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How is decarbonization going in the UK?
In this episode, I dive into the UK's decarbonization journey with Lucy Yu of the Centre for Net Zero. We discuss how the UK has become a world leader in offshore wind while lagging in heat pump adoption, why electricity market reform is essential to prevent gas from setting electricity prices, and how community ownership models overcome NIMBY resistance to wind projects.
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David Roberts
Hello everyone, this is Volts for April 18, 2025, "How is decarbonization going in the UK?" I am your host, David Roberts. Since at least 1990, UK greenhouse gas emissions and GDP have moved in different directions — down and up, respectively. The divergence, what economists call "decoupling," particularly accelerated around the 2010s. The bulk of the emission reductions are due to the fact that the UK has effectively eliminated coal from its electricity mix, an extraordinary accomplishment for a country that mined and burned coal for almost 150 years.
Nonetheless, the UK is, like most of the world's countries, not on track to meet its ambitious climate targets. To do so would require an immediate and sustained boost in action, but at this moment the consensus behind net zero is shakier than it has been for a while. The Labour Party, which took power last year, is committed to achieving net zero by 2050 and has some ambitious nearer-term goals, but has cut back on climate-related spending. The Conservative Party — long at least a nominal partner in the effort — is now calling the 2050 net-zero target impossible.
I thought it would be a good time to check in on what's going on over there: how decarbonization has proceeded thus far, which sectors are on track and which aren't, what the current government is doing, what kinds of technologies and strategies are needed to get to the country's targets, and how to keep it all affordable.
This is way too much for one pod, obviously, but I'm going to make a valiant attempt with Lucy Yu, who runs the Centre for Net Zero, a UK nonprofit research center established by the Octopus Energy Group. Yu has 20 years of experience helping to scale up new companies and offering advice on technology policy and regulation to the UK government, the European Commission, and the UN. She's been in the game for a while in the UK and I can't wait to talk to her. With no further ado, Lucy Yu, welcome to Volts. Thank you so much for coming.
Lucy Yu
Thanks very much, David. It's a pleasure to be here.
David Roberts
Very excited for this. There's a lot going on.
Lucy Yu
There is.
David Roberts
Here's where I thought I would start. So, the UK government has these targets: 95% low carbon power, electricity by 2030, which is itself a huge goal, and then net zero by 2050. So, good Volts listeners know that decarbonizing a country this way involves two big buckets, basically. One is you take all the energy uses that are not on electricity and move them to electricity. And then the second big bucket is you fix the grid, which is a bunch of things in itself. So, I know most of your work is on the latter part, but I just want to touch on the former part, which is moving non-electric energy uses over to electricity.
Three big ones are buildings, transport, and industry. So, maybe let's walk through those and talk about how the UK is doing on pulling those into the electricity sector. We start with buildings where, as I understand it, the news is not great. So, maybe you could talk a little bit about the state of the UK buildings and what is underway, trying to electrify them.
Lucy Yu
Yeah, of course. So, maybe to just set some context here, and I will talk particularly about housing, but obviously, this isn't just a housing issue. So, we actually have some of the oldest housing stock in Europe in the UK. So, we have a real kind of diversity of housing and it has sort of different levels of efficiency. Most people will have gas boilers for their heating. So, we have currently very low rates of electrification for heating. Heating, obviously, because we are currently a cooler country, is more of a concern for us at the moment than cooling and air conditioning.
But of course, this could also change over time as the climate changes. In terms of use of adoption rates of heat pumps in UK housing, it's around about 1 to 2% of all UK housing stock.
David Roberts
Oh really?
Lucy Yu
It is at the moment. So, if you compare that with something like Norway, I think they have something like a 60% penetration. You mentioned you've been talking to other countries around the world. These rates are far higher in places like Scandinavia, so a very low baseline in the UK. I think there are a number of reasons for that that we can get into, but ultimately that needs to increase and it needs to increase very rapidly.
David Roberts
This is kind of one of the big public fights going on right now, isn't it? Like, heat pumps are sort of in the news in the UK in a way that they're really not here in the US.
Lucy Yu
You're right, they are. And if we look at what the Climate Change Committee has said, so this is an independent, non-departmental public body. It was formed under the Climate Change Act. This was a very key piece of legislation that was introduced back in 2008 in the UK, and they provide independent advice to the government. Now, they have said in order to meet our net zero targets, we need to be installing as many as 600,000 installations per year by 2028. So, this is a lot of housing stock that we need to be retrofitting, taking out gas boilers in particular and fitting with heat pumps.
So that's the kind of scale of what we're looking at. I think there are a few things to be aware of. One is that awareness of this technology is not as high as in other countries, in the UK. I think that's changed over the past few years. The government has certainly been making attempts to address this. There have been a number of different initiatives to just raise awareness amongst the public about low carbon heating solutions. The government has also introduced heat pump subsidies. These were introduced a few years ago now and they continue to apply.
David Roberts
Is this the Boiler Upgrade Scheme?
Lucy Yu
Correct, the Boiler Upgrade Scheme. So, the name is a little bit cryptic, but it is essentially a subsidy to help with the upfront costs of purchasing low carbon technologies. So, that has been effective. That has certainly increased adoption rates. We actually did some analysis of that scheme, so we did some welfare analysis and we calculated that that was generating £1.24 in benefits to society for every £1 the government was spending. So, if there are any economists listening, we looked at something called the marginal value of public funds. But we also estimated that that could go up to £1.90 if that subsidy also led to what we call "learning by doing", so effectively lowering costs of the entire industry, the supply chain, installation and all of those things.
So, as I said, awareness has historically been rather low in the UK. We have something of a relatively recent subsidy which is proving effective in the market. When it was first introduced, it had a number of conditions which have subsequently been relaxed. So, some of those conditions were around things like a house needing to meet certain insulation standards. Those have subsequently been relaxed.
David Roberts
Oh, interesting. Just in the name of speed? I mean, there's such, so much, so much to do. You can't get too fine-grained, I guess, in these things.
Lucy Yu
Yep. And I think the other thing I'd say is we have a relatively early supply chain in the UK, so we have a relatively small number of heat pump installers. We clearly need to train a lot more. We did some modeling, a piece of modeling a couple of years ago, and we estimated we might need another 25,000 to 30,000 heat pump installers by 2028.
David Roberts
Oh geez.
Lucy Yu
And that's nationally.
David Roberts
Yeah, well, it seems like, I mean, kind of a great opportunity for trades. I mean, guaranteed growth area. Is the adoption anywhere close to on pace to hit that target, or do you think much more is needed there?
Lucy Yu
It is increasing, whether it's close to hit that target. So, I certainly think we will need to train more installers so we don't hit a short-term crunch. When the modeling that we did — so we built an agent-based model — we did find that adoption was very sensitive to public awareness. So, I think increasing that awareness of heat pumps as a technology will make a lot of difference. And we also found that the upfront cost, so the initial cost of purchasing the heat pump, paying for the installation was a barrier to adoption. So, those subsidies should really be helping to accelerate that adoption.
The other thing, really, that would help would be to rebalance levies on fuel in the UK. So, there are levies that apply to electricity, every kilowatt-hour of electricity, that don't apply to gas. And what these effectively mean is that currently, the cost of operating a heat pump is more expensive than the cost of operating a gas boiler. So again, addressing these structural situations, making a heat pump as cost-effective or cheaper to operate than a gas boiler is also going to be one of those things that really helps to accelerate adoption.
David Roberts
And is the idea that most of heating and cooling electrification will be done with individual air source heat pumps, or is there a push to do some of this district heating and cooling, maybe the geo exchange? You know, these things are very trendy now. Is there a look outside the heat pump?
Lucy Yu
There are a number of district heating projects already throughout the UK, and certainly, we do expect more of those in the future. They're particularly suitable for certain types of developments, maybe larger blocks of apartments and those sorts of things. But of course, there's a lot of other housing stock in the UK for which that is less likely to be suitable. And for those, the sort of individual heat pump installations are more likely to be the appropriate solution.
David Roberts
There's probably, obviously, lots more to say about decarbonizing buildings, but let's move on; we've got other things to hit. So, transport, in terms of electrification of the vehicle fleet, where is the UK? Obviously, your Norways are kind of leading the way. There are some leaders and laggards. Where is the UK in that process?
Lucy Yu
At the moment, something like around 4% of all cars in the UK are electric vehicles, but that's the entire vehicle fleet. If you look at the number of new vehicle purchases, the percentage is much higher. I think it's around 20%, the most recent figures that I've seen. So, the UK public is certainly increasing its interest in electric vehicles and they are increasing in adoption. At the government level, we have what's called a "zero emission vehicle mandate" or ZEV mandate. And this places requirements on manufacturers for all their new vehicles sold to sell a certain percentage as electric vehicles.
And that percentage is effectively ratcheted up year on year. And so by 2030, that percentage is 80%. And by 2035, the intention is that 100% of new vehicles sold would be electric vehicles or zero-emission vehicles.
David Roberts
Yeah, what's the kind of public opinion valence on that? Is the public excited about electric cars? Just because in the US, it's proving an opportunity for our Conservative Party to make hay. So, I don't know what it's like over there.
Lucy Yu
Yeah, I think the public is excited about electric vehicles, particularly if you are able to charge your vehicle at home and you have access to a time of use tariff. Now, if those two things are true, one of the big benefits that you have is that you can fuel your vehicle, you can charge the battery to capacity much more cheaply than you could fuel it using petrol or diesel, for instance. So, for those people, this is a bit of a no-brainer in terms of if they can cover the upfront cost, then the ongoing costs of fueling the vehicle, operating the vehicle are extremely low. Where the adoption is maybe slightly lower at the moment is for people who don't have access to their own off-street parking.
So maybe they don't have their own driveway.
David Roberts
How are you doing on public charging?
Lucy Yu
Yeah, public charging infrastructure. So, this is certainly an area that the government is focused on, how to improve access to public charging infrastructure. And we at Centre for Net Zero have also been running a field trial to look at how we could vary pricing on the public charging infrastructure effectively to use the growing fleet of electric vehicles to actually support the grid. So, if there are times and places where there is, for instance, a kind of an excess of renewable generation that might otherwise have to be curtailed, could we actually use lower prices to encourage people to soak up that energy?
Therefore, they are able to charge their vehicle more cost-effectively. But there are also benefits to the wider system as well. So, these are certainly things that the government is exploring.
David Roberts
Are there supply side subsidies here too or is it all through the sort of stick on the manufacturer side?
Lucy Yu
There have previously been supply-side subsidies. I would say we are at a stage in the UK where, as I said, we've now got around 20% of new vehicle purchases are zero-emission vehicles. So they don't exist now, but they certainly, I think, did their job at the time. And that's probably where we're at with the heat pumps that I talked about, which is that the government is trying to stimulate a market, is trying to get a critical mass of early adopters and I think we sort of are past that point for electric vehicles.
David Roberts
Mm. And now, let's briefly talk about industry. This is, of course, the gristle in the decarbonization stake. Always, always the difficult bit. What is the state of UK industry? And is there — I mean, the last thing I looked at was a headline about maybe like a giant steel plant shutting down and leaving the UK. So, what is the state of industrial decarb in the UK? Is it anywhere at all?
Lucy Yu
It varies a little, industry by industry. There are lots of points we could unpack here. One of the things that is currently a sort of a hot debate in the UK is about the structure or how the electricity market is arranged. And just to give a very simple overview, we currently have a single national price for electricity in the UK. What that means is that there is no distinction between maybe parts of the UK where, for instance, renewable energy might be able to be produced and generated very inexpensively. That could be windy parts of Scotland, for instance. Any customer who might be using that energy will pay the same.
They won't see the benefit of that under the current pricing system. Now, a possible change to this market arrangement is currently being debated, and there are sort of two options on the table. Now, certainly for the sake of time, I'm not going to go into the finer-grained details of those two options, but what I will say is that both of them would provide effectively a sort of sharper price signals in the market. So we would move away from having a single national price. And what that may mean, particularly under one of those options, is that what you might start to see is industry then making decisions about where they locate, also being able to use more of their electricity demand from lower carbon sources.
So, something like that could be one of the things that really causes industries, particularly the energy-intensive industries, to be able to decarbonize the energy that they're using.
David Roberts
Gonna move industry to the coast then, right? Won't that effectively be the...
Lucy Yu
Yeah, I mean, I think it provides a great opportunity. And the thing is, we have some of the most expensive electricity certainly in Europe, if not maybe the world, in fact. And that is because there was a report published, I think, last September by Mario Draghi, and he found that in the UK, gas was setting the price of electricity as much as 97% of the time. So the issue is, unless there is some kind of market reform, we will continue to have a scenario in which if the price of gas is particularly high, then it is that that's setting the price of electricity.
So, there is an opportunity to move away from that kind of market arrangement and to have much lower-priced electricity that then could provide an opportunity for industry.
David Roberts
Oh, interesting. Well, this is, you're setting me up perfectly for my segue here. So, let's turn our attention to the electricity grid. A little bit of history might be helpful here. One of the features of the UK market is the liberalization of the electricity market. You were early to that and, as far as I know, kind of a leader in the liberalization of electricity markets. Maybe talk just a little bit about that history and kind of where it's settled now, sort of how the UK electricity market is structured.
Lucy Yu
Yeah, of course. So, I mean, I can maybe give you a blow-by-blow account of the previous few decades, really. So, as you said, in the kind of '80s to '90s was really the kind of period of market liberalization in the UK but also some of our kind of early emissions reductions. So, both the gas and electricity markets were privatized over those two decades. We also, during that time, the UK signed the Kyoto Protocol. So, that was signed in 1997. So, that was kind of an international treaty. And in that, we committed to certain emissions reductions.
So, you can almost think of that as the start of a long chain of activity and milestones that have followed.
David Roberts
So was some of the electricity market liberalization — one of the things I want to figure out is like what was the attitude toward coal then? Was that done in part to get rid of coal or was it done for other reasons?
Lucy Yu
I think that's probably a question maybe better directed to others, but I would certainly say it was the start of coal being sort of pushed out of the system.
David Roberts
Sure, right. Like cheap, cheap gas comes in. The same thing happened in the US.
Lucy Yu
Yeah, exactly. So, I would say, it's effectively caused, you know, something of a dash for gas. So that was the period at which we started to see CCGT, combined cycle gas turbines, that type of technology begin to replace coal. I would say if you wanted to kind of really dig into what are the things that actually came together and enacted to push coal out of the system, I would say there were things that happened in the follow-on decades that were as important. So, if we look at the 2000s, for instance, we introduced in the UK something called the "Renewables Obligation."
So, that was 2002, and that was a market-based mechanism. So, that mandated that utilities had to source an increasing share of their electricity from renewables. The EU, in 2005, when the UK was still part of the EU, introduced its emissions trading system. So, that imposed a carbon cost on power generators. And then, as I mentioned earlier, the Climate Change Act in 2008, so this is a UK act which was passed through Parliament and that established some legally binding carbon budget. And the target at the time was an 80% reduction in greenhouse gas emissions by 2050 compared to 1990 levels.
That's subsequently been increased to net zero by 2050, but it tracks back to 2008. Then, if we look in the 2010s, that's when we really started to see coal phase out. We introduced something called the " Carbon Price Floor" in 2013. And what that did was effectively underpin the price of carbon at a level that drove low carbon investments.
David Roberts
Right. Because at the time, just throwing in some history, at the time, the EU trading system prices were very low. Like, prices had the tendency to be very low. They're much higher now, but back then they weren't doing much.
Lucy Yu
Exactly. So, the carbon price floor, you're absolutely right, effectively managed to achieve something that the EU Emissions Trading Scheme has not been able to achieve. And I'd say the other thing that happened in that decade was new kind of subsidy mechanisms. So, that's when the UK introduced its contracts for difference and they really had the effect of accelerating offshore wind deployments. And these contracts for difference, or CFDs for short, what these do is they effectively guarantee a fixed price. It's called the strike price. And that's for every unit of electricity generated and that's regardless of the actual market price.
And they're typically a long duration. They might be for a duration of 15 years or so. So, they're providing some very long-term certainty for renewable energy projects and for developers, and then obviously the finance.
David Roberts
Akin to feed in tariffs, yes? Similar-ish?
Lucy Yu
Yeah, I guess, yeah, it's a similar concept. Exactly.
David Roberts
I just think our listeners might be a little bit more familiar with feed-in tariffs. But basically, it's like a guaranteed return if you invest in renewable energy. And then, if you look at the graph of coal use in the UK, it is like a very peaky mountain. Like, it went up really fast and peaked and then fell really fast. And I just sort of wonder, like, it's such a huge thing. Coal was such a huge thing in the UK for so long and then just vanished over the course of a decade. Like, politically, did that register? Did anybody fight that? Like, does anybody miss coal? Or was it just like, everybody was like, "Fine, you know, that's the past now."
Lucy Yu
I don't know that anyone misses it. I mean, you know, there are other transitions I could point to. We probably, you know, everybody in the UK had a landline phone line. And now, nobody has a landline phone. So, you know, other things have happened at the same kind of pace.
David Roberts
Yeah, such a central thing in culture and then for it to just sort of evaporate is kind of wild to me. So, one of the things I wanted to ask about is these key anti-coal measures you're talking about that ended up phasing coal out in the 2000s and 2010s. A lot of those were passed under Conservative governments.
Lucy Yu
Mm.
David Roberts
This is something that our American minds cannot wrap ourselves around. It's like from the outside, you're just like, "Well, that's how it's supposed to work." Like, there's a problem. Both parties agree it's a problem. They debate about the proper solutions. They come to a consensus, you know, and implement solutions. Like, it looks like how democracy is supposed to work. Is that misleading, that sanguine view from the outside? Like, how? I guess what I'm trying to ask is, like, Conservatives were sincerely involved in this. And now they seem to be not. So maybe talk a little bit about how the political valence of all this has changed over time.
Lucy Yu
I think that's a very astute observation that up until relatively recently, I think there was a lot of consensus between the main political parties. And it's probably worth saying as well that there is relatively high support for green policies in the UK. So even some of the more recent polls suggest that over three quarters of the UK public support green policies. So there is, in spite of maybe what some of the media might suggest, strong support for this. It's only relatively recently that you're right, the leader of the Conservative Party, the main opposition party to the Labour government, has made some statements about net zero and some of the associated policies and things. I think some of this is maybe being a little bit reactive to global geopolitics.
David Roberts
Yes. Inflation and...
Lucy Yu
Yeah, and you can kind of afford to change your position when you're in opposition than when you're in government. I'm sure that has had an influence too. I would say that Kemi Badenoch, who is the Conservative Party leader, recently, she's been kind of arguing that rolling out renewables will lead to higher costs and I think this is a kind of a flawed argument, if you like. So, she has been suggesting that this is the case because we would effectively have to build two systems of electricity. So, one that is based on renewables and one that's not.
David Roberts
This idea that you need like one-to-one backup if you're building renewables? Oh yeah, we know that one.
Lucy Yu
Exactly. And the kind of suggestion that you've got effectively having to run two systems. And of course, it might sound like an intuitive argument on the surface, but actually, of course, this is conflating the kind of the upfront CapEx with the total system costs. And so if you focus very narrowly on the installation expenses and you ignore the costs of purchasing fuel to run fossil power plants, then you're effectively, you're not comparing like for like. And so I do think, you know, there maybe is some discussion and debate that's out there at the moment that is not really reflecting the reality of the move towards renewables.
David Roberts
But probably, like recent inflation and electricity prices being so high, energy prices being so high are creating a kind of fertile ground for this kind of pushback. So, we'll return to the issue of affordability in a minute since that's obviously so politically crucial. Okay, so the UK is shooting for clean power by 2030. It has created this commission. You are one of the commissioners, have been appointed one of the commissioners. The idea, I think, is you go off and you make an action plan. The action plan has sectoral, you know, each sector has its own sort of action plan. Mostly, as far as I can tell, the action plan is focused mostly on renewables and flexibility.
Lucy Yu
Correct.
David Roberts
We'll talk a little bit about the other buckets in a second. But let's just talk about renewables. I mean, one of the sort of striking things when I look at the UK energy mix right now is wind is the hero here. Wind is the reason that renewables are kicking butt in the UK. There's very, very little solar. What's the deal there? Is it just that you're a gray, gray-skied country or is there something else going on there?
Lucy Yu
It's both of those things, I think so. We obviously are not the sunniest part of the world, but I think there is some relevance there to the kind of history of offshore wind in particular in the UK. I can give a very quick sort of headlines on the Clean Power Action Plan as it's called.
David Roberts
Please, please.
Lucy Yu
So, you're absolutely right that a large part of the plan focuses on expanding renewables and so to give some headline figures, going from around 17 gigawatts of installed capacity of solar today to around 47 by 2030, going from about 15 gigawatts of installed capacity of offshore wind today to around 50 by 2030. And then for onshore wind, that's going from around 14 to 28 gigawatts.
David Roberts
Can we pause right there for a minute? Because this is something that I think even has made it over to US audiences. There was a bunch of onshore wind being built in the UK, and then the public, I guess, got irritated about it. I don't know how spontaneous that was, but there was a lot of pushback and basically, the Conservative government put a moratorium on new onshore wind. So, onshore wind has been kind of frozen for a while. So, I wonder if we could just pause for a moment and talk about, what is the state of that?
Is the public still irritated? How are you going to double onshore wind capacity when everyone seems to hate it?
Lucy Yu
So, the moratorium has effectively been lifted, and that was kind of one of the first things that the new government, the Labour government, did when they came into power. In terms of what does the public think about it? I think maybe you have had a slightly kind of filtered view of things in the US. So, firstly, I would maybe actually talk about the role of onshore wind in particular, because this is something which the public sees, it's more visible to the public than offshore wind.
David Roberts
It's the onshore wind that they're mostly NIMBYing. Right. It's that they're mostly pushing back.
Lucy Yu
Well, we talk about NIMBYs and YIMBYs. And YIMBYs are "yes, in my backyard," because we can maybe talk about community energy, but one of the things the government has said is they have set a national ambition for at least 10 gigawatts of community and locally owned energy by 2030. And just to put that in context, we currently have about 0.9 gigawatts. So that's a significant increase. Now, they haven't specified exactly what that might be, so it doesn't have to be wind, you know, it could be solar or other projects, but I do think there is a lot of opportunity for wind.
To give you an example of why I think this is the case and what we mean by YIMBYs, or "yes, in my backyard", in the UK, Octopus Energy has something called the Octopus Fan Club. The pun in the name is certainly intended. This was launched in 2021. What this does is it gives customers who are living close, say, within a certain proximity of one of its onshore wind turbines, which are based in Yorkshire and in Wales, a discount when it's particularly windy. Since that scheme has launched, Octopus Energy has had something like over 20,000 individual requests for people asking for a local wind turbine in their community.
David Roberts
Yes, the NIMBYs are always talking about wind cancer and shadows, but then, like, money comes into the picture and they're like, "Oh, never mind."
Lucy Yu
Exactly.
David Roberts
Shadows seem fine.
Lucy Yu
So, you know, I think you're kind of getting to the heart of an issue here, though, which is that I think where there is going to be some kind of new infrastructure, the extent to which you can tie this to the local community and think about what are the benefits and things that you can return to the local community, then you can start to, I think, have a different conversation about this sort of thing.
David Roberts
So you think the community ownership will unlock a lot more support for wind?
Lucy Yu
I think it has the potential to. And if you look at some of the existing community energy projects in the UK, there are a lot of actually nice examples from Scotland, which I think has really sort of led the way in this space probably over the past decade or so. If you look at the Isle of Lewis in Scotland, they have a nice community-owned wind turbine scheme, so that's I think a 9-megawatt wind farm, so 3-megawatt turbines. And they're using the revenues from that scheme to fund local social projects and for fuel poverty relief as well.
So, there are examples out there. The key thing really will be how we can replicate and scale these kinds of things, because I think rather than having a handful of them, you know, we need to be seeing many thousands of these types of things across the country.
David Roberts
So, in this respect, what is Great British Energy? You know, I just actually did a pod on New York State, which has passed a law that is using its public utility to sort of fill in the gaps and directly develop renewables. To the extent that the state is falling short of its target. Is that kind of what's going on here? Is Great British Energy just kind of like, "If the private market is not building this fast enough, we're going to build some public clean energy?" Is that what's going on with that, what is GBE?
Lucy Yu
So, Great British Energy, or GBE, is a relatively new institution. It was announced by the Labour government and it's a publicly owned, operationally independent clean energy company. I think the government has conceived GBE not just to be a financial vehicle, but they've also said that it will own, manage, and operate clean energy projects. It's not just providing the finance and they have gone as far as to say that it will also engage in the production, distribution, storage, and supply of clean energy. So, it has quite a broad scope on paper.
David Roberts
Has it done much yet? Like, it's like a year old, right? Or a couple of years.
Lucy Yu
So, well, the Labour government itself is not quite a year old, so GBE, GBE is slightly younger than that. It has actually just announced its first, I guess, major investment just last week, in fact. So last week, GBE said that it would put aside £180 million and that would go towards putting solar panels onto schools and hospitals.
David Roberts
Oh, yes.
Lucy Yu
So, it's a relatively small scale to begin with. I think they said 200 schools and 200 hospitals, so that's less than 1% of all schools in the UK. Just to put this into context. But it's certainly a welcome first step. And they have said that the profits that come from that will be reinvested then into the National Health Service and into education. I think the first installations are due to be by the end of this summer, so we should start to see that happening.
David Roberts
I'm so curious what the public's — I mean, I don't know, does the public even know it exists yet? Insofar as it does, it seems like that kind of thing would be popular. It seems like.
Lucy Yu
And I think we will have a better sense of this when these first installations start happening, because these are facilities and institutions that the general public interact with on a regular basis. So, I think this could give an example of some of the first sort of projects or developments that start to make some of this stuff start to crystallize and make it a little bit more real for some people who may be, so far, when they hear about Net Zero or they hear about the energy transition or clean power targets and things in the media, they feel very abstract or they feel like, "What has this got to do with me or my community? Or how is this benefiting society?"
Hopefully, these installations will help to just bridge that gap a little bit for some of those people.
David Roberts
Yeah. Transmission, a big deal for decarbonization in the US, I assume for the UK also. I assume you, like us, do not have enough of it. I assume you, like us, have trouble building it fast enough. What's being done to push that along?
Lucy Yu
Firstly, so certainly in The Clean Power 2030 Action Plan, transmission projects and reform to grid connection are kind of a key part of that. So in the grid connection, the queue is effectively being reformed or restructured with the aim of halving grid connection timelines by 2030.
David Roberts
Interesting. Love to hear that, grid interconnection queue reform is big. It's hot here at Volts.
Lucy Yu
I mean, transmission is one part of the equation. Coming back to the kind of the headlines of the Clean Power 2030 Action Plan, the significant expansion of renewables. But as you said earlier, there's also a heavy kind of commitment towards having more flexibility.
David Roberts
We're going to get to that in a second. That's our finale here because we love that the very most.
Lucy Yu
And so, obviously, the more flexibility you can put into the system, potentially, then you can reduce the need for grid and for build, particularly at the distribution level.
David Roberts
Indeed. And just quickly: nuclear.
Lucy Yu
Yes. Can you do nuclear quickly?
David Roberts
Let's. Can we, please — I don't want to. You opened the plant, I think, last year. It was, I hope everyone's sitting down, over time, over budget. Is the Clean Power Plan the attitude toward nuclear? Basically, we've got these nuclear plants, we're going to keep them running and maybe we'll do some research on SMRs. That's, I guess, kind of where we are. Is that basically the attitude toward nuclear?
Lucy Yu
I don't think it's a million miles away from how you put it.
David Roberts
Is there any plan to build more of these big plants?
Lucy Yu
So, the government definitely sees nuclear energy as part of the future energy mix. And one of the things that's being looked at at the moment in relation to the Clean Power 2030 target is extending the life of some of the existing facilities, and that will need to be approved by what's called the Office for Nuclear Regulation in the UK. You're probably aware that there are a number of projects that are due to come on stream either before 2030 or soon after. So, a big one, and one that has been, again, the subject of a lot of controversy, is Hinkley Point C.
So, this would be a 3.2 gigawatt reactor, which is currently under construction in the Somerset region. It is meant to come online in 2029. You know, some of the latest stuff around this has been, what's known affectionately in the UK, I think, as the "fish disco row."
David Roberts
Well, say more.
Lucy Yu
This is a row which potentially could cause further delays to Hinkley Point C. So, to give the background to this, EDF, who are the developer for Hinkley Point C, in their original plan, they had an acoustic deterrent. This was designed to prevent fish from being sucked into the plant's cooling system. Obviously, massive amounts of water are needed to cool this reactor. This deterrent system, I'm probably underselling it by just sort of calling it a deterrent system because it was actually going to be 288 underwater speakers. These would produce underwater noise louder than a jumbo jet.
This would be all day, every day for six decades. So, this is what was in the original —
David Roberts
Don't know if that's really an improvement in the quality of life for the fish.
Lucy Yu
So, this was in there and this was designed to protect marine life. However, more recently, they have applied to the Environment Agency and they've said, "Could we have permission to drop these proposals?" And they've cited doubts over the effectiveness and also concerns about risks to divers having to maintain the speakers. Now, the Environment Agency has rejected that request. They've said, "No, you can't drop this proposal and you can't replace it with an alternative proposal." So, this is the kind of summary of the fish disco row.
David Roberts
Fish disco. Yeah, it sounds like nuclear. So, is anyone putting any particular money on actually completing this thing by 2029?
Lucy Yu
Well, I'm not personally, but I'm sure others might be. And just to round off, you talked about SMRs. Everybody's talking about SMRs at the moment, particularly in relation to data centres. I'm sure we don't sort of have time to go into the ins and outs of those. But I would say yes, the UK government is also interested in SMRs. They're currently in the final stage of a competition to select some SMR technology providers. They have four remaining contenders for that and that decision is expected to be announced in the next few months, in fact, by GB Energy.
David Roberts
Well, I can't wait for some actual physical operating SMRs to join the dialogue on SMRs. It'll be a fresh new chapter in that discourse.
Lucy Yu
Yes.
David Roberts
Okay, let's talk about, to me, the always under-appreciated, under-heralded superhero of the energy transition, which is demand side management. Flexibility — I don't know if there's a term for that whole family of things, but you know, as Volts listeners know, this transition to renewables is going to make supply somewhat less controllable and you have to compensate for that by making demand much more controllable. So that's going to involve a lot of things, I think some reforms in the electricity market, some technology reforms. Your center is all into that. What's going on in that space?
Are there big reforms happening? What's the idea?
Lucy Yu
So, as we sort of discussed earlier, this is probably one of the key energy debates in the UK at the moment around energy market arrangements. And so it's called REMA, the Review of Electricity Market Arrangements. And as I said, one of the things that a change to the market design will mitigate is the fact that we have this situation where we have more and more renewables producing more and more of our electricity and yet we still have a very high percentage of the time when gas is setting the price of the electricity.
David Roberts
Yes, several people on social media asked about that when I brought up that I was doing this. Like, "Why are we still setting our prices based on gas?" and gas is getting more expensive. I guess because of, is it partially because of the Russian mess?
Lucy Yu
That certainly had an impact. So, as I said, the two main kinds of options that are being discussed would both create sharper price signals in the market. So, we would no longer have a situation in which we effectively just have a single national price. And to really sort of simplify things — so this is probably an oversimplistic representation, but broadly speaking — one of those changes would be quite a fundamental market change. So, effectively zonal pricing. And this would divide the UK energy market into a number of geographical zones and it would adjust pricing in those zones based on regional demand and supply.
And then, the second option would be, I guess, more of a tweaking of the national pricing. So, I suppose not quite going as far as zonal pricing and I suppose the trade-off between the two. And again, I am representing this trade-off in a slightly simplistic way, it's not quite sort of one or the other. But really, a lot of the arguments or the debate is around creating optimal signals for investments. We talked about the 2030 targets. We're going to need to complete some very large, what we call allocation rounds, so auction rounds, to get more renewables onto the system.
So, it's a trade-off between the optimal signals for investment and the efficient operation of the system. These are, if you like, the two camps that exist.
David Roberts
I mean, from my perspective, the value of a produced electron varies geographically and temporally.
Lucy Yu
Yes.
David Roberts
Right. It matters where and when the electrons are coming online, which is not necessarily true in the sort of pre-renewables grid. So, geographically and temporally sensitive pricing seems like kind of like table stakes. Like, you kind of have to do that, don't you? Like, how else are you going to send these demand signals? How else are investors going to know where to build the new supply? You know what I mean? Where the supply will have the most — especially when you get to distributed renewables too. Like, where will those do the most good? You need to direct. I'm preaching to the choir here, obviously.
Lucy Yu
Yes, you are. I mean, we certainly, you know, our interest is in when you have the right market conditions to unlock a lot of this flexibility. And if we look at the targets in the Clean Power Action Plan, they see Britain going from, I think, around 3 gigawatts of capacity today to something around 10 to 12. This is what's called consumer-led flexibility. 10 to 12 gigawatts by 2030. So, some of this would be from households, some of this might be from industrial and commercial users. And certainly, we could expect, and a lot of the modeling expects, that smart charging of electric vehicles will provide a substantial proportion of that.
David Roberts
But again, that doesn't work if the price is not varying throughout the day.
Lucy Yu
And just on that point around, kind of using electric vehicles effectively as sort of floating assets by using dynamic pricing, we have actually — so one of the things that we do at the Centre for Net Zero is we run field trials with real-world customers and we try to run these field trials as far as possible as randomized control trials or the closest thing we can achieve in the real world with real customers. And we have just completed a trial to look at using dynamic pricing on the public charging network to see how we could use electric vehicle flexibility to support the energy system. Just to give you a few, I suppose, high-level findings, we will publish a full analysis of this.
We found very high price sensitivity. So, when we dropped the price by 40%, we saw a 100% increase in charging. We found that through these discounts, we were able to create demand during periods of excess renewable generation. And that's important because if you're actually not creating new demand during periods of excess renewable, and you're actually just displacing that demand between different charges, then maybe that has different implications for the system overall and how you operate the system.
David Roberts
When we say excess renewables, you're mostly talking about overnight wind. Is that mostly when you have excess?
Lucy Yu
Yeah. So, we see periods of excess wind in Scotland in particular. It's very windy in Scotland. It could be overnight, but could also be some periods sort of during the day as well.
David Roberts
So, it works basically, to the extent we can tell so far.
Lucy Yu
Exactly.
David Roberts
One other question, a hot topic here is data centers, obviously, you mentioned. You know, which look on the surface like giant unvarying loads, which are kind of a scramble to the electricity system. There's some talk about demanding some flexibility from them and just how much they're capable of.
Lucy Yu
Yes.
David Roberts
Is this a pressing problem in the UK? Are the hyperscalers knocking on your door too, trying to build a bunch of these things? And how are you thinking about them?
Lucy Yu
Yeah, the hyperscalers would love to be able to build more data centers in the UK.
David Roberts
Even though the electricity price is high?
Lucy Yu
So, under market reform, and depending on what that looks like, we could potentially go from having some of the highest electricity prices in Europe to maybe some of the lowest, particularly in areas like Scotland. So, some of this, you know, may be predicated on where this government decision lands. But I think you certainly raise an interesting point that, you know, to a certain extent at least, you can move your, compute your calculations around the world and you can maybe have some latency. Not everything needs to be computed instantly and near to real time. So, there may certainly be some scope for that.
The government recently announced a new AI Energy Council. One of a number of things that this group will do is to identify some zones within the UK in which they may try to speed up permitting for this type of infrastructure. But also, I think one of the ambitions for the government for that AI Energy Council is to think about how we can better forecast the future energy demand from AI and data centers. Because I think what's been very interesting in sort of following this debate is that we had a period, I think, in which a lot of people were almost kind of panicking and there was a bit of a frenzy about the amount of energy that large language models and newer AI models would consume.
So, we had a sort of a short phase in which there was a lot of hand-wringing and a lot of concern about that.
David Roberts
I think we're still in our hand-wringing phase here.
Lucy Yu
Yes, but I think what was very interesting about DeepSeek kind of breaking cover, if you like, was I think a number of people then took a bit of a pause and a step back and said, "Well, does this maybe expose the fact that there has been a degree of guesswork going on here?" You know, actually, DeepSeek used some software, some algorithmic efficiencies, and I think we certainly will see more of those in the future, but I think we'll also see hardware efficiencies as well. If you look at some of the new GPUs coming on the market, potential for sort of quantum and other technologies maybe to come on stream in sort of 15 to 20 year time frame, perhaps, perhaps sooner than that, who knows? So I think, I think it's very difficult for anybody to really confidently assert what the future energy demand from AI and data centers will be.
David Roberts
Yeah, isn't the conventional wisdom though that, I mean, this is just the rebound effect, right? Like all those efficiencies are just going to get eaten up with expanded use?
Lucy Yu
Yeah, I mean, I don't know. We're all about empirical data and empirical observation at the Centre for Net Zero. So, we would kind of want to look at that. But the only thing I would say to that is we have to be mindful that firstly, not everybody using AI is generating cat pictures. You know, some people, some people will be using this to find, you know, materials science-based innovations or just things in other downstream applications that have the potential to massively reduce emissions.
David Roberts
Or just managing a grid where there are, you know, hundreds of thousands of generators rather than dozens, is a good place for AI too. So, one of the overriding themes here, especially given the, let's say, somewhat tender politics of net zero right now, is just affordability. Like, affordability is, from the public's point of view, kind of the lever you pull where you get support or opposition. And it makes total sense to me that with inflation, high electricity prices, everything else, the ground is fertile right now for backlash to all this.
And especially in a time when you need to ramp up and double or triple your forward momentum, obviously, that's a big problem. So, I just wonder, is affordability the overriding — like, are clean energy people in the UK appropriately obsessed with affordability? And what are the main levers to try to do this without it hurting ordinary consumers? What can be done?
Lucy Yu
Yeah, I mean, this is a short question, but it's a long conversation. I think it's probably worth focusing a little bit on some of the things that are adding cost to the overall energy system in the UK because anything that adds cost to the overall operation of the system ultimately ends up being socialized, so it ends up on customers' bills. And those costs are coming from things like — so we talked earlier about excess renewable generation. We've done an incredible job of adding more clean generation to the UK energy system, but we are not always able to use that at times of excess generation.
And that might be, for instance, because you have a part of the country that is particularly windy, but that generation region is geographically separated from regions of high demand. So an example might be generation in Scotland, wind generation, and then high demand in places like London and the southeast. So every time we are curtailing renewables in that way, there are costs to the system.
David Roberts
Yeah. Is curtailment rising? Is it on its way up?
Lucy Yu
Curtailment is rising. And so, you know, that's one of the reasons why it's important that we look at market reform. But it's also another good reason to try to get more flexibility into the system. This is one of the things that I think can help provide a more direct feedback link to the general public. So, if we can help them to adopt technology. I talked earlier about the impact that our heat pump subsidies have had on just starting to grow what is still quite a nascent market. But if we can help people to adopt those types of technologies, then they can participate in flexibility type services.
So, that might be as simple as just moving to something like a time of use tariff. This is a tariff where the price varies throughout the day. And this type of tariff — and I guess one of the benefits of this type of thing is that if you couple it with effectively some intelligence in the technology. So, a good example here might be somebody who has an electric vehicle who charges that vehicle on a regular basis, maybe on a daily basis, some technology can provide a charging profile for that vehicle so that instead of plugging it in and it immediately starts charging until the battery is full, that it does that according to a different profile, which has been designed to align with the local grid and the local grid conditions.
David Roberts
And I think, maybe you agree, like, the response to time of use will be much greater, I think, in the eventual case that almost all of this is automated. Do you agree?
Lucy Yu
Yes, yeah. It may sound a bit jargony, but we sometimes refer to implicit and explicit flexibility. So, implicit flexibility being almost as you describe, it's kind of automated and sort of operating in the background, whereas explicit might be slightly more kind of ad hoc. It may be a little bit less automated in its nature. So, I think you're right, though, that ultimately this automation of a variety of different technologies — so, you know, I'm talking about electric vehicles, but the households of the future, under an electrified scenario, you know, they might have an electric vehicle, they might have rooftop solar, they might have a home battery —
David Roberts
And a smart panel that makes it all talk to each other.
Lucy Yu
Yes.
David Roberts
And it always has kind of struck me that because you have a kind of a single utility in a single market. You know, one of the things I wanted to touch on is VPPs where — we're out of time now, but maybe we could just touch on this quickly. You know, one of the weird things going on right now is that we have this sort of private market in VPPs. We have these private aggregators, and their relationship to utilities is somewhat odd.
My instinct has always been like, "This just seems like something utilities ought to be doing. Why is there a private market in this?" And so, you have a single utility in the whole country? Like, is there some future where sort of all of the UK is a big VPP?
Lucy Yu
When you say we have a single utility, what are you referring to?
David Roberts
Wait, maybe I'm just wrong about this. Isn't the National Grid the utility for the whole UK?
Lucy Yu
Okay, so I'm thinking of a retailer such as Octopus Energy as a utility.
David Roberts
Right. You have retail competition.
Lucy Yu
So, yeah, you're precisely right. We have retail competition. We did see a lot of retailers effectively kind of drop out of the market after Ukraine. This is because there were a number of retailers that maybe hadn't hedged effectively. They hadn't anticipated or kind of hadn't planned for the increase in energy prices that we saw. And effectively, when that happened, it meant that their businesses were no longer viable. So, a lot of retailers then dropped out of the market. I think it was sort of over 30 in a relatively short space of time.
And many of them were smaller retailers. But yeah, we have competition in the market.
David Roberts
So, do you have a VPP market starting up? Like, are people, are you that far along? I mean, you kind of need electrified homes to do that?
Lucy Yu
Yeah, I mean, there certainly are companies who are effectively sort of operating VPP type models in the UK. What I don't know is what the sort of growth figures for those sorts of businesses look like. But I think that anything that will create sharper signals in the market, so whether that is by place and time, we already are starting to have more sort of digitalization generally in the energy system, if you like. So we're getting more of the raw ingredients needed to be able to create these types of businesses and I suppose more importantly, to innovate on propositions to customers.
David Roberts
Right, okay. Well, we've gone over how we're trying to cover an entire country. Any final sort of, like, I guess, I wonder, just sort of by way of wrapping up. You know, like in the US, you know, it's at the very least up in the air, what the future, what the political future of decarbonization is. I mean, you know, you can find people who say, "The market marches on, there's no way they can stop this." But I think people underestimate how much damage a government can do if it really sets out to do damage. So I wonder, what's your take on UK decarbonization? Like, are you worried about the larger effort sort of fragmenting and becoming polarized and bogging down, or do you think that this is sort of like has a momentum of its own that's in some sense resistant to politics?
Lucy Yu
It's a very good question.
David Roberts
Impossible to answer, but good.
Lucy Yu
It's hard to answer. But, like I said earlier, we have to be mindful that what the polls tell us is perhaps different than what some of the media in the UK might present. So, the polls do tell us there is good support for this. Like I said, I think around 76% of the public is in support of green policies. I also think there is a real opportunity for the UK, and I would say Europe as well, actually. So, coming back to your comments about the situation in the US, and I won't talk too much about that, but I do think what that potentially does is open up more opportunity for the UK and Europe.
So, the UK and parts of Europe can certainly offer a home to those who maybe, at the moment, feel like they can't do their best work in the US.
David Roberts
Well, we're firing all our best scientists and engineers, so it's a real buyer's market for smart people right now.
Lucy Yu
So, I don't think we should be too pessimistic.
David Roberts
Part of what's happening is the UK and the EU are starting to think more seriously about their own defense just because the US has become unreliable. So, I sort of wonder what the manifestation of that will be in the decarb world if they try to sort of like cut ties a little bit and become a little bit more self-sufficient in that respect too.
Lucy Yu
Nobody has a crystal ball, right?
David Roberts
I sure would like one right now.
Lucy Yu
I mean, what you just said about defense, we have something called the National Wealth Fund in the UK, and I suppose it's our closest equivalent to a sovereign wealth fund. I would say it maybe doesn't quite share the characteristics of some sovereign wealth funds around the world because it is probably less about just investing for the highest returns. But I think one of the things that it might also do is perhaps invest in newer or more experimental kind of technologies and things in order to try to get them closer to commercialization. So it may do that sort of thing.
Traditionally, though, the remit of that fund — so it came about through, it used to be the UK Infrastructure Bank and it is now effectively the National Wealth Fund. And when it was the UK Infrastructure Bank, it had a mandate to invest in infrastructure in five sectors. So those were clean energy, digital transport, water and waste — from memory. And certainly, one of the more recent announcements by our most senior finance minister in the UK was that she wants to effectively amend the terms of the mandate or the terms of the National Wealth Fund so that it can also spend on defense, the defense sector.
And I think this is partly because, for the reasons that we're all very familiar with, countries are thinking about how they can increase their national spending on defense. And that has to come from somewhere. We are not awash with government money here in the UK, so certainly that does raise a question about what is the trade-off, if you like, almost, or what will that mean for some of those clean energy projects that might have been.
David Roberts
Maybe also a good time for clean energy proponents to be making the argument that defense and renewable energy are not entirely separate things. Energy self-supply is big and same with supply chains and all that stuff too. Thank you, Lucy. This was an impossible task I roped you into, but I think we did a credible job trying to do some of the high points and maybe we'll have you on again in the future.
Lucy Yu
So much more we could have covered.
David Roberts
Get a little bit more nitty-gritty about the demand-side stuff, which of course, I love.
Lucy Yu
Yes, that would be great.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out, especially, to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. And it is all supported entirely by listeners like you. So, if you value conversations like this, please consider joining our community of paid subscribers at volts.wtf. Or, leaving a nice review, or telling a friend about Volts. Or all three. Thanks so much, and I'll see you next time.
