Improving Both Economy and Environment in the UK

It has not taken long for the UK Labour government, elected in July 2024, to run into problems over its lofty social and environmental goals. 

Looking to break with the Conservatives, who under Rishi Sunak had watered down climate-friendly goals such as the phaseout date for internal combustion engine vehicles, Kier Starmer’s administration doubled down on decarbonisation with a pledge to achieve a zero-carbon electricity supply by 2030. 

As well as making the UK a global leader in zero-carbon energy, the new government unleashed plans to clean up British waterways, cut waste to zero, boost food security, protect communities from flooding and help nature to recover from decades of industrialisation. 

However, such heady social and environmental ambitions were soon tempered by economic reality. UK gross domestic product growth stalled after the election and is expected to be sluggish in 2025. This has forced the government to make economic growth its number one mission, according to the UK Parliament. 

Doing what it takes to achieve growth in the economy is clearly an important message for UK citizens and businesses already weary of battling with shocks such as Brexit, COVID and a cost-of-living crisis. 

But it does not bode well for the environment and local communities, which usually bear the brunt of ill effects in any dash for cash. One example of this is a proposal to expand the UK’s busiest airport, Heathrow, with the addition of a third runway. 

UK: the world’s best-connected place to do business?

Chancellor Rachel Reeves has claimed the expansion could make Britain “the world’s best-connected place to do business,” but critics say it could add 4.4 million tonnes of CO2 a year to the country’s carbon footprint, wiping out the gains from decarbonising the grid, while affecting 300,000 more people and diverting five rivers. 

What can the government do to avoid such tensions between economic growth and the environment? Perhaps one of the most effective measures is already in train with the push for zero-emissions electricity. 

The energy sector has not historically done many favours to communities or the environment, with fossil fuels not only causing unprecedented levels of climate change but also millions of deaths worldwide from air pollution, among many harmful impacts. 

But with a zero-carbon electricity system, such impacts—and their attendant costs in areas such as healthcare and environmental remediation—would be erased. Also, electricity generated from clean energy might be much cheaper than it is today. 

This fact is not generally appreciated at present because renewable energy cost reductions are masked by a range of other factors. The most important of these is that electricity market pricing is still set by the most expensive component in the mix. 

That means you can power almost the entire country off nearly-free wind and solar power yet still pay the price demanded by a few final megawatts of expensive imported gas. 

Even if this were not the case, electricity prices would not fall to zero, because shipping megawatts around the country requires investments in grid infrastructure and renewable energy generation asset owners need to be paid something to ensure they will carry on investing in projects. 

However, wholesale electricity prices are already starting to reflect the impact of renewables, with the UK registering 149 hours of negative pricing—essentially, times when you could get paid for using power—between January and September 2024, compared to 107 hours in the whole of 2023. 

Even when it is not in negative pricing territory, clean energy does not incur carbon taxes and does not create indirect costs through poor air quality and particulate pollution. 

Also, a move from thermal to renewable generation cuts the losses involved in fuel combustion, improving energy efficiency and making every ounce of power go further.  

Another feature of renewables is that because the marginal cost of energy is zero—it comes from the wind, the sun or the water—and the upfront and running costs are easy to calculate, you can lock in a constant price for electricity generation from the outset, for instance through a power purchase agreement or contract for difference.

In September 2024, for example, the UK government awarded 6.3 GW of offshore wind capacity with contracts for difference that were all below £60 per MWh (except for one project that used more expensive floating technology). 

This compares to an average electricity price of around £75 per MWh in 2024 and an inflation-linked strike price—or guaranteed minimum—of £93.50 agreed in 2012 for the upcoming Hinkley Point C nuclear plant. With inflation, this price had already ballooned to £139 per MWh in 2023. 

Of course, the advantage of a plant such as Hinkley Point C is that it can theoretically provide power around the clock, whereas wind and solar are intermittent forms of generation. 

Zero marginal cost of energy

However, it is already becoming apparent that battery plants such as the Richborough Energy Park developed by Pacific Green can help manage day-to-day variations in renewable energy output, while also delivering significant carbon emissions savings. 

Thanks to UK planning regulations, such plants are also far more environmentally responsible than their fossil-fuel forebears. Infrastructure projects such as Richborough are obliged to deliver a net biodiversity gain, so whatever impact they have on wildlife must be more than fully compensated for. 

In Richborough’s case, this involved giving over the northern part of a previously brownfield site for the preservation and expansion of habitats for bats. Given this regulatory regime, it could be argued that the best thing for British wildlife would be to build as many energy projects as possible—within reason, of course. 

Certainly, a continued push for battery storage alongside cheap wind and solar in the UK could help lower the wholesale price of electricity and give the country an economic advantage that it currently does not have. 

Electricity prices in the UK have historically been at the high end of the range seen in Europe, and above those in major industrial rivals such as Germany and France. Bringing that down will help keep UK industry competitive on the global stage, while also delivering on the government’s environmental ambitions. What’s not to like?