National Energy System Operator has said that its analysis suggests that Britain could halve the share of spending related to energy by 2050.
The news comes as (NESO) has published its analysis of the economics of the Future Energy Scenarios 2025 (FES 2025). FES 2025 examines the choices facing government, industry and households, and considers three decarbonisation pathways with varying levels of electrification, hydrogen, bioenergy and consumer engagement.
The illustrative ways of meeting decarbonisation targets are not fully optimised to minimise cost, meaning they are likely to differ depending on the path ultimately taken.
Its report analyses the costs of those illustrative pathways to decarbonisation. The differences between these pathways, and their associated costs, allow government and the energy sector to gain insights, helping key stakeholders make more informed decisions.
It finds that energy costs as a proportion of GDP are projected to decline in all FES25 pathways, from around 10% of GDP in 2025 to approximately 5-6% by 2050. This is despite a projected rise in energy demand, driven by population growth, increasing Gross Domestic Product (GDP), and growing consumption from data centres.
Exposure to fossil fuel price volatility is substantially reduced by 2050 under the net zero compliant FES25 pathways. The energy price crisis of 2022 led to extra energy costs equivalent to 1.8% of GDP compared to pre-crisis years. An equivalent price shock in the FES25 Holistic Transition pathway (which meets all the UK’s carbon targets), would increase energy costs in 2050 by 0.3% of GDP.
The decarbonisation pathways involve a shift from spending on imported fuels to investment in Great Britain’s renewables, networks and more efficient electric heating systems.
As well as unlocking reduced operating spending, this investment can bring local economic opportunities and support new jobs, alongside the opportunity for improved air quality and health outcomes.
When carbon costs are included, the Holistic Transition pathway has the lowest cost over 2025-2050, as well as enduring savings beyond 2050. If carbon costs are ignored, the Falling Behind scenario (which reduces emissions more slowly) proves cheaper, saving costs equivalent to around 0.4% of GDP on average a year over 2025-2050. However, it would face higher costs beyond 2050 and miss out on the wider benefits unlocked by the decarbonisation pathways.
The comparisons outlined in the analysis of illustrative costs are indicative, given the uncertainties and differences between pathway assumptions, it added.
Claire Dykta, Director of Strategy and Policy at NESO, said:
“Projecting future energy costs is notoriously difficult, but our analysis suggests that Britain could halve the share of spending related to energy by 2050. Our analysis also shows that we would be less exposed to energy price volatility under a decarbonised energy system, reducing the economic impact of a spike in prices as we saw in 2022.
“Our pathways are designed to provide insights that could support strategic planning and policy development, and we have also identified scope for costs to be lower than what we have modelled.”
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