 million Innovate UK competition, with a diverse consortium of participants taking part. The majority of trial participants have found V2G capability to be valuable. Consumers have changed how and when they were charging their electric vehicles to help reduce costs for themselves and the grid, all while helping balance the energy system and

And some local communities are coming together to establish their own approach to managing energy demand in their areas. Smart local energy systems are community- based initiatives which bring together a range of energy issues, typically including heat, power and transport, to reduce emissions in an integrated way, while also promoting local jobs and businesses. Local Authorities are key to delivering these systems by combining energy into their wider statutory work on housing, transport, waste and planning, making delivery more cost-effective and preparing for a net zero future. Government provides funding for Local Authorities to deliver programmes that support decarbonisation and will continue to work with communities to enable projects to be tailored and delivered to meet local needs. Energy Local Clubs, Energy Local Energy Local has designed a local energy market. Households and small renewable generators form a Local Energy Club, the first of which started in a small town called Bethesda, in North Wales back in 2016. Through this, households use their smart meters to show how much power they are using. They agree a ‘match’ tariff with local generators that pays them a price for the power they produce when households are using it. This keeps more money local and offers consumers the chance to reduce household bills by using energy when it’s cheaper. They also partner with a supplier (Octopus Energy) to buy more power when there’s not enough locally. It benefits suppliers, generators and communities, giving a fair price to renewable generators and developing a suitable package of improved energy controls in the home, particularly for those at risk of fuel poverty as the benefits of local generation can be shared with anyone who joins the Local Energy Club, without having to pay a high capital cost. However, the underlying costs have changed. Over the past decade, electricity prices have gone up, because of rises in policy and network costs, while gas prices have fluctuated, reflecting movements in the wholesale gas price. However, consumers have used less energy, which has balanced out the cost increase. Overall, households who install energy saving measures will see significant savings and can offset the costs. Through targeting our energy saving schemes, such as extended 35 expanded WHD,36 and the Green Homes Grant, many of the people making savings will be low-income or vulnerable households on benefits, whose homes currently have poor energy efficiency ratings. For such households, energy represents a significant share of their outgoings, so these savings can have a significant impact on their disposable income. Our ECO and expanded WHD schemes will provide at least £4.7 billion of extra support to low-income and vulnerable households between 2022 and 2026. Under the Green Homes Grant, we expect £500 million to be spent on low-income households through Local Authority Delivery. In addition, £500 million of the £1.5 billion voucher scheme is also intended for low-income households. For example, a household in receipt of Universal Credit and living in an old, inefficient home could enjoy bill savings worth over £400, making them warmer, healthier and reducing their carbon emissions. Over the next ten years, increases in network costs, along with funding for clean energy and supporting vulnerable households could push gas and electricity prices up. Based on the policies in this white paper with agreed funding, we estimate that household dual fuel bills will be, on average, broadly similar in both policies are estimated to amount to a net increase of around two per cent on average,37 though households who take up measures stand to make material net savings. This depends on a range of uncertain and variable factors, including future fossil fuel prices and how consumers use energy. We have used a central set of assumptions for these drivers. The amount energy suppliers pay The costs to build, maintain and operate the pipes, wires and cables that transport gas and electricity The administrative costs of running the supply business, including customer service, marketing, metering, plus profits. Cost of programmes to save energy, financial support to the fuel poor. Potential energy bill sa vings £150 Floor insulation, delay start thermostat, Potential energy bill sa vings £110 External solid wall insulation, hot water tank insulation, delay start thermostat, Potential energy bill sa vings £150 Potential energy bill sa vings £500 Our assessment sets out the average picture. Underlying this, households could see net savings or costs depending on whether they take up measures. The graphic below sets out some illustrative case studies of how an individual household’s bill may change because of the policies announced in this white paper. Potential energy bill sa vings £150 Floor insulation, delay start thermostat, Potential energy bill sa vings £110 External solid wall insulation, hot water tank insulation, delay start thermostat, Potential energy bill sa vings £150 Potential energy bill sa vings £500 Details are provided on the household’s characteristics and the composition of the household, including income. These are designed to be hypothetical households that can take advantage of certain policies (either Green Home Grants, ECO or WHD).
They are not a complete list of qualifying criteria, and both a household’s eligibility for certain policies and its potential savings will vary according to its characteristics, composition, and, in some cases, whether the household proactively chooses to apply for a measure. Example bills are for the year 2025. The exact measures or level of rebate available under the future ECO and WHD schemes are subject to future consultation. For households who access schemes, there are opportunities for saving to significantly outweigh upward pressure on bills. Access to these opportunities depends on the policy. Schemes such as ECO are targeted at fuel poor households whereas the Green Home Grants is open to applications from a wider set of households. It matters how much consumers pay for their energy, particularly when The government will work with the regulator, Ofgem, to take the necessary steps to help households manage their bills. We have already introduced a price cap to ensure that the market does not excessively penalise consumers who do not frequently shop around for better deals. As we move to a clean energy system, fairness will be at the heart of our approach. Every household and business should be confident that everyone is paying their fair share of the costs of the transition. The members of the Climate Assembly UK identified “fairness within the UK, including for the most vulnerable” as one of the top two principles that should guide decisions around net zero. 38 We agree. `We will publish a call for evidence by April 2021 to begin a strategic dialogue between government, consumers and industry on affordability and fairness. We will work across the sector to identify existing distortions in the system and gain insights into the trade-offs involved in the distribution of energy costs. This will allow us to take decisions on how energy costs can be allocated in a way which is fair and incentivises cost-effective decarbonisation. The nature of costs in a smart, clean energy system will be different. The largest part of our electricity bill is the cost to our energy supplier from buying power. This cost has traditionally been determined by the underlying price of gas or coal but this is changing. Gas will set the electricity price for some years to come but, over time, will do so less frequently, as more and more wind and solar connect to the electricity system. These are technologies which do not have a fuel cost. What we are paying for is the cost of building and operating the wind or solar farms, not the fuel cost. This trend fundamentally reshapes the costs of the system we must pay for. How consumers are charged will need to reflect this. Ensuring that costs are fairly allocated between all consumers will be a central challenge for government. We need to strike the right balance between different households, between domestic consumers and businesses, including the big energy users in industry. The way that the costs are passed through to bills can incentivise or disincentivise certain types of consumer behaviour, including how the costs of decarbonising energy are apportioned between gas and electricity bills. This can be a particular barrier to electrifying heat, which will be crucial for the transition to low-carbon buildings (see ‘Buildings’ chapter). It will be essential to ensure that price incentives are fair and help achieve our net zero target. We are also mindful that, as we rightly encourage households to adopt new technologies such as roof-top solar and home energy storage, this change could affect how consumers pay for their energy in a way which is unfair to others. Households which self-generate electricity and store it, even sell it back to the grid, will be able to reduce how much they pay towards the fixed costs of the electricity system, while still relying on the system when they are not self-supplying. It could leave other consumers to pay a greater share, some of whom may not be able to take advantage of new technologies. For all these reasons, the time is now right to reflect carefully on the nature of energy costs, who pays for them and how. HM Treasury has already launched a review of how the transition to net zero would be funded and where the costs would fall. An interim report will be published in December 2020, with a view to completing the review in spring 2021. This white paper sets out what we currently do to enshrine fairness in the way consumers are treated in the energy sector and puts forward new policy proposals to go even further. Building on this foundation, we will start a conversation with consumers and the energy industry about the fairness and affordability of the cost of moving to clean energy over the long-term. We are clear that the outcome of this work is a net zero world which continues to ensure a fair distribution of costs and maintains support in society and business for our climate goals. It remains our ambition to achieve market-wide roll-out of smart meters as soon as practicable, enabling access digital energy services that put them in charge of their energy use. Second generation smart meters – which are compatible with all energy suppliers from the point of install – are now being rolled out as standard across Great Britain, while the enrolment of first generation smart meters into the national communications system will ensure these stay smart when consumers switch energy supplier. We have introduced a new smart meter obligation on suppliers, which will start in July 2021. This will drive consistent, long-term investment, by setting annual targets and providing regulatory certainty. We are committed to exploring ways We are working with industry and delivery partners to help energy suppliers develop successful strategies for consumer engagement which improve the installation and operational performance rates of new meters, while stimulating consumer demand.
To allow consumers to make the most of the data recorded by smart meters, it needs to be combined with half-hourly settlement for suppliers. This will allow households to access more real-time prices, should they wish. Most households are currently billed at a fixed price, based on an estimate of when they use electricity during the day. Half-hourly settlement provides the option for different prices in each 30-minute period of the day. Ofgem’s analysis estimates that half- hourly settlement would bring net benefits for consumers of between £1.6 billion and £4.6 billion by 2045.39 Ofgem intend to publish their final decision in spring 2021 on how and when to implement half-hourly settlement. We are already seeing the value of innovation in smart controls and tariffs, as well as household To ensure that the growth in technological innovation goes from strength to strength, we need to ensure markets provide consumers with access to the services they want and offer fair value to all consumers. This is especially pressing as the system becomes more complex. Vulnerable consumers may need additional protections appropriate to their circumstances. Consumers who have been automatically rolled onto a default tariff when their introductory tariff ends, or who start off on an auto-roll-over tariff, such as when they move into a new house, often pay much more for their energy, even when significantly cheaper alternatives are available. Over 50 per cent of consumers remain on default tariffs, despite almost all consumers knowing they can switch.40 Many remain in this position for a long time, paying a ‘loyalty penalty’,41 while other suppliers struggle to compete to provide these consumers with a better deal. The price cap currently limits the extent of the loyalty penalty, but we believe competition is the most effective and sustainable way to keep prices low for all consumers over the long-term. Where the market and policy conditions for effective competition are not yet in place, we are prepared to ensure that proportionate price protection remains. We have set out options for long term measures to protect consumers from the loyalty penalty in the joint government and Ofgem consultation ‘Flexible and responsive energy retail markets’ of July 2019.44 With the measures set out in this white paper, we aim to address barriers to consumer engagement and the current nature of default tariff arrangements, the two leading causes of the loyalty penalty. `We will create the framework to introduce opt-in switching, consulting by March 2021 on how it should be designed, tested and incrementally We know from today’s energy market that, for some consumers, the existence of cheaper deals is not sufficient in itself to drive consumer behaviour. Ofgem has found in recent trials that opt-in switching and similar tools can facilitate greater consumer engagement with the energy market. 45 We will learn from these trials and create the framework to enable the introduction of opt-in switching by 2024. This will be implemented once we have reformed the exemption that smaller energy suppliers have from paying for energy efficiency measures (ECO) and from offering a discount for customers in fuel poverty (WHD). Since 2017 , Ofgem has run trials to develop and test new prompts to Ofgem found that customers who have not switched energy tariff for many years can be prompted to do so following simple, well designed letters and emails. The trials included over 1.1 million customers and resulted in over 94,000 of them switching to new energy tariffs, with most of them making an active choice about their energy tariff for the first time in years. In total, these customers have saved around £21.3 million between them.42 The most successful trials were the opt-in collective switching trials.43 These removed as many steps as possible from the switching process and provided additional reassurances, Between 19-30 per cent of consumers switched their tariff – five to ten times higher than the control group, which had rates of 2.6 - 4.5 per cent. `We will consider how the current auto-renewal and roll-over tariff arrangements could be reformed to facilitate greater competition, consulting by March 2021 on how opt- out switching could be tested as part Default or roll-over tariffs are important for ensuring continuous supply and service for consumers, even where they have not agreed a specific deal. However, these tariffs also enable passive engagement with the market, which limits competition and allows suppliers to charge such consumers excessive prices. We want energy markets to be truly competitive. We do not think that energy suppliers should expect to roll over or continue contracts with customers indefinitely. Where consumers do not opt- out, reforms could move consumers on default tariffs to a new, cheaper contract through a competitive process. We will test how moving consumers to new contracts, with the option to opt-out, could work best for consumers, consulting by March 2021. We will engage closely with stakeholders to consider the design of the testing, including which consumers should be targeted, how the new tariff is determined and what safeguards should be in place to ensure beneficial outcomes. reduce the barriers to consumer engagement so that more households make informed choices about the products and services they receive. `We will ensure consumers are provided with more transparent and accurate information on carbon content when they are choosing their energy services and products, consulting on reforms in Smart digital technology is not just giving consumers more control, choice and flexibility in their energy use. It allows consumers to make a personal contribution to delivering a clean energy system. So, it is important that they have clear and easily accessible information on the options to do so. We will assess how effectively the market provides consumers with clear information on costs and clean energy choices. This will be the key to helping consumers make informed decisions. We will consult in 2021 on how to ensure consumers receive transparent information when choosing an energy product, for example quantifying the additional environmental benefits of a tariff marketed as ‘green’.
`The energy supplier thresholds of ECO can be removed without incurring disproportionate costs on suppliers, including potentially introducing a buy- out mechanism as part of reforms to `The energy supplier thresholds of reforms to the scheme beyond 2022 to ensure administrative simplicity and ECO and WHD are obligations on suppliers that tackle fuel poverty by providing targeted energy efficiency measures and discounts on bills (see ‘Buildings’ chapter for more detail). Supplier thresholds for these schemes were introduced to avoid creating significant administrative barriers to market entry for new suppliers. The thresholds exempt suppliers with fewer customers from some of the costs to which their larger competitors are exposed. However, these thresholds may create market distortions as smaller suppliers are able to undercut other suppliers who still have to pay the costs. For WHD, the threshold also creates barriers to switching for the fuel poor, as some suppliers are not required to offer the discount. We want to remove policy obligation thresholds but ensure that schemes can be extended, without creating significant administrative burdens for small suppliers. This will mean that fuel poor consumers who receive WHD can have greater confidence that switching to a cheaper tariff with an alternative supplier. `We will assess what market framework changes may be required to facilitate innovative tariffs and products that work for consumers and contribute to net zero, engaging with industry and consumer groups throughout 2021 Consumers can benefit and contribute more effectively to net zero through an energy retail regulatory framework that accommodates emerging and innovative business models. Consumers are best placed to decide which business models suit their needs through market participation, but they could include peer-to-peer trading; energy as a service, where customers buy an outcome for an agreed price, such as a guaranteed temperature at home or guaranteed level of heat pump performance, rather than paying for units of gas or electricity; or the bundling together of utilities, such as water and energy. The market framework will need to enable innovation and competition, while protecting consumers. We will continue to review whether the current supply licence framework strikes this balance effectively. We will assess whether incremental changes, alongside wider sectoral initiatives, are sufficient or whether more fundamental changes are required. Consumers must be able to benefit from robust and consistent protection when engaging the energy market, no matter where they obtain their products and `We will ensure the retail market regulatory framework adequately covers the wider market, consulting by spring 2021 on regulating third parties such as energy brokers and price The energy market is evolving rapidly as technology advances and consumer behaviour changes. Consumers can engage in the market in new ways. When the current licensing framework was developed, the majority of consumers would engage directly with their new supplier when arranging a switch but this is less common now, as consumers increasingly use price comparison websites. Ofgem does not currently regulate third parties like energy brokers and price comparison websites and we need to ensure that consumers can be confident that they are protected when engaging with any energy product or service through these channels. This principle of protection does not just apply to households. In its Microbusiness Strategic Review, Ofgem identified harms to microbusinesses from some brokers such as mis-selling and misrepresentation. Government and Ofgem will work together to ensure microbusinesses have appropriate protection from bad practices. `We will take powers to regulate smart appliances based on principles including interoperability, data privacy and cyber security, legislating when The market for smart appliances, such as smart fridges, washing machines and heating systems, is just emerging. Regulation of these devices, in particular relating to interoperability, data privacy, and cyber security, is required to support its development and to ensure that appropriate consumer protection is in place ahead of time. Devices should be able to link with any service provider’s systems so that consumers cannot be locked into a single provider. It is also important that devices are cyber secure, to ensure consumers’ data remains private and the energy system as a whole is protected. Industry is developing standards for smart appliances in line with these principles, which will be published by summer 2021. We will ensure that the approach adopted for regulating smart appliances is compatible with the Department for Digital, Culture, Media and Sport’s existing commitment to take powers to regulate the cyber security of consumer smart devices. We will publish a call for evidence by April 2021 to begin a strategic dialogue between government, consumers and industry on affordability and fairness. We will create the framework to introduce opt-in switching , consulting by March 2021 on how it should be designed, tested and incrementally scaled up. We will consider how the current auto-renewal and roll-over tariff arrangements could be reformed to facilitate greater competition, consulting by March 2021 on how opt-out switching could be tested as part of any future reforms. We will ensure consumers are provided with more transparent and accurate information on carbon content when they are choosing their energy services and products, consulting on reforms in early 2021. We will consult on how the energy supplier thresholds of ECO can be removed without incurring disproportionate costs on suppliers, including potentially introducing a buy-out mechanism as part of reforms to the scheme We will consult on how the energy supplier thresholds of WHD can be removed as part of reforms to the scheme beyond 2022 to ensure administrative We will assess what market framework changes may be required to facilitate the development and uptake of innovative tariffs and products that work for consumers and contribute to net zero, engaging with industry and consumer groups throughout 2021 before a formal consultation. We will ensure the retail market regulatory framework adequately covers the wider market, consulting by spring 2021 on regulating third parties such as energy brokers and price comparison websites.
We will take powers to regulate smart appliances based on principles including interoperability, data privacy and cyber security, legislating when

Electricity is a key enabler for the transition away from fossil fuels and decarbonising the economy cost-effectively by 2050. ` Accelerate the deployment of clean electricity generation through the 2020s ` Invest £1 billion in UK’s energy innovation programme to develop the technologies of the future such as advanced nuclear and clean hydrogen ` Ensure that the transformation of the electricity system supports opportunities, at home and abroad

Decarbonising the power sector has led the UK’s efforts to reduce In 1990, electricity generation accounted for 25 per cent of UK emissions. In 2018, it was only 15 per cent.46 30 years ago, fossil fuels provided nearly 80 per cent of electricity supply.47 Today, the country gets over half of its power from low- carbon technologies.48 The rapid growth of renewables has a been a critical feature of this transformation. Renewable capacity has grown fivefold since 2010, driven by the deployment of wind, solar and biomass. The UK had 10GW of operational offshore wind by 2019, up from just over 1GW in 2010.49

Renewables now account for over one third of electricity generation, up from seven per cent in 2010. Yet, this green revolution has been delivered without disruption to the reliability of our electricity supply and the scale of deployment has contributed to a significant reduction in the cost of renewables. Increasingly, green power is the cheapest power.50 Building on this foundation, we need to go further. With the exception of Sizewell B and Hinkley Point C, which is under construction, all of the existing nuclear power plants are due to have ceased generating by the end of 2030. We have already committed to ending coal in the electricity mix no later than 2025. Today, as a signal of our further ambition and to encourage other countries along the path to phasing out coal, we are publishing a consultation over the option to bring forward our coal closure date to 2024.51 Subject to this consultation, we will introduce legislation to give legal effect to the end date. While retiring capacity will need to be replaced to keep pace with existing levels of demand, our modelling suggests that overall demand could double out to 2050. This is because of the electrification of cars and vans and the increased use of clean electricity replacing gas for heating. As a result, electricity could provide more than half of final energy demand in 2050, up from 17 per cent in 2019.52

This would require a four-fold increase in clean electricity generation with the decarbonisation of electricity increasingly underpinning the delivery of our net zero target. Given the pivotal role of electricity in delivering net zero emissions, we must aim for a fully decarbonised, reliable and low-cost power system by 2050. Low emissions in power does not necessarily mean higher costs. Carbon intensity, the amount of CO2 emitted to generate 1kWh of electricity, can fall to very low levels without costs rising significantly. This will depend on the level of demand, and the cost and availability of other low-carbon technologies, particularly low-cost clean hydrogen. Our understanding of what is required from the electricity sector to support the delivery of net zero emissions will change over time. Our views will be informed by what we learn about the costs of decarbonising other sectors of the economy and by the costs and availability of negative emissions technologies, such as Bioenergy with Carbon Capture and Storage (BECCS) or Direct Air Carbon Capture and Storage (DACCS). We are not targeting a particular generation mix for 2050, nor would it be advisable to do so. We have already reduced power sector emissions 58 per cent between 2010 and 2018,53 and to stay on a course for a fully decarbonised system we will continue that progress through the 2020s and have an overwhelmingly decarbonised power system in the 2030s. The electricity market should determine the best solutions for very low emissions and reliable supply, at a low cost to consumers. Competition should be a spur to greater investment in technologies which are cheaper and more efficient; or to the innovation which will reduce the costs of existing options. We have seen very rapid falls in the costs of renewables over the last five years and want to maintain the market conditions which stimulate these cost reductions. The government’s role is to ensure a market framework which promotes effective competition and delivers an affordable, secure and reliable system, consistent with net zero emissions by 2050. This market framework should enable the deployment of the most efficient, low-cost technologies and mitigate delivery risk associated with a particular technology. We will intervene to address any potential market failures, as government did through the introduction of the Capacity Market, to ensure enough supply at periods of peak demand. We will continue to invest in innovation which helps commercialise new technologies and reduce overall technology costs. While we are not planning for any specific technology solution, we can discern some key characteristics of the future generation mix. A low-cost, net zero consistent system is likely to be composed predominantly of wind and solar. But ensuring the system is also reliable, means intermittent renewables need to be complemented by technologies which provide power, or reduce demand, when the wind is not blowing, or the sun does not shine. Today this includes nuclear, gas with carbon capture and storage and flexibility provided by batteries, demand side response, interconnectors (see ‘Energy system’ chapter) and short-term dispatchable generation providing peaking capacity, which can be flexed as required. By 2050, we expect low-carbon options, such as clean hydrogen and long-duration storage, to satisfy the need for peaking capacity and ensure security of supply at low cost, likely eliminating the reliance on generation from unabated gas. meet a doubling of demand, while reducing emissions.
It shows just two of many scenarios which decarbonises electricity to very low levels of emissions at low cost. It serves to emphasise how much additional generation capacity we will need to build and how much electricity it produces to satisfy high levels of demand. Very different mixes can also provide low-cost solutions We are publishing the details of our electricity system analysis alongside this white paper.54 We have modelled almost 7 ,000 different electricity mixes in 2050, for two different levels of demand and flexibility, and 27 different technology cost combinations. It has produced a dataset comprising of over 700,000 unique scenarios, allowing us to identify common features of a low emissions, low-cost electricity system. The analysis allows us to better prepare for an electricity system which is consistent with net zero emissions, even if we do not know the precise generation mix in 2050. It informs the actions we need to take to support the deployment of clean electricity technologies, including how we can direct our innovation support most effectively. We can target the technologies which have a key role in the system of the future, such as low- carbon peaking capacity and long-duration storage, which enable us to integrate high volumes of low-cost intermittent generation. This white paper sets out the actions which we are taking to put the country on the path to a low-cost, clean electricity system by 2050. It will comprise the technologies which allow us to drive deep reductions in carbon emissions at a low cost, while maintaining the reliability and resilience of the system. Our actions are a strong signal to project developers and the wider investor community about the government’s commitment to delivering clean electricity. This should stimulate the continued deployment of key low- carbon technologies in the near term, while encouraging innovation in the technologies of the future which offer the greatest potential to reduce costs. `We will target 40GW of offshore floating offshore wind, alongside the expansion of other low-cost renewable A highly competitive Contracts for Difference (CfD) allocation round in 2019 led to the procurement of 5.5GW of offshore wind and 275MW of remote island wind, at strike prices around £40/MWh (2012 prices) for projects expected to start generating electricity by 2024.55 This contrasts with prices for offshore wind of £150/MWh for projects which became operational in 2017 .56 As announced in the Prime Minister’s Ten Point Plan for a Green Industrial Revolution, we will continue to hold regular CfD auction rounds every two years to bring forward a range of low-cost renewable technologies. The next auction in late 2021 will be open to onshore wind, solar photovoltaics and other established technologies, as well as offshore wind. Subject to sufficient projects coming through the planning pipeline to maintain competitive tension, we plan to double the capacity awarded in the last round with the aim to deploy around 12GW of low-cost renewable generation. Onshore wind and solar will be key building blocks of the future generation mix, along with offshore wind. We will need sustained growth in the capacity of these sectors in the next decade to ensure that we are on a pathway that allows us to meet net zero emissions in all demand scenarios. Following our recent Call for Evidence on the potential of marine energy projects, we have set an ambition of deploying 1GW of floating offshore wind by 2030, supported by CfDs and innovation funding. Acting now will drive higher volumes of deployment in the 2030s and beyond, subject to cost reductions. We will work closely with the devolved administrations, the Crown Estate and Crown Estate Scotland to address issues such as seabed leasing and protecting the marine environment and to ensure the UK captures the economic benefits of deploying the technology. This will provide the foundation for a sustainable, competitive supply chain and enable floating offshore wind projects to scale up and accelerate cost reduction. We will consider the role of wave and tidal energy, following further evaluation of the commercial and technical evidence. We will also identify and utilise synergies between hydrogen and the deployment of offshore wind. It is vital that CfDs offer value for money to consumers and continue to deliver low prices. We will structure the 2021 and future auctions to keep the CfD allocation process highly competitive, supported by a number of technical changes to the auction. Alongside this white paper, we are issuing a new Call for Evidence seeking views on how the CfD scheme could evolve beyond the 2021 auction, including how longer-term changes to the CfD or wider electricity market design can enable the effective integration of increasing renewables capacity. 57

We want to understand how generators can best be exposed to market signals which stimulate innovation and incentivise generators to minimise the overall system costs of large amounts of renewables. We will also be asking about the broader evolution of the electricity market (see ‘Energy system’ chapter). We will seek a balance between options for further reform of the market with maintaining the success of the CfD in deploying We will establish a Ministerial Delivery Group, which brings together the relevant government departments to oversee the expansion of renewable power in the UK. This group will provide the cross- government coordination and collaboration necessary to achieve our ambition for renewable electricity. It will tackle barriers such as the impact of wind turbines on radar systems, maintaining a flourishing and biologically diverse marine environment and the development of appropriate network infrastructure to support future renewables deployment. We will also work to reduce consenting delays and ensure that planning guidelines and environmental regulations are fit for purpose. The Ministerial Delivery Group will make use of existing cross-government mechanisms, such as the Offshore Wind Enabling Actions programme, a £4.3 million initiative to be run jointly by Defra and BEIS and funded by HM Treasury (HMT).
`We will support the deployment of at least one power CCUS project, to be operational by 2030, and put in place the commercial framework required to help stimulate the market to deliver a future pipeline of power CCUS In the power sector, gas-fired generation with CCUS can provide flexible, low-carbon capacity to complement high levels of renewables. These characteristics mean that deployment of power CCUS projects will play a key role in the decarbonisation of the electricity system at low cost. We will support at least one power CCUS plant to come forward and be operational by 2030 and will put in place a commercial framework which will enable developers to finance the construction and operation of a power CCUS plant and stimulate a pipeline of projects. This will enable at least one power CCUS project to be developed in one of the four industrial clusters as part of our mission to decarbonise them (See ‘Industrial energy’ chapter). Following the publication of the government response to our CCUS business models consultation in August 2020,58 we will introduce a business model based on the existing CfD framework, adapted so that price signals incentivise power CCUS to play a role in the system, which complements renewables. We set out our plans for the deployment of transport and storage infrastructure in the ‘Industrial energy’ chapter. `We will consult on steps to ensure that new thermal plants can convert to low- Since 2009, our Carbon Capture and Readiness requirements have ensured that planning consent is only granted to thermal plants for which it will be technically and economically feasible to retrofit CCUS. However, we believe the current 300MW minimum threshold creates a costly market distortion, by disincentivising the deployment of gas plants larger than 300MW, which tend to be more efficient. The threshold also means that the requirements only apply to a small proportion of new build thermal plants. Furthermore, the requirements do not reflect recent technological advances, including alternative options for decarbonising gas plants, such as conversion to firing clean hydrogen. Therefore, we intend to consult in early 2021 over proposals to update the requirements to reflect technological advances and apply them more broadly, by removing the 300MW threshold. `We will aim to bring at least one large- scale nuclear project to the point of Final Investment Decision (FID) by the end of this Parliament, subject to clear value for money and all relevant Nuclear power continues to be an important source of reliable clean electricity, currently supplying around 16 per cent of our needs.59 It is an energy-dense technology which provides large volumes of power from very little land area and can reduce system costs at low levels of emissions. In 2016, the government agreed contracts related to the first new nuclear power station in a generation. Hinkley Point C is due to commission in the mid-2020s and will deliver around seven per cent of the country’s current electricity needs - enough to power the equivalent of around six million homes. 60 But, with the existing nuclear fleet largely retiring over the next decade, we propose to go further. Our analysis suggests additional nuclear beyond Hinkley Point C will be needed in a low-cost 2050 electricity system of very low emissions. We must be ready for this. We aim to bring at least one further large- scale nuclear project to the point of FID by the end of this Parliament, subject to clear value for money for both consumers and taxpayers and all relevant approvals. As noted in the Ten Point Plan, a large- scale nuclear power plant could support a peak of around 10,000 jobs during construction.61 We will remain open to further projects later if the nuclear industry demonstrates that it is able to reduce costs and deliver to time and budget. We expect the sector to deliver the goal it set for itself in our Nuclear Sector Deal, published in 2018,62 to reduce the cost of nuclear new build projects by 30 per cent by 2030. Last year, we consulted on a Regulated Asset Base (RAB) model for private investment in new nuclear generation. 63 Today we are publishing a summary of the responses which have indicated that a RAB model remains credible for funding large-scale nuclear projects. 64 The government will continue to explore this, alongside a range of financing options, with the developer of the next large-scale project in the pipeline and other relevant stakeholders, including other nuclear developers. Raising enough private capital to finance a nuclear power station is challenging given the significant investment needed for a developer to reach a point of FID. In considering the financing options, we will examine the potential role of government finance during construction, provided there is clear value for money for consumers and taxpayers. `We will provide up to £385 million in an Advanced Nuclear Fund for the next generation of nuclear technology aiming, by the early 2030s, to develop a Small Modular Reactor (SMR) design and to build an Advanced Modular The UK continues to be a leader in the development of nuclear technologies. SMRs have the potential to provide cost- competitive nuclear power as early as the 2030s. Pending regulatory approval, innovative manufacturing techniques and modular construction could mean that SMRs are faster to build than large- scale nuclear plants and are potentially suitable for deployment in a wider number of sites across the country. Subject to future HMT Spending Reviews, we have provided a £385 million in an Advanced Nuclear Fund with up to £215 million investment to develop a domestic SMR design that could potentially be built in factories and then assembled on site. It is expected to unlock up to £300 million private sector match-funding. To help bring advanced nuclear technologies to the market, we will also invest an additional £40 million in developing the regulatory frameworks and supporting UK’s supply chain.
As the first major commitment of the programme, in 2021 we will open the Generic Design Assessment to SMR technologies, the regulatory process through which developers can obtain approval for their proposed design approach. Supporting the development of our supply chain now will increase our chances of having indigenous expertise capable of leading the world in developing the nuclear technologies of the future - SMRs and AMRs - a global market estimated by some to be worth approximately £250 billion to £400 billion by 2035.65 are usually based on proven water- cooled reactors similar to current nuclear power station reactors, but on a smaller scale. They use nuclear fission to generate low-carbon electricity. SMRs are called modular reactors as their components can be manufactured in factories using innovative techniques and then transported to site to be assembled. novel cooling systems or fuels and may offer new functionalities (such as industrial process heat). These reactors could operate at over 800°C and the high-grade heat could unlock efficient production of hydrogen and We are also committing up to £170 million of the Advanced Nuclear Fund to a R&D programme on AMRs – the next generation of nuclear technologies. Our aim is to build a demonstrator by the early 2030s at the latest to prove the potential of this technology and put the UK at the cutting edge against international competitors. `We aim to build a commercially viable Fusion energy would offer low-carbon, continuous, and effectively unlimited power generation. The basic science and engineering involved in the production of fusion energy is now well advanced and fusion energy is expected to play an important role over the longer term to decarbonise global energy production. The UK is a world leader in the most promising fusion technologies with research capabilities across the technical challenges of fusion. This means that the UK is uniquely well-placed to lead the future commercialisation of this technology. The government has already committed over £400 million towards new UK fusion programmes. The aims are to develop a concept design for the Spherical Tokamak for Energy Production (STEP) – expected to be the world’s first compact fusion power plant, to be built in the UK by 2040 – and to invest in facilities and infrastructure to make the UK a global fusion industry hub. In December 2020, the STEP programme published an open call for communities across the UK to apply to be the host site for STEP .66

The Ten Point Plan announced a new £1 billion Net Zero Innovation Portfolio that will help bring down the cost of the net zero transition, nurture the development of better products and new business models, and influence consumer behaviour. A £1 billion Net Zero Innovation Portfolio aims to accelerate the commercialisation of innovative low-carbon technologies, systems and processes in power, buildings and industry to set the UK on the path to net zero and create world-leading industries and new jobs. The portfolio will focus on ten priority areas to decrease the costs of decarbonisation and underpin innovation across the whole energy system. As well as accelerating the commercialisation of novel clean energy technologies, innovation also plays an important role in driving economic growth, anchoring new technology to the UK, delivering levelling-up across the country and reducing our significant exposure to the risks of climate change. An ambitious and well-designed energy innovation strategy could, by 2050, annually generate £54 billion of business opportunities for the UK. 67 The current BEIS £505 million Energy Innovation Programme is delivering some of the UK’s most significant advances in low-carbon technologies, leveraging £200 million industry `The UK’s first CCUS plant at Tata Chemicals, Cheshire (£17 million total `The world’s largest “Cryogenic” energy storage plant at Manchester (over £70 `The UK’s largest innovative heat pump trial (750 homes, over £15 million total `The UK’s first Venture Capital fund solely focussed on Cleantech (over £40 offshore wind Hydrogen Bioenergy Industrial fuel

`By 2022, we will establish the role which BECCS can play in reducing carbon emissions across the economy and, as part of a wider biomass strategy, set out how the technology could be deployed. Biomass is unique amongst renewable technologies in the wide array of applications in which it can be used as a substitute for fossil-fuel based products and activities, from power generation to hydrogen production and even new forms of plastics. Along with its ability to deliver negative emissions, this makes biomass one of our most valuable tools for reaching net zero emissions. In the government’s response to Climate Change Committee’s (CCC) latest annual progress report to Parliament, we announced that we will publish a new Biomass Strategy in 2022. As part of this strategy, we will set out the results of a review of the amount of sustainable biomass available to the UK, and how this resource could be best utilised across the economy to help achieve our net zero greenhouse gas emissions target by 2050. Our review will assess the UK’s current biomass sustainability standards, which are already some of the world’s most stringent, to see where and how we can improve them even further. Our review will also consider the role biomass can play in delivering our wider environmental targets, including on air quality. We will shortly issue a call for ‘Biomass for net zero’, to inform the development of our strategy. We will issue a preliminary position paper by summer 2021, once the evidence has been reviewed. Critical to our consideration will be the role of BECCS in our energy system. BECCS plants could deliver negative emissions, by capturing the carbon released during biomass combustion, gasification and other processes, provided supply chain emissions are sufficiently low. There are a number of applications for BECCS across the economy, including clean hydrogen production, power generation, waste management and in heat for industrial processes and we need to ensure that it is deployed where it has the greatest value in reducing emissions.
For example, current support for electricity generation, which converted from coal to using biomass as a fuel source, expires in 2027 . BECCS could provide a long-term future for this capacity. Biomass refers to any material of biological origin (including wastes) which is used as a fuel for bioenergy (conventional combustion, gasification, energy from waste and low-carbon fuels like hydrogen) or in products (such as chemicals, bio- plastics and timber for construction). Greenhouse gas removal technologies actively remove greenhouse gases from the atmosphere and are diverse, ranging from engineered to nature-based solutions. The CCC has been clear that, in order to achieve net zero by 2050, GGRs will be necessary to balance residual emissions from some of the most difficult to decarbonise sectors, such as parts of the agriculture and aviation sectors. The CCC has estimated 75MtCO2 of negative emissions could be required annually in order to reach net zero greenhouse gas emissions by 2050. 68 The government is already taking steps to accelerate the development and deployment of GGRs in the UK. In June 2020, we announced up to £100 million of funding for research and development of DACCS and other GGR methods.69 This funding seeks to demonstrate feasible GGR approaches at scale, as well as better our understanding of governance and ethics of GGRs. We have also published a call for evidence earlier in December,70 which seeks views on mechanisms and governance principles to help bring GGR technologies like DACCS to deployment in the UK. Alongside this, both BEIS and the National Infrastructure Commission will conduct research projects to develop the evidence based on GGRs in order to support future policy in this area. `We will complete a review of the existing energy National Policy Statements (NPS), with the aim of designating updated NPS by the end of The suite of energy NPS establish the need for new energy infrastructure and set out a framework for the consideration of applications for development consent. We have decided that it is appropriate to review the NPS, to ensure that they reflect the policies set out in this white paper and that we continue to have a planning policy framework which can deliver the investment required to build the infrastructure needed for the transition to net zero. Work on this review will start immediately, with the aim of designating updated NPS by the end of 2021. This white paper shows that the need for the energy infrastructure set out in energy NPS remains, except in the case of coal-fired generation. While the review is undertaken, the current suite of NPS remain relevant government policy and have effect for the purposes of the Planning Act 2008. They will, therefore, continue to provide a proper basis on which the Planning Inspectorate can examine, and the Secretary of State can make decisions on, applications for development consent. Nothing in this white paper should be construed as setting a limit on the number of development consent orders which may be granted for any type of generating infrastructure set out in the energy NPS. Other restrictions outside the planning regime (in particular the Emissions Performance Standard) mean that no new coal infrastructure projects can come forward. renewable technologies. This will help position the whole of the UK `We will support the delivery of the industry’s target of 60 per cent UK content in offshore wind projects by 2030, through more stringent requirements for the CfD supply chain We will invest in the growth of the UK’s offshore wind manufacturing infrastructure to create jobs and opportunity in the UK supply chain. We will use our Offshore Wind Sector Deal with the renewables sector to ensure that domestic deployment creates jobs and raises skills levels across the country, and to support overseas trade and investment opportunities for UK-based companies. We will require developers who are awarded a CfD, to honour their supply chain plans. `We have announced a £160 million scheme and launched a competitive process in early December to support the development of offshore wind The £160 million funding announced in October 2020 and the competitive process launched in early December will support the development of major port- side infrastructure hubs, strengthening UK offshore wind manufacturing. This will have a major impact on our ability to develop a competitive UK supply chain for domestic and overseas markets.71 It will help attract inward investment to manufacturing in the UK and increase our global competitiveness and expertise. The investment will support major new offshore wind manufacturing capacity which is needed to develop a competitive industrial base capable of servicing UK and international markets. Our Ten Point Plan set out how the investment alongside 40GW offshore wind will support the industry’s target to achieve 60 per cent UK content by 2030.72 And we will use it as the platform to target a five-fold increase in exports of offshore wind goods and services to at least £2.6 billion a year by 2030. The sector could bring £3 billion GVA a year by 2030, of which £1 billion is export related. 73 This new investment, could create around 2,000 construction jobs, representing high quality employment opportunities in many coastal regions around the country. This investment alongside other offshore wind commitments will enable the offshore wind sector to support up to 30,000 direct jobs and 30,000 indirect jobs in ports, factories and the supply chains by 2030. 74 The nuclear sector also makes a significant contribution to the UK economy - some £7 billion GVA in 2016.75 The nuclear industry currently employs around 60,000 people. 76 Building, operating and decommissioning our nuclear assets takes place in some of the most remote areas of the UK. Developing the domestic supply chain for the sector has the potential to transform the prosperity of these regions. It provides high-value and skilled employment opportunities, unlocking investment to support infrastructure projects and growing manufacturing and industrial capability.
North East Lincolnshire is home to the Port of Immingham which is the UK’s largest port by tonnage - handling around 11 per cent of the UK’s cargo.77 It serves a diverse range of industries and is an international gateway. Today Grimsby sits in the 10 per cent of England’s most deprived regions,78 however it has strong maritime history and the wider strengths in the energy sector. Its location close to the majority of the UK’s offshore wind farm developments presents a major opportunity for the Port of Grimsby and the town with around £10 million being invested in the port and facilities. 79 Since the first wind farms, notably Lincs and Lynn and Inner Dowling were built in 2009,80 the Port of Grimsby has developed and is now recognised as the centre for operations and maintenance (O&M) services to the offshore wind farms. It is a major base for businesses such as Ørsted, E.ON, Innogy and GLID/Siemens These global leaders in offshore renewable energy offer many high skilled jobs for the area. The rapid growth of the renewable energy industry in the UK has presented new economic opportunities for Grimsby in the last decade. Ørsted recently opened its expanded O&M base, creating the world’s largest O&M base, employing 350 people (83 per cent workers live within one hour’s distance81), – with the port estimating that over 650 are employed on offshore wind O&M services. 82 In addition, the Offshore Renewable Energy Catapult project, now based in Grimsby’s Port Offices, plan to create a Centre of Excellence. This will serve as a leading testing facility for the development of next generation technologies benefiting the whole of the UK. Direct industry input into projects at the Operations and Maintenance Centre of Excellence is expected to be £90 million over the next 10 years. 83

At Hinkley Point C, the developer expects that 64 per cent of the construction contracts, by value, will go to UK-based companies.84 But the potential for the domestic supply chain beyond Hinkley Point C is greater than this, given the capability of UK companies across the nuclear lifecycle; from enrichment and fuel fabrication, through new-build construction, plant operation, world leading R&D, future nuclear technologies to waste management and decommissioning and final disposal. In the Nuclear Sector Deal, we committed to help the UK supply chain become more productive and competitive.85 This includes supporting established companies to strengthen their ability to compete for high- value work and we will reduce barriers to entry for innovative companies, especially Small and Medium-sized Enterprises. We are working with the sector to develop a national and regional supply chain productivity improvement programme to achieve these objectives and target at least £2 billion of domestic and export contracts for UK companies by 2030. We will target 40GW of offshore wind by 2030 , including 1GW floating wind, alongside the expansion of other low-cost renewable technologies. We will support the deployment of at least one power CCUS project , to be operational by 2030, and put in place the commercial frameworks required to help stimulate the market to deliver a future pipeline of power CCUS projects. We will consult on steps to ensure that new thermal plants can convert to We will aim to bring at least one large-scale nuclear project to the point of FID by the end of this Parliament, subject to clear value for money and all We will provide up to £385 million in an Advanced Nuclear Fund for the next generation of nuclear technology aiming, by the early 2030s, to develop a SMR design and to build an AMR demonstrator. We aim to build a commercially viable fusion power plant by 2040. By 2022, we will establish the role which BECCS can play in reducing carbon emissions across the economy and, as part of a wider biomass strategy, set out how the technology could be deployed. We will complete a review of the existing energy NPS and designate updated NPS by the end of 2021. We will support the delivery of the sector’s target of 60 per cent UK content in offshore wind projects by 2030 , through more stringent requirements for the CfD supply chain plan process. We have announced a £160 million scheme and launched a competitive process in early December to support the development of offshore wind manufacturing infrastructure . Developing the policies we need to achieve net zero is challenging. We need to manage uncertainties ranging from the cost of fuel, when and whether certain technologies will be available, and how people will behave when they are asked to use new ways of heating their homes. To help us do so, we can use models of the economy and the energy system. These digital tools help us understand the linkages and interdependencies between different parts of the system and how our policies impact consumers. The models we use perform functions ranging from strategic analysis of long- term decarbonisation to improving our understanding of how proposed policies will work in practice. For example, our Mackay Carbon Calculator provides illustrative pathways to reaching It is important that the results from models are understood and used correctly. This means reflecting uncertainties, being clear on assumptions and combining modelling evidence with, and testing it against, other forms of evidence. Many of our models have been developed in-house and in close collaboration with academia. We now want to increase our ability to access the best modelling expertise available. We will implement a new modelling strategy that will increase transparency and collaboration. This will improve our insights and increase confidence in policy. We will build on the recommendations of the Energy Data Taskforce,87 and have published the Mackay Carbon Calculator and the National Household Model.
88 `Consolidated and simplified the “modelling landscape” by developing models that can support more than - Developing academic links for long - Publishing our 2050 Calculator & `Improved how we treat the many

Our modelling strategy will ensure our suite of models, data, assumptions `Effective in supporting evidence- `Accessible for policy teams, open to all and trusted by the department `Consistent and / or transparent in `Efficient in the use of resources; and maintained and meeting quality The next phase of our modelling strategy will improve our approach to `Transparency: We will set up and test a protocol for publishing our models. There will be specified exemptions such as models in development or models including with sensitive commercial or security `Intra-energy system We will review and update our long term, whole energy system models and their inter- operation with sector specific models, taking in the latest ideas from Digital `Infrastructure: We will develop and implement our IT strategy to make it easier for analysts, contractors and collaborators to develop and maintain models by harmonising development languages and providing a development environment for `Increase the agility of government decision and ensure policies to reflect the best - Collaborating with a range of stakeholders on our modelling approaches and - Ensuring our models and their inputs adapt to a fast-changing market. technology by continuing to invest in partnering to develop models of our energy proposition of open sourcing models - Developing a protocol for releasing our - Developing an Open Modelling Environment to share modelling capability

- Investigating providing an open access data source for the National Household - Opening access to a new version our long term energy systems model; developed in collaboration with University College - Running modelling improvement competitions to leverage 3rd party knowledge - initially running a competition to improve econometric equations at the heart of BEIS Energy Demand Model – used to produce our Energy and `We will establish a protocol for regular publication of quasi-statistical publications such as Energy and Emissions Projections using voluntary application of the Code of Practice for `We have published an updated energy calculator. The new calculator is named in honour of the late David Mackay. The Calculator was his brainchild. One important new feature will be the ability to alter start and finish dates for each lever. This is an important contribution for the

To deliver energy reliably, while ensuring fair and affordable costs and accelerating our transition to clean energy, we need to create investment opportunities across the UK to enable a smarter, more flexible energy system, which harnesses the power of competition and innovation to the full. In partnership with the Office of Gas and Electricity Markets (Ofgem), we ` Work to minimise the costs to consumers of getting energy to homes and businesses, by promoting more innovation and competition in networks and in national and local energy markets ` Ensure electricity networks are able to integrate increasing renewable generation and more electric vehicles (EVs), while controlling system costs ` Make sure that energy system information about supply and demand is used to drive greater efficiency and lower costs, as well as promote more innovation and new services for consumers ` Ensure that the system’s rules support the transition away from

successful anywhere in the world. It was designed and built for the age of fossil fuels which, even today, are predominant in final energy use. Though they are now at record low levels, fossil fuels, primarily petroleum products and natural gas, still accounted for just over 79 per cent of energy supply in 2019, with electricity representing only 17 per cent of final energy use by consumers. 93 This dependency on fossil fuels will change dramatically over the next 30 years. By 2050, electricity could provide over half of final energy demand, as it displaces petrol and diesel in cars and light vehicles and, to some degree, gas for heat in homes. As we set out in the ‘Power’ chapter, this could mean that electricity demand doubles from today’s 345TWh.94 This change necessitates a very different approach, and not just because the energy system must support the deployment of clean energy technologies. It will also have to adapt to a world in which energy is far more decentralised. Smaller regional networks that transport electricity from the scale generators , into our homes and businesses – the ‘A and B roads’ of our energy network. There are 14 licenced distribution network operators (DNOs), owned by six different groups. The high-voltage networks that transport electricity across Britain and nearby offshore waters – the ‘motorways’ of our energy network. different Transmission Owners (TOs) for England and Wales; southern Scotland; and northern Scotland and the Scottish islands groups, and by individual Offshore Transmission Owners (OFTOs) for the connections between offshore windfarms and the onshore grid. Smaller regional networks that transport gas from the transmission businesses. There are eight licenced gas distribution networks (GDNs), owned by four different groups. power stations and large industrial by National Grid Gas plc (NGG). Local gas networks are communities served by a local gas distribution network that is off the mains grid. Demand will be satisfied as much by local solutions as by a nationally organised and operated system. Smart technologies, enabled by pervasive digitalisation, are already opening new possibilities, facilitating a transformation to faster and more efficient solutions which will only accelerate over the coming decade. The switch to clean electricity has particularly profound implications. Separate networks for electricity, gas for heating and petrol or diesel for cars and vans, which today run independently of each other, will increasingly merge into one system, as electricity becomes the common energy currency. It puts new demands on electricity, to reflect how we use heat and power our cars and will require a new approach to how the system is managed.
And the energy system will have to adapt further, to accommodate the production and use of clean hydrogen or the transport and storage of carbon dioxide from industry or power generation. The costs of transporting energy and managing the balance between supply and demand make up around 25 per cent of an average household’s energy bill currently.96 As we move to clean energy, the system will comprise a more complex series of functions which it will need to discharge while keeping costs affordable. The prize is an energy system which is not only cleaner but also smarter; one that gives customers more control, delivering the energy we need efficiently, and at a fair cost. Securing this outcome requires a comprehensive approach, with evolution across all elements of the energy system so that it is fit for the future. It is not just about ensuring a cost-effective and resilient network of pipes and wires, critical though this is. It means exploiting a new digital infrastructure which will complement the system’s physical infrastructure to liberate the potential of smart, flexible technologies. The electricity network is now This means there will be more numerous and smaller sites of generation across the country, not just the large, centralised power stations with which we are familiar. There will be new sources of demand, as millions of EVs and heat pumps connect to the system. A previously one-directional system is transforming into something more dynamic. But it is not a matter of adding ever more generating capacity and cables. The transformation of the electricity system is an opportunity to exploit new forms of system flexibility in how energy is generated and consumed. This flexibility allows supply and demand to be shifted in time or location, so they are matched in the most efficient way – keeping costs down for consumers. For example, smart technology and time-of-use tariffs can help consumers charge EVs during off-peak periods – when energy is cheaper and cleaner. Our analysis suggests that a smarter, more flexible system could unlock savings of up to £12 billion per year by 2050 (2012 prices), compared to a system with low levels of flexibility97 – primarily because being able to respond more quickly and shift electricity around more easily means less generation and network needs to be built. This will lower costs for the customer of the future. By 2050, the domestic market for smart systems and flexibility solutions, including EV smart chargers and smart network equipment, could contribute almost £1.3 billion to the nation’s economy, with exports of these products and services adding a further £2.7 billion (2020 prices). The domestic market for smart systems equipment and related services could support 10,000 jobs by 2050, with a further 14,000 jobs supported by export markets. 98

We have to instil competition deep into the operation of our energy markets to drive cost reductions and open the system to innovative new services for the benefit of consumers, while also incentivising the significant private sector investment that will make it possible to update our energy system. And we need an approach to managing the operation of the system which is flexible and responsive, and aligned to the demands of a net zero future. Electricity markets need to adapt as the deployment of renewable Balancing supply and demand becomes more complex because most renewables are, by their nature, intermittent and generate electricity only when the Gas-fired power stations have traditionally provided the flexibility needed to match supply to demand at peak hours, or when renewables output is low. Increasingly, flexibility will come from new, cleaner sources, such as energy storage in batteries, increased interconnected capacity from neighbouring electricity markets, or from consumers using smart technologies to reduce how much energy they use or shift when they use the energy to different times in the day. New forms of flexibility could lower future costs for consumers, by minimising expensive network reinforcement or reducing the need for additional generation, especially peaking capacity which needs to be deployed quickly to meet spikes in demand. `We will publish a new Smart Systems Plan in spring 2021, jointly with Ofgem, and define electricity storage in law, legislating when Parliamentary time We need open, competitive markets which harness the full value of flexibility. In 2017 , the government and Ofgem published the first Smart Systems and Flexibility Plan. 99 We have implemented two-thirds of the policies in the plan and are on track to deliver it in full by 2022, removing barriers to energy storage, enabling smart homes and businesses and properly rewarding providers of flexibility services. But we are now ready to take the next step in driving flexibility deep into the energy system. is operated by a single Electricity stable and secure. National Grid

In partnership with Ofgem, we will publish a new Smart Systems Plan in spring 2021, which will include a new framework for monitoring flexibility across electricity markets. We will legislate when Parliamentary time allows to define electricity storage in law, removing another barrier to flexibility. `Through the Net Zero Innovation Portfolio, we will launch a major commercialisation of first-of-a-kind longer duration energy storage, as part of our £100 million investment in storage and flexibility innovation, with Storing excess low-carbon generation over longer periods of time could enable us to decarbonise the energy system more deeply at lower costs. Novel energy storage technologies show promising cost reductions100 but some have yet to be demonstrated at scale. First-of-a-kind demonstrations are required to enable cost reduction and de-risk private investment. The Prime Minister’s Ten Point Plan announced a further £100 million to address energy storage and flexibility innovation challenges, one of the key priority areas in the over £1 billion Net Zero Innovation Portfolio. To promote energy storage innovation, we will further accelerate the commercialisation of innovative technologies, excluding proven technologies such as lithium ion and pumped hydro storage. Our support will build on the success of previous funding under the current Energy Innovation Programme.
It will focus on long-duration storage technologies that could be deployed at large scale and provide novel services or system benefits. The first competition to address energy storage and flexibility innovation challenges will be launched in spring 2021 with stakeholder engagement and information days. Some flexibility solutions could be better delivered through local markets, in which organisations with a more in-depth knowledge of their communities can provide solutions to local need more quickly than responses at the national level. But local and national actions need to complement one another. We will work towards a market framework which ensures that national and local electricity markets are fully co- ordinated and satisfy the full suite of system requirements. We look to the Electricity System Operator (ESO), Distribution Network Operators (DNOs) and market participants to work closely together to facilitate this enhanced co-ordination, and government will keep progress on this under review to ensure the system enables optimal levels of flexibility. DNOs, the companies which own the regional electricity networks, are already creating local flexibility markets. In 2020, they awarded contracts for around 1.2GW of flexibility services, including the first contracts to provide local services which pay households for using the aggregated electricity capacity from a collection of domestic batteries.101 We will encourage more local solutions and open up as many services as possible to competition. We expect network operators to go much further, fully opening their networks to flexibility technologies while mitigating real or perceived conflicts of interest. Piclo Flex is an independent flexibility marketplace which allows DNOs and flexibility providers to find and contract with each other. It enables distributed resources such as electric vehicles or battery energy storage to identify where flexibility is needed via a dashboard, receive notification of relevant auctions, and bid for DNO payments. Overall, the platform helps to identify flexibility market opportunities and lowers barriers for entry for flexibility providers. As part of the £505 million BEIS- funded Energy Innovation Programme, Piclo is now expanding its platform to support trading with the ESO, as well as trading between flexibility providers. Another competition winner, Electron, are also creating innovative digital solutions for flexibility trading. Actions should include steps to implement standardised flexibility products as soon as possible and ensure that distributed flexibility is able to participate in all markets. We will keep open the option of legislating in support of local flexibility markets, should DNOs fail to make sufficient progress. Due to the unique characteristics of electricity, there is a need to match supply and demand on a second-by- second basis. The government works in partnership with the ESO and Ofgem to ensure the reliable operation of the system and the security of electricity supplies. Security of supply will always be a priority, but our approach must also adapt to reduce carbon emission and costs. Our markets should also incentivise the integration of the different types of energy assets which are now connecting to the energy system. We expect Ofgem and the ESO to ensure existing balancing services are fully transparent and competitively procured, while enabling new markets to emerge. We support the steps which they are taking to facilitate wider access to balancing services and embed more efficient processes into the operation of balancing markets, including establishing closer-to-real time markets and enabling greater automation. As well as making sure the system is stable on a day-to-day basis, we need the assurance over the course of each year that there is enough generation capacity to satisfy even exceptional periods of demand or to back-up renewables when the wind does not blow, or the sun is not shining. The Capacity Market (CM) is our primary policy mechanism for delivering this security of electricity supply. It provides generators and flexibility providers with a payment for reliable capacity to ensure they deliver more electricity, or reduce demand, when required. To date, the CM has supported investment in over 10GW of new capacity, including smart technologies such as battery storage and demand-side response.102 We have made a number of reforms since its introduction in 2014, such as allowing certain renewables to participate and implementing carbon emissions limits in future auctions. In our five-year review, published in 2019, we committed to retaining the CM as a guarantee of system reliability and to making further incremental improvements to its design.103 The next review will take place by 2024. We will ensure that the mechanism acts in concert with other markets to incentivise investment in the right type of capacity, in the right place at the right time. Over the longer term, as generation moves towards a predominantly renewables mix, we want electricity markets to incentivise the right behaviours from generators and offer value for money to consumers, while continuing to ensure low-carbon solutions can deploy at the scale needed for net zero emissions. Our current market framework emphasises the cost of fuels such as gas and coal, but renewable technologies, such as wind, do not use fuel at all. It is also poor at valuing some services which will become increasingly important to the system, such as local balancing. Increasing levels of renewable generation are likely to impact wholesale market prices and the ways in which markets determine which assets can most efficiently dispatch power, or reduce use, to balance the system. We need markets to incentivise both significant levels of new investment and efficient operation, in a system which mixes existing generation with increasing levels of renewables and the flexible technologies which complement them. We will support the technologies required for this transition and look for ways to adapt our policies to reflect emerging market dynamics; for instance, through our call for evidence on the future of renewable support schemes, published alongside this white paper, and in our new Smart Systems Plan, to be published in spring 2021. Beyond this, we will consider how our policies should continue to evolve, developing our approach as required in consultation with industry and other stakeholders.
Electricity and gas transmission networks transport energy large and places of work to the grid. The vast majority of households are connected to the electricity network. The relatively few homes that are off grid, have their own electricity generator and might self-generate, using solar photovoltaics for example. Britain’s gas network is one of the most efficient, resilient and advanced operations in the world, connecting over 23 million users through 284,000 km of pipelines.104 Around four million households live off the gas grid, many of them in remote locations and using stored oil or gas for heating and for hot water.105 Britain has been at the forefront of introducing competition to networks and regulating these natural monopolies. This approach has served consumers well, promoting innovation, and lowering costs. Since privatisation, our gas and electricity networks have become more resilient and delivered better value for customers. The cost of transporting a unit of electricity has fallen by 17 per cent since the mid-1990s, while investment has increased. Reliability and customer service have improved, and the number of power cuts has almost halved.106 The transformation of our energy system will require growing investment in physical infrastructure, to extend or reinforce the networks of pipes and wires which connect energy assets to the system and maintain essential resilience and reliability. As well as creating a low-carbon system we need enhanced preparedness for climate risks. Government is supporting the efforts of key stakeholders in this important endeavour. Under the Climate Change Act’s Adaptation Reporting Power over 90 organisations have committed to report on their preparatory actions by the end of 2021, including those responsible for electricity generation, and the transmission and distribution of gas and electricity.107 While the gas network will need continual updating, the electricity network faces a complete step-change in approach and scale. Working with Ofgem, we need to deliver investment in our existing electricity network at the lowest possible cost to consumers while ensuring the network can keep pace with burgeoning demand for power, for example, from the accelerated adoption of EVs and heat pumps. `We will legislate, when Parliamentary time allows, to enable competitive tendering in the building, ownership and operation of the onshore electricity We need market and regulatory frameworks which promote greater competition and more innovation in the construction and operation of energy networks. Competition in network assets is key to reducing network costs. Since 2009, awarding the ownership and operation of offshore wind network connections through a competitive tender process is estimated to have saved consumers in excess of £800 million. 108 We now need a similar competitive regime for onshore networks, where currently only incumbent network operators can build, own and operate network assets. Allowing other parties to compete for onshore network projects will deepen the pool of capital available for the significant amount of investment needed in our networks as we transition to clean energy. Competitive pressure in these networks will improve efficiency, saving consumers more money, and encourage further innovations in system design and operation. It will also provide Ofgem with better price information, which it can utilise in setting its periodic price control mechanism. We therefore intend to introduce legislation, when Parliamentary time allows, to enable competitive tendering for building, owning and operating onshore electricity network assets. We intend the legislation to allow the Secretary of State to appoint an appropriate party to run the tender processes. We propose that competitive tendering could be opened up at the distribution network level, as well as in the transmission network, should evidence suggest that this will secure value for consumers. This competitive regime will extend widely, addressing network constraints across Wales, Scotland and England. We also intend to open network innovation funding to third parties and encourage more whole-system innovation in gas and electricity networks. We will consider amending legislation to achieve this, should it be necessary. `We will support the rollout of charging and associated grid infrastructure along the strategic road network, to support drivers to make the switch to EVs ahead of the phase out of the sale of new petrol and diesel cars and vans by 2030, and hybrids with significant zero Following extensive consultation with car manufacturers and dealers, the Prime Minister has confirmed that the UK will end the sale of new petrol and diesel cars and vans by 2030, ten years earlier than planned. The sale of hybrid cars and vans that can drive a significant distance with no carbon emissions will continue until 2035. This accelerated transition requires scaling-up the rollout of EV chargepoints and, in turn, an associated expansion in electricity generation and network capacity, to meet the increase in demand for power. With the necessary investment in new infrastructure and the adoption of smart charging, we are confident that the system will cope with the transition. As part of a £2.8 billion package announced in the Prime Minister’s Ten Point Plan, the government will provide funding of £1.3 billion to accelerate the rollout of chargepoints for EVs in homes, workplaces, streets and on motorways across England, so people can more easily and conveniently charge their cars. We will invest £950 million of this funding in future proofing grid capacity along the strategic road network, to prepare ahead of need for 100 per cent take- up of zero emissions cars and vans. EV Charging on the Strategic Road Network Over 95 per cent of people in England use the Strategic Road Network at least once a year.109 We will support the roll out of charging infrastructure along England’s Strategic Road Network by investing £950 million in future proofing grid capacity at motorway and major A road service areas. This will ensure the private sector can continue to expand the charging network at pace in the 2020s. By 2030, we expect the network to be extensive and ready for more people to benefit from the switch to electric cars. We are planning for there to be around 2,500 high powered chargepoints across England’s motorways and major A roads.
By 2035 we expect around 6,000 high powered chargepoints across England’s motorways and major A roads.110 This will be a vital investment for our future, and key to reducing consumer anxiety

We expect the mass uptake of EVs to create significant new demand for power, but it also represents an opportunity for enhanced system flexibility. Smart charging can help mitigate peak demand; for example, charging overnight rather than in the early evening when an EV owner might plug in their vehicle after returning home from work but also the time when electricity demand tends to peak. Vehicle-to-grid technology can then utilise the electricity stored in car batteries to supply power or services to the grid during periods of high demand. To capture these system benefits, the deployment of charging infrastructure needs to run ahead of the uptake of EVs. Only then will consumers have the confidence that they can charge their vehicles conveniently and cost-effectively. The Prime Minister’s Ten Point Plan also set an ambition to reach 600,000 electric heat pump installations per year by 2028, as one option to accelerate the decarbonisation of heating. Along with the rollout of EVs, the electrification of heat will further drive the need for anticipatory investment in the network but equally create opportunities to exploit system flexibility. Deployed in conjunction with storage and smart meters, heat pumps are able to avoid periods of high demand, benefitting the grid, and reducing running costs. We are working closely with Ofgem to ensure that the regulator’s network price control mechanism enables the investment needed in EV charging infrastructure, heat pumps and other low-carbon technologies. Price control must be as agile as possible in approving future network upgrade projects when the need becomes clear, while keeping costs down, now and in the future. Given the key role of electricity distribution networks in being able to accommodate low-carbon technologies such as EVs and heat pumps, the government wrote to Ofgem in October 2020 to outline relevant policy in advance of Ofgem setting its final methodology for the next distribution price control, which covers the period 2023 to 2028.111 Our letter highlighted the importance of appropriate investment to enable timely connection of new low-carbon technologies, and gathering and sharing the data needed to optimise the use of networks. We are also working with Ofgem, and partners across the energy and transport systems to address barriers which can prevent the efficient connection of chargepoints to the electricity grid. This will include ensuring there is easily accessible and accurate information for commercial customers on the costs and opportunities of rolling out chargepoints in different locations, to give them confidence to make informed choices around the switch to EVs. Interconnection increases the ability of the GB electricity market to trade with other markets, enhances the flexibility of our energy system and has been shown to have clear benefits for decarbonisation. Alongside this white paper, we are publishing a report into the impact of interconnectors on decarbonisation, which demonstrates how a higher level of interconnector capacity could decrease cumulative emissions in Great Britain by up to 199MtCO2e by 2050, as well as reducing total system costs.112

We will work with Ofgem, developers and our European partners to realise at least 18GW of interconnector capacity by 2030. This represents a three-fold increase from current levels and will position us as a potential net exporter of excess green energy, helping to keep wind turbines generating even when GB electricity demand has been met. `To minimise the impact on local communities, we will implement a more efficient approach to connecting offshore generation to the mainland The current regime for connecting offshore wind farms to the onshore grid has encouraged single point-to-point connections. Each project has a separate cable route and associated onshore infrastructure. We recognise the impact this is having on the coastal communities which host this infrastructure and will act quickly to take the necessary steps to address the situation, particularly given our ambition to have 40GW offshore wind by 2030. We have launched the Offshore Transmission Network Review to improve the delivery of transmission connections for offshore wind generation.113 This will consider the full impacts on affected communities, particularly on the east coast of England, while making sure the whole of the UK benefits from a more strategic approach. The review will seek the appropriate balance between environmental, social and economic costs. It will also consider the potential of hybrid, multi-purpose interconnectors, which are already being explored by developers in the UK and the Netherlands, to get the most from our offshore wind and transmission assets. These hybrid projects could integrate the transmission links we need to connect offshore wind to our grid with interconnectors to neighbouring markets. These projects would allow us to sell excess green power in other markets, or, when our wind output is low, import electricity through cross-border trade. Initial outputs from the ESO, delivered as part of the review, have shown that taking a more coordinated approach could deliver up to £6 billion in consumer savings by 2050, significantly reducing environmental and social impacts on coastal communities. 114 This analysis showed benefits not just for the east of England, but also Scotland and Wales. We are working closely with the Scottish and Welsh Devolved Administrations through the review. In order to start delivering these benefits, we will encourage projects already in development, where early opportunities for coordination exist, to consider becoming pathfinder projects. This will help inform the design of the enduring regime. We will consider changes to the current regulatory framework which enable developers to implement innovative approaches, including on anticipatory investment. For the 2030s and beyond, we will redesign the current regime to incentivise more extensive coordination and minimise environmental, social and economic costs. We need a modern digital infrastructure to underpin markets and optimise physical networks. This requires new ways of creating, collecting, analysing and sharing energy data from different sources.
`We will build world-leading digital infrastructure for our energy system, based on the vision set out by the independent Energy Data Taskforce, publishing the UK’s first Energy Data Strategy in spring 2021, in partnership Data will help us to discover cheaper ways of delivering the energy we need by making information available to those who can provide solutions to reduce costs and improve services to consumers. For example, better data can help local authorities make the best decisions about where to install chargepoints for EVs. Open and secure data is also essential to the efficient integration of low-carbon technologies, such as solar panels, heat pumps and batteries, into our electricity networks. Information about the scale and nature of demand, the capability of networks, or the location and size of generation and storage capacity will enable markets to optimise the use of assets across the system. This information can be combined with data from transport, homes and commercial buildings to enable whole-system strategic planning and investment decisions. Smart meter data can help DNOs to identify system constraints and enable them to direct investment more efficiently, including where network reinforcement is required to support an increase in heat pumps or EVs. In all such activities, we will ensure that new technologies are introduced in a way that empowers consumers and protects their data at all times. Batteries and Machine Learning Habitat Energy are using artificial intelligence and machine learning to provide optimisation and trading services to owners of battery storage and other flexible energy assets. Habitat uses algorithms to process data from individual assets and trading platforms to optimise the batteries across multiple markets. This data-driven approach maximises the revenue that can be achieved while also carefully managing the degradation of the battery to preserve asset life. Improved co-ordination between markets and better quality data about network condition and performance enable innovators like Habitat to optimise assets to meet system needs, thereby reducing costs for consumers. In 2018, the government and Ofgem launched the independent Energy Data Taskforce. The Taskforce’s final report in 2019 highlighted how the move towards a modern, digital energy system is being hindered by poor quality or missing data, while data which is valuable can be hard to find or subject to restricted access.115 The report set out a strategy to fill data gaps, improve the quality of We are implementing all of the Taskforce’s recommendations through ‘Modernising Energy Data’, a joint programme with Ofgem and Innovate UK. We will publish an energy data and digitalisation strategy jointly with Ofgem in spring 2021. The strategy will set out the progress that we have made against specific recommendations and show how better use of data is realising our objective of a fully digital and clean energy system. Our approach will be aligned with the overarching principles set out in the National Data Strategy and aims to help establish the energy sector’s role in growing the UK’s data economy.116 The Taskforce showed that a lack of access to energy data creates a barrier to innovation in the new technologies and services required to achieve net zero emissions. We are therefore creating a national energy data catalogue to make data more visible and reduce the costs of accessing this information. A prototype of the service will be launched by summer 2021. Market participants will be able to use this data to identify opportunities for creative new solutions, such as supplying more efficiently groups of customers who have similar needs. Data owners often default to not sharing the information they create. We will develop a ‘data triage’ process which provides practical support to energy companies for making data more readily available, while ensuring cyber-security and data privacy. It will represent a clear guide for market participants on how to share data appropriately. Ofgem will consult on this guidance and associated licence conditions by summer 2021. It will complement the digitalisation strategies of the network companies which have recently been published to set out operators’ plans for improving the use of data. We will also develop the tools and processes which allow innovators to make full use of the data once they have access to it. The Modernising Energy Data innovation competitions will enable providers of new services to link energy data with information from other sectors such as transport, heat and buildings, integrating the UK’s different infrastructure.117 For example, the £2 million Modernising Energy Data Access competition will help develop the digital structures needed for innovators to build new apps and products that are compatible across different systems and sectors. The early outputs from these competitions are expected to be available by autumn 2021. As the energy system becomes increasingly reliant on digital technologies, cyber security will be ever more important for the stability and security of the energy system. Our smart metering system has already been developed with security experts from government and industry and we will continue to ensure cyber security plays a key role in the actions we are taking to facilitate a smart, digital and secure energy system. Gas currently represents almost consumption and 40 per cent of We will continue to rely on natural gas for some years, even as we work to largely eliminate carbon emissions from the entire energy system including those from gas. `We will consult on updates to the Gas Act to ensure we decarbonise gas supplies while continuing to provide the right price signals to market We will therefore make sure the natural gas markets and networks evolve in a way which enables continued investment and ensure secure supplies but also promotes the use of low-carbon options, wherever possible. This will reduce emissions now and help build the networks of the future which will need to accommodate technologies such as hydrogen and Carbon Capture, Usage and Storage. We will need investment in the gas network to support the ambition set out in the Prime Minister’s Ten Point Plan for a potential Hydrogen Town before the end of the decade.
But while natural gas continues to play a role in powering and heating our homes, we will need to maintain security of supply and ensure network operators have the right market and regulatory signals to ensure the necessary levels of investment in resilient, efficient infrastructure. Our gas markets operate effectively but it is important they continue to provide the right incentives consistent with our overall strategic goals. We will therefore review the overarching market framework set out in the Gas Act to ensure the appropriate powers and responsibilities are in place to facilitate a decarbonised gas future. This will include a review of gas quality standards to enable the widest range of gasses to be used to decarbonise energy. We will work with Ofgem to remove distortions within the gas market, such as reviewing the Domestic Load Connection Allowance which acts as a subsidy for extensions to the gas grid rather than allowing competition with other lower carbon options. These changes are important to make sure the right price signals are in place to maintain security of supply while also enabling the decarbonisation of gas. Starting in 2021, through a series of workshops and consultation, we will work with network operators, suppliers and consumer groups on the future of gas as we transition to a clean energy system. Our dialogue with stakeholders will also consider the implications for networks, gas wholesale and retail markets and for final energy use by consumers. The whole transmission system is operated by a single Gas System Operator (GSO), who is responsible for keeping it stable and secure. National Grid Gas Transmission

The markets and networks that deliver our energy are governed by a series Our current standards are geared to the safety of our energy system and the rules we have in place protect customers and ensure fair competition. This process is overseen by institutions including Ofgem, and the system operators who keep supply and demand in balance. `We will ensure that the institutional arrangements governing the energy system are fit for purpose for the long term, consulting in 2021 over organisational functions, including system operation and energy code Our approach to system governance needs to evolve. The roles of Ofgem, the electricity and gas system operators and the transmission and distribution network operators still largely reflect the model from 30 years ago and need to be updated. As we decarbonise the energy system, the regulator, networks, industry and government will need to work together to consider the potential solutions. Interactions within the energy system are becoming more complex. The system operators need to take on new responsibilities and the regional network owners need to play a more proactive role in delivering an open, flexible and efficient system. We need the operation of national and local energy markets to be managed impartially, without conflict of interest, ensuring they are fully open to competition. We need a robust process for setting and enforcing system rules, an approach which ensures that the rules promote competition and innovation, not act as a barrier to change. There is also a need for a greater co-ordination to drive collaboration between different parts of the energy system which are currently too siloed. We need to consider, at both the transmission and distribution level, whether the roles which discharge these functions are undertaken by government, Ofgem, industry parties such as the system operator, or by an entirely new body. We will review the right long-term role and organisational structure for the ESO, in light of the reforms to the system operator instituted in April 2019. It is possible that there will need to be greater independence from the current ownership structure, should it be appropriate to confer additional roles on the system operator. These new roles should help the system achieve our net zero ambitions and meet consumers’ needs. Without them, we risk having an energy system which makes less effective investment and operational decisions, resulting in excessive costs for consumers or a failure to reduce emissions in line with our net zero target. The detailed technical and commercial rules of the energy system, established in a collection of codes and engineering standards, also need an overhaul to ensure that they are fit for purpose as we transition to a clean energy system. Many rules have only seen minimal change since the 1950s. We will consider the best future framework for energy codes and consult on options for reform in 2021, building on the government and Ofgem’s joint review of code governance119 and the work of the independent panel Ofgem is clear that helping to deliver a clean energy system consistent with net zero emissions protects consumers’ interests, which is Ofgem’s principal statutory objective. However, as the pace of this transformation accelerates, it will be important that Ofgem has clear sight of the government’s policy priorities for the decarbonisation of energy, including how we approach the electrification of road transport and heat. `We will set out our vision for energy as a guide to Ofgem, by consulting in 2021 on a Strategy and Policy Statement for The Strategy and Policy Statement will set out the strategic priorities of our energy policy, the outcomes we seek to achieve and the roles of government, Ofgem and other parties which are collectively responsible for delivering these goals. Subject to Parliamentary approval, the Strategy and Policy Statement will require the Secretary of State and Ofgem to carry out their regulatory functions in a manner which is consistent with securing the government’s policy outcomes, including delivering a net zero energy system while ensuring secure supplies at lowest cost for consumers. This will enable not just Ofgem, but energy consumers and industry as well, to better understand the government’s ambitions for the energy sector.
We will publish a new Smart Systems Plan in spring 2021 , jointly with Ofgem, and define electricity storage in law, legislating when Parliamentary Through the Net Zero Innovation Portfolio, we will launch a major competition to accelerate the commercialisation of first-of-a-kind longer duration energy storage , as part of our £100 million investment in storage and flexibility innovation, with delivery from spring 2021. We will legislate, when Parliamentary time allows, to enable competitive tendering in the building, ownership and operation of the onshore electricity network.
We will support the roll out of charging and associated grid infrastructure along the strategic road network , to support drivers to make the switch to EVs ahead of the phase out of the sale of new petrol and diesel cars by 2030, To minimise the impact on local communities, we will implement a more efficient approach to connecting offshore generation to the mainland grid. We will build world-leading digital infrastructure for our energy system , based on the vision set out by the independent Energy Data Taskforce, publishing the UK’s first Energy Data Strategy in spring 2021, in partnership with Ofgem. We will consult on updates to the Gas Act , ensuring we decarbonise gas supplies while continuing to provide the right price signals to market participants. We will ensure that the institutional arrangements governing the energy system are fit for purpose for the long term, consulting in 2021 over organisational functions, including system operation and energy code governance. We will set out our vision for energy as a guide to Ofgem , by consulting in 2021 on a Strategy and Policy Statement for the regulator. Transport is an important aspect of our everyday lives and fundamental Our cars, buses, trains and planes allow us to travel long distances to meet with our families, friends and colleagues; and our lorries, vans, and ships ensure our goods and mail are delivered safely Yet while transport helps to connect people and places, boosting economic growth and opportunity, it now contributes over a quarter (28 per cent) of UK domestic greenhouse gas (GHG) emissions.121 Over 90 per cent of these emissions come from our roads, with passenger cars, heavy goods vehicles and light duty vehicles contributing the most. Despite dramatic progress to improve fuel efficiency of new passenger cars, emissions reductions have been largely offset by their increased use. 122 The Department for Transport will publish its plan to decarbonise the UK’s entire transport system in spring 2021, putting us on a pathway to reach net zero. The Transport Decarbonisation Plan is focused on six strategic priorities. `Help make public transport and active travel the natural first choice `Support fewer car trips through a coherent, convenient and cost- effective public network; and explore how we might use cars differently `Encourage cycling and walking for `Explore how to best support the emissions occur in specific locations `Acknowledge a single solution will not be appropriate for every location `Address emissions at a local level through local management of transport `Target support for local areas, considering regional diversity and changing consumer behaviour for `Transform ‘last-mile’ deliveries - developing an integrated, clean and `Optimise logistics efficiency and explore innovative digitally- enabled solutions, data sharing and `Support the transition to zero emission road vehicles investment in innovative technology development and development of

`Utilise the UK’s world-leading scientists, business leaders and innovators to position the UK as an internationally recognised leader of environmentally sustainable technology `Build on expertise in the UK for technology development and capitalise `Lead international efforts in transport `Recognise aviation and maritime are international by nature and require `Harness the UK as a global centre of expertise, driving low-carbon innovation and global leadership,

cars and light goods vehicles make up over two thirds of all transport emissions, so decarbonising those forms of transport is a priority. Following extensive consultation with car manufacturers and sellers, the Prime Minister has confirmed that the UK will end the sale of new petrol and diesel cars and vans by 2030, ten years earlier than planned. From 2035, all new cars and vans must be zero emissions at the tailpipe. Between 2030 and 2035, any new cars and vans sold that emit from the tailpipe must have significant zero emission capability, for example plug in and full hybrids. The meaning of ‘significant zero emission capability’ will be defined by consultation in 2021. The government has also committed to providing a delivery plan in 2021 to realise these new ambitious phase out dates. The delivery plan will provide key milestones, and government will work with stakeholders to ensure these phase out dates can be met. The UK car industry already manufactures a significant proportion of Europe’s electric vehicles (EVs), including one of the most popular models in the world. To support this acceleration, the Prime `£1.3 billion to accelerate the rollout of chargepoints for EVs in homes, workplaces, streets and on motorways across England, so people can more easily and conveniently charge their cars. `£582 million in grants for those buying zero or ultra-low emission vehicles to make them cheaper to buy and incentivise more people to make the transition. `Nearly half a billion to be spent in the next four years for the development and mass-scale production of electric vehicle batteries (gigafactories) and other strategic technologies, as part of our commitment to provide up to £1 billion to support development of the electric vehicle supply chain, boosting investment in the automotive sector, including existing clusters of activity in the Midlands and In 2019, the UK was the third largest market for ultra-low emission vehicles (ULEVs) in Europe and is a global leader in their development and manufacture.123 Nearly 10 per cent of zero emission cars bought in Europe in 2019 were built in the UK.124 As at 30 June 2020, there were nearly 320,000 ULEV vehicles registered in the UK, up from just over 140,000 at the end of 2017 . The vast majority of those ULEVs are cars, accounting for nearly 300,000 vehicles. 125 EVs will create significant new demand for electricity, and we are already taking action to ensure the energy system now, and in the future, is ready for this shift. The transition to mass uptake of EVs will also have a big impact on how households consume energy. This is why the government has established the Electric Vehicles Energy Taskforce, to ensure consumers are placed at the heart of this journey.
We expect the mass uptake of EVs to create significant new demand for power but also offer opportunities for enhanced system flexibility. As discussed further in the ‘Energy system’ chapter smart charging and vehicle-to-grid technology can provide benefits for the consumer and the grid. Under the Automated and Electric Vehicles Act 2018 government have the powers to mandate all smart functionality for chargepoints, enabling consumers to drive home from work, plug their car in, and automatically charge when electricity is cheaper, or greener, rather than in the evening, when it is more expensive. We intend to bring forward regulations in 2021 to mandate that private EV chargepoints must be smart, and in the ‘Buildings’ chapter we discuss the ongoing work to introduce chargepoints into all new homes and non- residential buildings. Consumers will need to access accurate, trusted information to enable them to make an informed decision about electric vehicle charging. Government wants consumers to have confidence that they will be offered choice, convenience, and appropriate protections. Information from these chargepoints will inform planning and operation of electricity systems, and help customers save money. Government is working to ensure security and privacy measures are in place to protect chargepoint users. As well as building new network infrastructure where needed, it is important that we use the existing network to enable the deployment of chargepoints at the lowest cost to the consumer. The ‘Energy system’ chapter sets out how we will further support the roll out of charging infrastructure along the strategic road network. In January 2018, the Office for Low Emission Vehicles and the Department for Business, Energy and Industrial Strategy awarded almost £30 million, through an Innovate UK vehicle- can supply electricity to the grid at Bus2Grid is part of this programme and is exploring the commercial value and social benefits to the energy and passenger transportation systems. The project will develop services to support National Grid, local Distribution Network Operators (DNOs), bus operators and transport authorities and at the same time will consider bus fleet consumer engagement approaches necessary for its commercial implementation. Bus2Grid claims to be developing the “world’s largest bus to grid site” and is bolstered by a diverse project consortium, SSE Enterprise, Your Dreams (BYD), the Distribution Network Operator UK Power Networks (UKPN) and the University of Leeds. The project is a first of a kind large scale, multi-megawatt, demonstration of vehicle-to-grid technology in electric bus depots located in London. aggregation platform that enables the 28 e-bus batteries to interact with the energy system by charging or exporting energy to support the grid in times of high energy demand.126

After passenger cars, heavy goods vehicles (HGVs) are the biggest contributor to domestic transport particularly the heaviest vehicles, are much less developed by comparison. The Prime Minister’s ‘Ten Point Plan for a Green Industrial Revolution’ announced that we will consult on a date for phasing out the sale of new diesel HGVs. Battery Electric Vehicles (BEVs) are well place to deliver the bulk of decarbonisation for cars and vans and now also smaller HGVs in short distance and medium weight applications, such as urban distribution. However, the solution for larger, long- haul, road freight vehicles is not yet clear and so we will invest £20 million next year in freight trials to pioneer hydrogen and other zero emission truck technologies to support industry to develop cost- effective, zero emission HGVs in the UK. In our ‘Oil and gas’ chapter we mention the work being undertaken in the downstream oil and gas sector on low- carbon fuels, and we are continuing to explore alternatives, including through a £40 million innovation programme looking at the best fuel/vehicle combinations to decarbonise construction, mining and other off-road heavy vehicles by 2030. We are also supporting the decarbonisation of buses. Early next year, the Department for Transport will publish a National Bus Strategy, which will set out ambitious plans to transform the sector, including delivering higher frequency of service, simpler fares, improved routes and more green buses. As set out in the Ten Point Plan and the Spending Review 2020, the government will invest £120 million in 2021/22 to start the delivery of the 4,000 zero emission buses announced by the Prime Minister in February. Government will support both battery electric buses and hydrogen buses where the market favours their use. For areas of the rail network with significant freight flows or long- electrification is a proven technology Analysis suggests that electrification may also be the best whole-life cost solution for more intensively used areas of the network. Away from these areas of operation the deployment of emerging technologies such as battery traction and hydrogen rolling stock on both an interim and permanent basis may offer alternative solutions to help in achieving decarbonisation of rail at a lower cost. We have established the Jet Zero Council to accelerate the development and adoption of new technologies to help develop our strategy to reach net zero aviation, along with investing £15 million into FlyZero as well as running a £15 million competition to support the production of sustainable aviation fuels in the UK. As we are preparing the Transport Decarbonisation Plan, which will also include actions to get the maritime sector on track to net zero, we continue to implement the commitments in Clean Maritime Plan, building on the government’s ambitious vision for the future of UK zero emission shipping. This includes the launch of a £20 million Clean Maritime Demonstration Competition, which will support the UK design and development of clean maritime technology, including hydrogen, and will lay the foundation for a network of real-world projects. On 16 November, the Department for Transport published the Union connectivity call for evidence.127 The review, led by Sir Peter Hendy, will look at how the quality and availability of transport infrastructure can support quality of life in communities across the UK while also aiding economic recovery and will consider the environmental impact of current and future infrastructure.
Sir Peter is expected to publish his final recommendations in summer 2021. As we decarbonise across transport, energy requirements will change in many sectors, from trains, to boats and planes. This will create new demands on our energy systems. Accelerating the shift to zero emission vehicles could support around 40,000 new jobs by 2030. More details on ensuring all modes of transport are on a pathway to net zero will be set out in the forthcoming Transport Decarbonisation Plan. Delivering our net zero target means largely eliminating emissions from domestic and ` Drive greatly improved energy performance in both existing and new buildings to reduce consumption and help keep bills affordable ` Support the transformation of heating for homes and workplaces from oil and gas to clean energy sources ` Use the switch to clean energy

We need the energy we use to heat or cool our homes and workplaces to be reliable and affordable, and support comfortable, healthy surroundings But emissions from homes and from commercial and public sector buildings account for 19 per cent of total UK greenhouse gas emissions.128 It makes buildings the second largest source of emissions after transport. Buildings also indirectly contribute to power sector emissions through electricity-

Our challenge is to transform how buildings use energy in line with our net zero target. We need to minimise the disruption to consumers as we go through this change and keep bills affordable, while safeguarding the quality of the environment in our building stock. Almost 90 per cent of homes in England currently use fossil fuels, predominantly for heating but also for cooking and hot water.130 The vast majority of these homes, some 85 per cent, are connected to the gas grid. 131 Those that are not connected use mostly oil, liquified propane gas or electricity, or are connected to a shared heat network. While proportions differ between Scotland, Northern Ireland, Wales and England, fossil fuels dominate heating across the UK. 132 The installation of energy efficiency measures and tighter building regulations have improved the energy performance of buildings, lowering consumption and helping to reduce household dual fuel bills by an average of £30 to £40 per year over the last 10 years.133 Emissions from buildings across the UK have fallen by 18MtCO 2e, 17 per cent, over the last 30 years.134 But we need to go further and secure a reduction in emissions by 2050 five times greater than we have achieved over this period. Energy Performance Certificates (EPCs) are required in the UK to provide a prospective owner or tenant with information on the energy performance of a building and recommendations for improvement. EPCs for homes use an A-G rating scale based on the modelled energy bill costs of running the building. The energy performance of too many existing homes is not good enough. Around 16 million homes in England, 66 per cent of the total, are at Energy Performance Certificate D or worse.135 In the private rental sector, existing legislation requires that all buildings have a minimum standard of energy performance only of Band E at the point of rental. The modelled annual energy cost of the average Band C rated home is around £750 less than the average Band E rated home, assuming both homes are There are about 1.8 million non-domestic properties in England and Wales. 137 Buildings in the commercial and public sectors account for around a third of the total final energy consumed for buildings purposes (i.e. excluding industrial, agricultural or transport).138 Large premises of 1,000 square meters or larger represent only 10 per cent of commercial and industrial buildings but emit over half of all the carbon from the building stock.139 Public awareness is low about the connection between climate change and how we heat homes and workplaces. Research by BEIS suggests that the majority of the population has not heard of low- carbon heating technologies.140 Almost a third of gas-users stated they were on ‘environmentally-friendly heating’, suggesting a general under-appreciation of what the transition to low-carbon heating could mean in practice. Encouragingly, however, the survey shows that there is strong support for carbon reduction policies. Almost 90 per cent of respondents said it is important or very important that the UK makes a full transition towards greener heating systems. Tackling emissions from buildings will take many years to deliver but it is a journey which must start now. The 2020s must be a decade of action to put the country on the path to net zero emissions by 2050. Depending on fossil fuels for heat or tolerating wasteful loss of energy in poorly insulated buildings is not sustainable. Action now will put us on a pathway to affordable, green and healthier buildings. Inaction will mean more disruption when we do eventually address the challenge, as well as higher bills and a lower quality of life in our homes and places of work. This white paper builds on our Manifesto commitment to invest £9.2 billion in the energy efficiency of homes, schools and hospitals. It sets out concrete actions to reduce how much energy we use and to support the move to low-carbon heat. We will publish a dedicated Heat and Buildings Strategy in early 2021 which will set out our ambitious plans in further detail, including the suite of policy levers that we will use to encourage consumers and businesses to make the transition. Ensuring our homes and workplaces use energy efficiently makes good financial sense, as well as supporting Energy efficiency measures help bill payers to reduce consumption and keep bills affordable. The asset value of homes can increase based on improved energy performance. Conversely, poor energy performance means that too many bill payers pay more than they should to heat or cool their homes and workplaces comfortably. In November 2020, the Prime Minister announced £1 billion of funding to continue our support for the decarbonisation of buildings through improved energy efficiency.
This will be allocated across several existing government schemes, including the Green Homes Grant Voucher Scheme, the Public Sector Decarbonisation Scheme and Social Housing Decarbonisation Fund. `The Future Homes Standard will ensure that all new-build homes are zero The Future Homes Standard will require new-build homes to be fitted with low- carbon heating, and high levels of energy efficiency. Homes built to the Future Homes Standard will be zero carbon ready and have 75 to 80 per cent lower carbon emissions than those built to current standards. We will seek to implement the standard as soon as possible. As a stepping stone to the Future Homes Standard, we have consulted on an interim uplift in standards which would result in a 31 per cent reduction in carbon emissions from new homes compared to current standards.141 We will publish the government response to the consultation and set out a roadmap to the Future Homes Standard, as soon as possible. We have separately published guidance for drafting building specifications to support the installation of smart meters in new build homes to avoid the need for costly retrofitting. We will work with the industry to incorporate smart technologies, such as heating controls, into the methodology for assessing the energy performance of homes. This will give occupants the ability to manage their energy consumption easily, reduce their energy bills and maximise the use of energy from renewable sources. We have committed to consulting on mitigating overheating risk in new homes and a range of methods will be considered to demonstrate compliance with new requirements. We will consult shortly on increased standards for non-domestic buildings so that new buildings have high levels of energy efficiency and low-carbon heating. We are also taking action on introducing new building regulations to require electric vehicle chargepoints in all new homes and in non-residential buildings.142 We will respond to the consultation in early 2021. `We want as many existing homes as possible to hit EPC Band C by 2035, where practical, cost-effective and While we face the huge challenge of preparing almost 27 million existing homes for a clean energy future, we have already taken significant steps to reduce the carbon footprint of homes, in line with our Manifesto pledge. The Green Homes Grant Voucher and Local Authority Delivery schemes, together worth £2 billion, were launched in September 2020 and the Prime Minister’s Ten Point Plan confirmed that the schemes will be extended for another year, helping to support the development of the supply chain and grow the market ahead of the introduction of regulatory measures later in the 2020s. The £1.5 billion voucher element offers homeowners and landlords a voucher covering up to two thirds of the cost of upgrading energy performance, to a maximum of £5,000. A voucher of up to £10,000 is available for low- income households, with no contribution required. Low-income households can also benefit from the £500 million of the Green Homes Grant that has been ringfenced for Local Authority Delivery. 143 The schemes could enable more than 600,000 homes in England to be more energy efficient, saving these households up to £600 year on their energy bills. 144 Vouchers can be spent on a range of measures from cavity wall and loft insulation and air-source heat pumps, to draught proofing and replacing single glazing with double or triple glazing. We will also take action to improve the energy efficiency of homes in the private rental sector. In September 2020, we issued a consultation on proposals for an estimated 2.8 million privately rented homes to meet a minimum energy performance standard of EPC Band C by 2028, where practical, cost- effective and affordable.145 These proposals could reduce energy bills by an average of £230 per property annually, cutting fuel poverty, saving 9.5MtCO2e by 2032 and supporting 80,000 jobs in the energy sector annually between 2025 and 2028.146 44 per cent of all social rented homes in England, approximately 1.8 million, have an EPC Rating below C.147 In our manifesto, we committed to invest in upgrading a significant number of these homes to at least EPC Band C. In July 2020, the government announced £50 million for 2020/21 to kickstart delivery of this ambition, piloting innovative retrofit projects across the UK and committed further funding in the Prime Minister’s Ten Point Plan, announced in November.148 `We will consult on regulatory measures to improve the energy performance of owner occupied homes, and are consulting on how mortgage lenders could support homeowners in making Meeting our commitments to decarbonise and improve the energy performance in buildings will require the mobilisation of around £100 billion of capital across homes, businesses and the public sector over the 2020s alone.149 It is investment that must come principally from businesses and homeowners, and from landlords of domestic and commercial premises. Growing the market for green finance products will be essential to leveraging this scale of private capital and demands a partnership between the financial services sector and suppliers, manufacturers and energy services companies. We are consulting on how mortgage lenders can help homeowners to improve the energy performance of their homes. The proposals are intended to kickstart the green home finance market and support homeowners to improve the energy efficiency of their homes as we move towards our target of reaching as many existing homes as possible at EPC Band C or above by 2035.150

In summer 2019, the government launched the Whole House Retrofit Grant competition as part of the government’s £505 million Energy Innovation Programme. The aim of the programme was to demonstrate the importance of taking a ‘whole house retrofit’ approach to improving the energy performance of the UK’s buildings and in doing so, tackle one of the most challenging components of our decarbonisation agenda. The competition is based around an innovative ‘fabric first’ approach, while also introducing some low-carbon heating elements.
As an initial push towards achieving the government’s Buildings Mission target of halving the cost of retrofits by 2030, the Whole House Retrofit programme also seeks to achieve cost reductions through process innovations and economies of scale and scope. Ultimately this will make it both cheaper and easier for all homeowners to improve the energy performance of their properties. Retrofits should also deliver improvements in the health and well-being of occupants, including reduction of risk to summertime overheating and damp or mould growth. The three projects selected are led by Local Authorities. More than 300 houses will be retrofitted in total, with a focus on socially rented properties across a range of housing archetypes. The projects are aiming to achieve retrofit cost reductions of between 5 and 20 per cent per property, making the properties not only warmer and more comfortable to live in, but less costly to run as well. The work will help pave the way for further cost reductions, and mass deployment of the whole-house approach as we head towards 2030. At the same time as driving down install costs, a further objective of the competition is to increase expertise in the workforce and build capability of the supply chain, while ensuring resident health and comfort is placed at the centre of the whole house retrofit process. Alongside a package of incentives, we can create a long-term regulatory framework to improve the energy performance of homes. We will seek primary powers to enable this. This will provide certainty to the market and clear signals to homeowners. We will consult in 2021 on options for these measures. In September 2020, the government launched the Energy Performance Certificates Action Plan, which set out a pathway to improve the EPC system. The Action Plan will help to increase the energy efficiency of the building stock by exploring ways to increase the quality of EPCs, build consumer trust and increase engagement. It will support policies which strengthen regulatory compliance and ensure that the data infrastructure underpinning EPCs is fit for the future. We anticipate that changes may be needed to the Energy Performance of Buildings (England and Wales) Regulations 2012 to deliver progress. We will need a new primary power to change the legislation after the Transition Period ends on 1 January 2021, which we will seek through an appropriate legislative vehicle in 2021, if Parliamentary time allows. We also need to make energy-using products, such as household appliances, more efficient, helping to reduce bills and encourage innovation. Policies to increase the energy efficiency of products have been an effective lever and represent one of the most cost-effective ways to reduce energy bills and carbon emissions. The findings from our recent call for evidence will help to inform a best-in-class regulatory framework for energy-using products. Our current estimates show that, taken together with related energy labelling requirements, ecodesign requirements will lead to emissions reductions of 8MtCO2e to 2020.151 Through our world- class energy-related products policy, to be launched in spring 2021, we will push for greater energy and carbon savings. This year the government published a Call for Evidence and Consultations for ecodesign and energy labelling regulations across a range of products. We are currently reviewing the scope of our powers for achieving our energy efficiency ambition and, if necessary, will look to take additional powers through legislation. `All rented non-domestic buildings will be EPC Band B by 2030, where cost- Offices, retail space, hospitality and industrial buildings account for around 80 per cent of private sector buildings energy demand.152 Around a half of all energy consumed in commercial and industrial buildings in England and Wales is in the rented sector, placing the onus on landlords to make energy efficiency and heating improvements.153 We will therefore tighten minimum standards for this sector to reach EPC Band B by 2030 where cost-effective. We will consult shortly on improving the implementation and enforcement of this target. This will reduce carbon emissions, help make businesses more productive and grow the energy efficiency market. We are proposing a performance-based rating scheme for large commercial and industrial buildings to provide businesses and their investors with more information on how to reduce energy consumption and lower both carbon emissions and energy bills. We will consult in early 2021 on how the scheme will work and plan to launch the first phase by 2022/23. Improving energy efficiency is one of the most cost-effective mechanisms for businesses to reduce their energy bills, while reducing their carbon emissions. But a lack of information and the upfront capital costs of installation can deter investment by small businesses in measures such as insulation and energy management systems. We will continue to explore how we can stimulate a thriving market for business energy efficiency through the proposed new energy efficiency scheme focused on small businesses. As well as providing access to advice, the scheme will facilitate the installation of efficiency measures through either an auction process or an energy efficiency obligation so they can improve the energy performance of their premises. We will consult on our proposals in 2021. The Energy Savings Opportunity Scheme aims to drive energy and carbon savings in businesses by improving the quality of the audits of the energy used by their buildings, industrial processes and transport. We will consult in 2021 on strengthening the scheme, taking forward options identified in the comprehensive scheme evaluation and Post Implementation Review published in February 2020. `As announced in the Prime Minister’s Ten Point Plan, we will extend the Public Sector Decarbonisation Scheme Public sector buildings account for nine per cent of emissions from buildings. 154 There is a particular onus on the public sector to demonstrate leadership by improving the energy performance of its building stock. By doing so, it can support a growing private sector energy services sector, helping to support jobs and new business opportunities.
As part of our Manifesto commitment to reduce emissions from the public sector, the Chancellor has already committed the first £1 billion of our funding pledge to upgrade schools, hospitals and other buildings. The Public Sector Decarbonisation Scheme, which was launched at the end of September 2020, will help the public sector play its part in delivering net zero emissions, with improved energy efficiency and clean heat investment. 155 The £1 billion first tranche of funding is expected to cut emissions by up to 1.3MtCO2e by 2032, equivalent to taking nearly 45,000 cars off the road. In addition to catalysing green investment in the public sector, the scheme will support the supply chain, providing clean energy jobs in communities throughout UK. The benefits of well-insulated homes, on health and well-being and on bills, should not be the preserve of households which can afford to pay for energy efficiency measures. People in fuel poverty will not be left behind. Indeed, our support will mean that fuel poor homes will be amongst the first beneficiaries of the energy transition. In line with our net zero goal, we will reduce energy consumption and lower energy bills by upgrading homes, focusing on the least energy efficient housing There is currently no minimum energy efficiency standard which applies in the social rented sector except the requirement in the Decent Homes Standard which stipulates that homes should provide a reasonable degree of thermal comfort and be free of excess cold. This expectation is broadly equivalent to EPC Band F. The government has committed to a review of the Decent Homes Standard to consider how it can better support the decarbonisation and energy performance of homes, particularly with regard to the ambition set out in the Clean Growth Strategy that all homes should meet EPC C by 2035, where practical, cost-effective and affordable. We will work closely with the housing sector The government has also committed to further funding for the Social Housing Decarbonisation Fund, which will upgrade a significant amount of the social housing currently below EPC Band C to at least that Details of our multi-billion-pound plan to transform the poorest quality housing will be set out in our updated Fuel Poverty Strategy for England, due to be published in early 2021. Building on ‘Cutting the Cost of Keeping Warm’, our 2015 strategy, this refreshed update will set out our approach to tackling fuel poverty in the context of net zero emissions and the nation’s recovery from the COVID-19 pandemic. In addition to outlining our plan for reducing fuel bills through improved energy efficiency, the new strategy will set out how we will ensure the fuel poor benefit from a fair and functioning energy market. We will also provide details of our guiding principles for future fuel poverty policies. `We will extend the Energy Company Obligation from 2022 to 2026 to The current Energy Company Obligation (ECO) is an obligation on larger energy suppliers to provide energy efficiency and heating measures for fuel poor consumers across Great Britain. Since the programme began in 2013, nearly 2.9 million measures have been installed in over 2.1 million homes.156 Eligible households can save up to £300 on their energy bills, compared to an identical household.157 Households are eligible if they receive certain benefits or live in the least efficient social housing, or if they are referred by their local authority. The government definition of fuel poverty is where a household has fuel costs that are above average and, were they to pay that amount, would be left with a residual income below the official poverty line. We will continue to prioritise low-income and vulnerable households and focus on those living in the least efficient homes to make their dwellings warmer and healthier. The next iteration of ECO will run from 2022 to 2026 and will focus primarily on improving the worst-quality homes across Great Britain, complementing the upcoming Home Upgrade Grant scheme in England and equivalent schemes in the Devolved Administrations. The Home Upgrade Grant scheme will upgrade the energy performance of the worst-quality off-gas grid homes in England by supporting the installation of energy efficiency measures and low-carbon heating. Both schemes will focus support on low-income households. Discount to around three million low- income households until at least 2025/26 and will consult on reforms to the scheme to better target fuel poverty. It can be a challenge for fuel poor households simply to pay their bills. The Warm Home Discount, currently worth £350 million per year, is a key policy to alleviate fuel poverty. Now in its tenth year, the scheme continues to provide £140 off electricity bills to over two million low-income and vulnerable households each winter, when they need it the most. Over £2.7 billion of direct assistance has been provided by participating energy suppliers under the scheme. Government recently concluded a consultation on extending the current scheme until March 2022. Further to this, we will extend the scheme from 2022 to 2025/26 and expand the total spending envelope from £350 million to £475 million158 per annum to support around 750,000 additional households in or at risk of fuel poverty with paying their energy bills and almost three million households in total. This represents £1.9 billion of extra support for households in or at risk of fuel poverty. We will also consult on reforms to improve fuel poverty targeting, such as using government data to provide automatic rebates to most recipients - making the scheme administratively simpler - and allowing smaller suppliers to participate at lower cost. Better targeting of Warm Home Discount will support a fair transition to a clean energy future for fuel poor households. It will contribute to our fuel poverty interim milestone for as many fuel poor households as reasonably practicable to achieve a minimum energy efficiency rating of Band D by 2025. performance, we need to decrease We stand on the verge of a major transformation as clean energy alternatives replace fossil fuels.
We need to complete this transformation while ensuring households continue to enjoy a reliable heating system and a comfortable, healthy and affordable home environment. To achieve net zero emissions, we will have to transition completely away from traditional natural gas boilers for heating homes on the gas grid. There are currently around 1.7 million fossil fuel boiler installations every year159 but by the mid-2030s we expect all newly installed heating systems to be low-carbon or to be appliances that we are confident can be converted to a clean fuel supply. There is no single technology alternative to fossil fuels. Electric heat pumps and hydrogen, green gas and shared heat networks all have their part to play. So, while we are clear on the eventual outcome, we will be flexible in how we achieve it, always looking for the most cost-effective, consumer-friendly approach and open to innovative solutions. We want to give households, suppliers, installers and equipment manufacturers long lead times to prepare for this transition. We will target the point of least disruption to consumers and minimise the impact on the housing market and will therefore look to use natural trigger points, such as the replacement cycle for existing heating systems. And we need to ensure consumers are receiving fair value as they switch to clean heat, which means working with the market to reduce costs and addressing barriers to the deployment of new technologies. `We will consult on whether it is appropriate to end gas grid connections to new homes, in favour We need to ensure that the right legislation is in place to support the heating market through the transition to net zero. We will review the overarching regulatory framework set out in the Gas Act 1995 to ensure the appropriate powers and responsibilities are in place to facilitate a decarbonised gas future. In particular, to ensure the Gas Act is in line with the Future Homes Standard, we will seek views on the feasibility of ending the connection of new build homes to the natural gas grid. `As announced in the Prime Minister’s Ten Point Plan, we will grow the installation of electric heat pumps from 30,000 per year to 600,000 per year by 2028, supporting up to 20,000 jobs Heat pumps are a proven and commercially viable way to transform heat in buildings, which is also available now. Currently, however, fewer than one per cent of homes in England use a heat pump. 160 We want to open the market of homes not on the gas grid to heat pumps or other clean energy alternatives, representing some 50,000 to 70,000 installations a year.161 We will therefore consult in early 2021 over new regulations to phase out fossil fuels in off- grid homes, businesses and public buildings, including a backstop date for the use of any remaining fossil fuel heating systems. In setting a clear target for deploying the technology, there is an opportunity to expand the existing UK heat pump manufacturing base and exploit future export potential. The UK has a growing expertise in heat network design and is already home to several manufacturers of heat pumps. Annual global heat pump sales are expected to roughly double between 2019 and 2030 from 11.4 million to 20.8 million units.162 A very efficient electrically-driven device that extracts heat from the air, ground or water and concentrates it to a higher temperature and delivers it elsewhere, for example to a central heating system. It can replace fossil fuel heating, such as a gas or oil boiler. We need to take advantage of future export opportunities, particularly to markets in north-western Europe where high demand But electrification is not just a solution for off- grid buildings. We believe that significantly increasing the deployment of heat pumps for on-gas grid homes through the 2020s, on a voluntary basis, will be beneficial, whatever the eventual mix of technologies for clean heat in 2050. We recognise that, to achieve this, we will have to increase business and public confidence in heat pump technology. In April 2020, we launched our proposal for a Clean Heat Grant, due to launch in 2022, as a successor scheme to the domestic Renewable Heat Incentive. We will publish a government response in 2021. The Clean Heat Grant will be targeted at households and small, non-domestic buildings to support the installation of heat pumps and, in certain circumstances, biomass. The scheme will build upon the Green Homes Grant which provides support for heat pump deployment in the near-term. Reducing emissions from buildings will require an annual market for heat pumps by 2028 at least 20 times the size of today’s market, a scale which can help realise the economic benefits of a domestic supply chain. We will work with equipment manufacturers, wholesalers and installers to ramp up supply chain capacity and reduced technology and installation costs. In early 2021, we will consult on policy approaches to underpin the development of the UK heat pump market, including voluntary up-take by consumers in current on-gas-grid homes. The electrification of heat has implications for the GB electricity system, given the increased demand for power and the prospect of different demand patterns which arise from using power for heat. We need to electrify heat in buildings in a way which reduces the need for additional generation and network capacity. This could mean using thermal, hot water or battery storage, potentially in combination with a smart time of use tariff, enabled by smart metering, to shift heating demand away from more expensive peak periods. Managing this transition is a key priority for the development of our plans for low- carbon electricity generation, detailed in the ‘Power’ chapter, and a smart energy system, as set out in the ‘Energy system’ chapter. We are also considering how to further reduce market barriers to the deployment of energy efficiency, and how demand reduction is rewarded for the benefits it provides to the energy system.
We want permanent electricity demand reduction to be a viable alternative to simply building more generation or network capacity. We will explore options to achieve this goal, building on the response to our call for evidence on Facilitating Energy Efficiency in the Electricity System, launched in July 2019. `We will increase the proportion of Biomethane is currently the only green gas commercially produced in the UK. It can be injected into the gas grid to accelerate the decarbonisation of gas supplies. A form of gas that is produced by processing biomass. It can be used for the same purposes as natural gas, like producing electricity or heat, and can use the same infrastructure for transmission and end-user equipment. Budget 2020 confirmed that a green gas levy imposed on gas suppliers will fund a new support scheme to achieve this goal, the first of its kind applied to gas in Britain. The costs of the levy are expected to be passed onto gas bill payers. We are considering the responses to our consultation on the green gas levy design and intend to publish a government response in early 2021. Subject to the outcome of the consultation, we expect the Green Gas Support Scheme (GGSS) to launch in autumn 2021 and run for four years. It will support continued deployment of anaerobic digestion biomethane plants in order to increase the proportion of green gas in the grid. We anticipate that the GGSS could deliver annual generation of 2.8TWh of renewable heat in 2030/31,163 the equivalent of the gas requirements roughly 230,000 homes.164 This scheme will be designed to minimise any associated negative environmental impacts from the anaerobic digestion process, such as ammonia emissions. We believe that through these new measures, building on the success of existing government policies, we have the potential to treble the amount of biomethane in the grid between 2018 and 2030. `As announced in the Prime Minister’s Ten Point Plan, we will work in partnership with industry to evaluate hydrogen as an option for heating our homes and workplaces and develop plans for a possible pilot hydrogen town before the end of the decade. Clean hydrogen could potentially provide a way to decarbonise our gas supplies on a much larger scale than This could offer consumers a future heating option which works for them in a very similar way to natural gas today, but no carbon emissions. However, unlike electric heat pumps and heat networks, the feasibility of using hydrogen for clean heat needs further testing and development. The practicalities and cost of safely converting or replacing existing networks and appliances to operate with pure hydrogen need to be fully evaluated. The UK is already a world leader in investigating the use of hydrogen for heating. Both the government and the gas industry are currently running major studies and testing projects. We will increase the funding available for testing and trialling projects, working with the industry to ensure that the overall programme of work is comprehensive and fully coordinated. A range of further Research and Development (R&D) and testing projects are required, including an assessment of the options for major new hydrogen infrastructure, such as gas transmission networks and inter-seasonal storage. Trials of hydrogen will also be key to evaluating the practicalities of converting existing boiler appliances and the way in which consumers experience hydrogen for heating in their own homes and workplaces. The Prime Minister’s Ten Point Plan for a Green Industrial Revolution set out key milestones for a pioneering programme of trials. We will support industry to begin a Hydrogen Neighbourhood trial by 2023, and a large Hydrogen Village trial by 2025. The knowledge and experience gained in delivering trials in communities, together with the results of our wider R&D and testing programme, will enable a strategic decisions around the mid-2020s over the long-term role of hydrogen for heating and develop a plan for a potential Hydrogen Town before the end of the decade. `We will consult on the role of ‘hydrogen In advance of strategic decisions on the role of hydrogen for heating, we will assess the case for encouraging, or requiring, new gas boilers to be readily convertible to hydrogen, so-called ‘hydrogen-ready’ boilers, in preparation for any future conversion of the gas network. We are already supporting the development of prototype ‘hydrogen-ready’ boilers, cookers and fires, through the Hy4Heat programme, which is due to conclude in summer 2021. Subject to the results of Hy4Heat, we plan to issue a call for evidence later in 2021 to seek views from stakeholders. To facilitate the transition and development of the gas network, we will continue to work with the Health and Safety Executive to enable up to 20 per cent hydrogen blending on the network by 2023. This is subject to the success of testing and trials. We will use a new Heat Network Transformation Programme to co-ordinate our support for the roll out of district heating systems, including the switch to low or zero-carbon heat sources. `We are committing £122 million of funding towards a new Heat Network Transformation Programme and will implement local authority zoning by A heat network, sometimes called district heating, is a system of insulated pipes that takes heat and cooling generated from a central source and distributes it to a number of domestic

Around half a million households in the UK take heat and hot water from shared heat networks.165 These systems lend themselves particularly well to densely populated towns and cities. Networks with low-carbon heat sources, such as waste- heat recovery, large heat pumps, solar thermal or possibly hydrogen boilers, will reduce emissions from heating and can help consumers with lower energy bills. We are currently investing up to £320 million through the existing Heat Networks Investment Project (HNIP), using grants and loans to accelerate the growth of the market. This scheme will come to an end in 2022.
As part of our new Heat Network Transformation Programme, we are committed to funding the Green Heat Network Fund as the successor to HNIP . This will deliver additional low-carbon networks, particularly focusing on the recovery of waste heat and the use of heat pumps. We published a consultation on the design of the scheme in November 2020. In addition, we will fund a widespread improvement in the performance of legacy networks and boost supply chains and workforce skills, as the basis of a comprehensive transformation We intend to legislate in this Parliament for the regulation of heat networks to protect consumers and reduce carbon emissions. We will take powers to reduce the 90 per cent reliance on natural gas in heat networks, as well as enable consumer protection for heat network customers. The UK’s first large scale mine energy district heating system is being developed at Seaham, County Durham by Tolent Construction, with the help of the North East Local Energy Hub and in partnership with Durham County Council and the Coal Authority. The project has secured investment of £175 million with construction starting in December 2020. The government has provided financial support to the council to develop the heat scheme through £3.8 million of Heat Network Investment Programme funding, £150,000 Garden Village grant and technical support from the Coal Authority, stimulating over £170 million of private sector funding. The project is set to create 960 new jobs. A training academy will be established on site and will give young people apprenticeship opportunities to develop their skills to become trades men and women, The district heating will be made up of 1,500 homes, a primary school, shops and an innovation centre all heated by mine water heating, pumped using solar photovoltaics for carbon free heat. One quarter of properties in the UK sit on the coalfields giving huge potential to mine water heating as a low-carbon sustainable heat source. These powers will require heat networks to switch to low-carbon fuel sources as part of a natural replacement cycle, thereby minimising disruption to consumers connected to a network. We will support Local Authorities to designate new heat network zones, no later than 2025. Zoning entails the identification of areas which can be readily connected to a low-carbon heat network and mandating connection unless it is not cost-effective to do so. The certainty of connection for projects, which zoning affords, will ensure that heat networks are better able to grow and deliver lower- cost, clean heat for consumers. We will consider how local heat network zoning can be most effectively integrated with wider local area planning for the environment, infrastructure and place. We will work with local authorities to optimise delivery of this and related interventions by working with local authorities and through our consultation due to be published in spring 2021. Upgrading the energy performance of our building stock cuts energy bills and, for businesses, helps operating costs which they face. The Energy Efficiency Infrastructure Group estimates that upgrading all UK homes to EPC C could provide annual energy bill savings of £7 .5 billion.166 Better energy efficiency can therefore support a persistent uplift in productivity and consumer spending to drive economic growth, particular as the country recovers from the COVID-19 pandemic. And transforming the nation’s homes with improved energy performance and new clean heat solutions will also grow the UK’s manufacturing base and construction industry. It offers the prospect of hundreds of thousands of high-quality green jobs right across the UK. Building projects are typically labour intensive so scaling up delivery will support more jobs per pound spent than in most other areas of the transition to net zero emissions. The measures announced by the Chancellor in July 2020, worth £3.05 billion, will alone support up to 140,000 jobs over the next year.167 Improving the quality of our building stock will contribute substantially to our agenda to level up the country. Wales and, in England, the North East, the West Midlands, the North West and the Yorkshire and the Humber region have the highest per capita energy efficiency investment need across the UK. `We will develop a strategy for upskilling through the ‘Green Jobs Taskforce’ and a National Skills Fund, to be launched in Analysis by the London School of Economics estimates that over six million people have skills which will be affected by the transition to clean energy, representing 21 per cent of current jobs.168 This is a major opportunity to develop new skills across a range of career pathways and ensure key sectors, such as construction, which employs around 2.2 million people, are fit for a clean energy future.169 Principally, we will need more installers to retrofit existing buildings with energy efficiency and clean heat measures or ensure new-build homes are zero carbon ready. In September 2020, we launched the Green Homes Grant Skills Training Competition to provide £6.9 million funding to a range of energy efficiency and low-carbon heat skills providers and support delivery of the Green Homes Grant scheme.170 We are establishing a Green Jobs Taskforce with key industry bodies to produce an action plan for net zero skills across a range of sectors with the goal of two million net zero jobs by 2030. The taskforce will pinpoint the skills needed now and over long term. It will support high quality green jobs and a diverse workforce, and manage the transition for people working in high carbon industries. The action plan will be published in spring 2021.

will ensure that all new-build Band C by 2035, where practical, cost-effective and affordable. by 2030, where cost-effective. mortgage lenders could support Obligation from 2022 to 2026 to until at least 2025/26 and will consult on reforms to the scheme to better target fuel poverty.