Unlocking investments in ‘net zero’

If the world is to get to ‘net-zero’ carbon dioxide output by 2050 there needs to be an acceleration of renewable power installations worldwide. Here we highlight the current situation in China, which accounts for around a third of world carbon dioxide output, the US, with 12.6% of total emissions, and the UK, which is responsible for 0.9%.

On both sides of the Atlantic there were setbacks last year, with little interest in bids for new offshore wind and requests for higher prices under threat of cancellation of projects. Some plans. including Ocean Wind off the US north-east coast, were cancelled – with delays at others such as the Dogger Bank offshore Yorkshire.

This year there have been more bids at higher power prices and more recognition that competition needs to allow developers and investors to make money at the higher costs of installation that inflation has brought.

Going forward, we can expect more assistance and pressure from the new UK government and from a potential Kamala Harris administration to attract more wind and solar projects. A Donald Trump win in November’s presidential election would mean a big change in the approach, with much more emphasis on cheaper fossil-fuel activity.

Raising the renewables price

The previous UK government announced that, following the failure to get bids for new offshore wind in the fifth round, it would raise the possible guaranteed price for the electricity produced to £73 from £44 – an increase of two thirds. The new government added additional subsidy, totalling more than £1.5bn.

As a result, the sixth round yielded a possible 9.6 gigawatts (GW) of additional capacity, including 3.3GW of solar, 1GW of onshore wind and 3.4GW of offshore wind. There was some tidal and floating offshore wind awarded at much higher power prices, given it is more experimental and more expensive to install.

The UK is still running below the level of new investment it needs to get to ‘net-zero’ carbon dioxide emissions from electricity generation by 2030, the government’s target. The UK is the G7 country that has made most progress overall at cutting overall national carbon dioxide emissions compared to the 1990 reference level.

The US outlook

Joe Biden’s administration has been keen to get the US up to speed on the timetable to ‘net zero’ by 2050 after the scepticism of the Trump years. He agreed a bi-partisan Infrastructure Bill, drove through the more partisan Inflation Reduction Act and aimed to get to ‘net-zero’ carbon from electricity generation faster. These measures allowed him to offer subsidies and market interventions to speed solar and wind projects and to urge earlier and more ample construction of electricity grid capacity.

In 2023, the US constructed 31GW of solar power and 8GW of wind power. It is thought there will be 17GW of new wind power this year. As Energy Information Administration forecasts make clear, there needs to be a substantial uplift in the installation of solar and wind power to get to much higher levels of renewable energy compared to the 21% of total utility-scale electricity generation in 2021.

There needs to be an acceleration in current build rates. This implies that, if Kamala Harris wins the presidency and carries on with current policy, she will need to improve the terms for installers.

If Donald Trump wins the Oval Office he will slow move to renewables, redirect some of the future outlays on subsidies elsewhere, and promote more oil and gas exploration. He will collect more fossil-fuel tax revenue and boost cheaper gas-based expansion of industry, whilst downplaying the electric car and heat pump industries and slowing the roll out of wind and solar energy. He is unlikely to unpick past agreed subsidies and contracts for solar and wind.

China's emissions issue

China has installed a lot of wind and solar capacity, but it is still a small proportion of the total electricity generation. Renewables remain a smaller proportion of total energy used, with coal still accounting for more than 60% and fossil fuels 87%. Given the strong rate of growth in energy usage as China has made itself the manufacturer to the world, it has taken plenty of additional investment in coal and gas as well as green technologies to keep pace with rising demand.

China says it will now make more strides to expand renewable power and will be assisted in the task by slower growth generally. What China does is of fundamental importance to hitting world targets, as it produces a third of world’s carbon dioxide. China’s growth has been a major reason why the efforts of other countries has not succeeded in cutting world carbon dioxide output.

To make faster progress to ‘net-zero’ carbon emissions from electricity it will take more subsidy and incentive from governments. The UK experience shows that it takes a highly subsidised mix of guaranteed price, guaranteed offtake and subsidy to get more wind and solar commitments. Even then there remain issues about the scale, and about the delays and difficulties created by a shortage of grid capacity and technical problems with very large turbines.

This will be compounded if more progress is made in switching people from oil and gas for home heating and transport to electricity, requiring an even larger increase in renewable production.

The intermittency of most renewable power is a third factor. This requires large investment in storage or hydrogen conversion to overcome. In practice, governments keep gas or coal fired power stations as back up, making them expensive to deliver just occasional power.