As energy prices soar, are the UK’s biggest energy firms investing to reduce gas?
Energy companies have been in the headlines for posting sky-high profits, while UK homes are being told to prepare for annual energy bills of £4,000+ next year. With the transition away from gas needed to bring down costs and emissions, how are the biggest suppliers preparing?
New research published on Tuesday (9 August) by Cornwall Insight has warned that household energy bill costs could surpass £4,200 early next year, bringing in fresh concerns that the UK is failing to respond to the energy cost and supply crises.
Cornwall Insight’s estimates suggest that households would end up paying £355 a month for a dual-fuel bill, compared to £164 currently.
The latest energy price cap is due to be announced at the end of August and will determine the maximum amount the suppliers can charge consumers for energy.
It is likely to be significantly increased, and energy providers and giants in the UK and abroad have been already criticized for tone-deaf celebrations of record-breaking profit margins.
In the UK, the big five energy firms have raked in more than £1bn in combined profits as of February 2022, with calls in place for these profits to be passed onto the customers to help lower bills while also decarbonising in line with the UK’s net-zero target for 2050.
According to statistics published by the energy regulator Ofgem, SSE was the company that benefitted the most from energy transition last year, taking home £600m.
Elsewhere, British Gas owner Centrica, and Scottish power made more than £400m between them before tax, while EDF Energy and E.ON record losses of around £150m each respectively. These figures account 2020 or the 2020/21 financial year.
The rise in energy costs is largely attributed to issues surrounding global gas supply, which has been compounded by the war in Ukraine and Russian sanctions.
But with the transition to net-zero likely to end reliance on gas as much as possible, how well prepared are the UK’s energy giants for the decarbonisation journey ahead? Here, edie explores the net-zero plans of the energy firms to date.
British Gas / Centrica
Centrica first announced an ambition to reach net-zero by 2050 at the latest in 2020. In the first quarter of 2021, it set a deadline of 2045 for business operations, and pledged to help customers run net-zero homes and businesses by 2050. These targets apply to carbon dioxide.
On operational emissions, Centrica is targeting a 40% reduction in absolute terms between its 2019 baseline and 2030. Within the same period, the targeted reduction for Scope 3 (indirect) emissions at the customer end of the value chain is 28%. These goals have been submitted to the Science Based Targets Initiative (SBTi) for verification in line with the Paris Agreement but have not yet received approval.
Centrica was one of the first large businesses to publish a climate transition plan, which was unveiled in 2021. From 2023, all large businesses in selected high-emitting sectors will need to produce these plans as a legal requirement – a move which Centrica CEO Chris O’Shea believes is a welcome step.
The transition plan documents reveal that Centrica spent just 5% of its annual investment in 2021 in low-carbon fields, but does commit to this reaching 50% by 2025. Investment areas include solar installations, heat pumps, and electric vehicle chargers. While Centrica has certified all of its electricity as “zero-carbon” for two years now, much of this has been done using Renewable Energy Generation Origin (REGO) certificates and similar approaches. In the future, additionality will be important at the level of meeting national targets and ensuring a credible corporate strategy.
French multinational EDF describes itself as “Britain’s biggest generator of zero-carbon electricity”. It operates five large nuclear power plants, more than 35 wind farms and one ground-mounted solar farm. Customers are automatically put on “100% zero-carbon” electricity tariffs, with REGOs used to ‘offset’ the gas-fired electricity. Its zero-carbon generation summary proportion was actually 32.4% in 2020.
EDF also supplies gas to commercial and domestic consumers of energy.
EDF committed in 2020 to “helping Britain achieve net-zero by 2050” in a manner consistent with a 1.5C temperature pathway. It had previously set SBTi-verified targets in line with a 2C trajectory, to halve absolute Scope 1 and 2 (direct and power-related) emissions between 2017 and 2030. Also verified is a pledge to reduce emissions from the use of sold products by 28% within that timeframe. These will need to be updated as EDF aims for approval under the SBTI’s 1.5C pathway and net-zero standard.
On emissions from customers, EDF has pledged to help domestic UK customers reduce their collective emissions from their energy use by 70% between 2019 and 2035. This will be achieved by increasing nuclear and renewable generation, reducing fossil energy generation, improving energy efficiency and boosting flexibility. There is also a target to help business customers collectively reduce emissions from their electricity use only by 80% in this timeframe.
Visitors to E.ON’s website are greeted with the statement: “Join E.ON where all our customers get 100% renewable electricity as standard, at no extra cost.”
Like EDF, E.ON has considerable levels of renewable generation through a mix of direct ownership and purchase agreements with independent generators. More than 49% of its fuel mix in 2020 was renewable and nuclear. Nonetheless, it still has coal and gas in the mix, with gas accounting for 43.5% of its 2020 fuel mix. It purchases certificates to offset gas with wind, solar and biomass.
E.ON’s net-zero target date is 2050 but the firm has emphasised that it will only be able to deliver this vision with improved support from UK policy this decade. That statement was made before the Government published its Net-Zero Strategy and Energy Security Strategy, but the former has been ruled unlawful by the High Court and will need to be updated. E.ON has also stated that it will align with the EU’s 2050 ‘climate neutral’ commitment.
E.ON has set 2030 emissions goals verified by the SBTi in line with 1.5C. These are to halve absolute Scope 1 and 2 emissions between 2019 and 2030, and to reduce the emissions intensity of fuel used by customers by 75% within that same timeline.
Investments of €27bn are planned by E.ON through to 2027 in the energy infrastructure space. Around €22bn will go to expanding and improving energy distribution networks. Other priorities are improving the customer solutions and service offer and installing 5,000 charging points.
Like Centrica, Scottish Power has produced a just transition strategy for net-zero. The foreword reads: “From our pioneering renewables developments more than twenty years ago to becoming the first integrated energy company in the UK to generate 100% green electricity, speeding up the journey to net zero is at the heart of everything we do.”
Those on Scottish Power’s Green Tariffs receive 100% electricity from its owned wind farms. Those on other tariffs will have REGOs used to account for gas and coal use. Scottish Power’s fuel mix figures for the 2020-21 financial year show gas accounting for 46% of its overall fuel mix and coal for 4%.
Regarding net-zero targets, Scottish Power’s are aligned with 2050, with an interim commitment to reduce absolute emissions across all scopes by at least 50% between 2019 and 2030. These goals have been verified by the Carbon Trust, rather than the SBTi, in line with 1.5C.
As part of its national net-zero by 2045 strategy, Scotland wants renewables to account for 50% of overall consumption by 2030, and Scottish Power frames its development of wind farms, energy storage and e-mobility infrastructure as a key contributor. It operates more than 25 wind farms across the UK, mainly in Scotland, with more than half a dozen more in development.
Last July, Scottish Power energy networks pledged £3.2bn of investment between 2023 and 2028. The funding will support grid upgrades and renewable connections, as well as community trials of small-scale renewable generation and flexibility. It subsequently touted a further £6bn to develop its East Anglia Offshore Wind Hub and a separate £550,000 for solar.
SSE announced a vision to reach net-zero by 2050 at the latest in November 2020 and has been fleshing out plans ever since, through updates including a transition plan.
Earlier this year, SSE pledged to reduce its absolute direct (Scope 1) and power-related (Scope 2) emissions by 72.% by 2030, against a 2020 baseline. There is also an intensity-based target for Scope 1 emissions specifically, entailing an 80.2% reduction within the same timeframe.
For Scope 3 (indirect) emissions, there is a new commitment to reduce emissions from sold products by 50% by 2034. This ambition also has a 2018 baseline. SSE has applied to the SBTi for verification in line with 1.5C, as its past targets were 2C-aligned.
Regarding energy investment, SSE is aiming to reach 8GW of renewable energy generation capacity by 2026 and 20GW 2030 – goals underpinned by a £12.5bn investment plan. It is also targeting the cumulative issuance of one million heat pumps and two million EV chargers by 2030.
SSE sold its stake in gas firm SGN in March 2022. SSE’s fuel mix data shows that, in the 2020-21 financial year, gas accounted for 40% of its electricity generation and renewables for 55%. The remaining 5% came from other sources, like bioenergy. Customers using the SSE ‘Go Green’ add-on to their package get REGO-backed offsetting of the gas.
The net-zero approach includes a renewed commitment to the business’s ‘Just Transition’ strategy, designed to protect workers and communities impacted by the energy transition. There is a commitment for SSE to “be a global leader for the just transition to net-zero, with a guarantee of fair work and commitment to paying fair tax and sharing economic value”. There are not, at this point, new time-bound numerical targets in this field.
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This conversation needs to consider the artificial relationship between the price of domestic gas and electricity. The electricity price is still linked to the price of gas which was valid many years ago when most electricity was generated by gas fired power stations, but now gas fired electricity is less than half the total.
My recent energy bill from Octopus that claims to supply green electricity, has the electricity price at 26.53 kWh almost 4 times the cost of gas at 7.01p kWh
This relationship needs to be phased out over several years which would reduce the cost of electricity and motivate energy users to switch from gas to electricity.
By 2050, it is likely that most of our primary energy will be delivered by fossil-free electricity and the rest from ground source heat pumps. By then, around 30% of the electricity will be converted into hydrogen according to the Government hydrogen strategy published in august last year.