Energy & Waste
Energy and waste infrastructure can help deliver a low cost, zero carbon future.
Updated:

Infrastructure delivers power and heat to homes and businesses and underpins how we dispose of and recycle waste.
It is a period of huge change for energy producers, utilities companies and those who manage the connections between them. Currently, 30 per cent of UK greenhouse gas emissions come from energy supply and buildings. The growth of renewable energy sources and the need to update our networks to enable decarbonisation are historic shifts which present both challenges and opportunities for the sectors involved.
The Commission advises government on how to best support and regulate those sectors to deliver the changes necessary for meeting the UK’s net zero goals.
With this in mind, we conduct a range of work exploring the potential for a more flexible renewable energy mix. This includes investigating how innovative technologies might help enable the phasing out of fossil fuels for UK power and heating without increasing costs for households over the long term.
Generating energy from waste plants (incinerators) helped the move away from landfill and makes sense when the alternative is power from fossil fuels. But the UK could save £6.2 billion by 2050 and avoid the need to build 20 new incinerators by achieving higher recycling rates.
We therefore seek to inform decision making to create a more circular economy, supporting significantly higher recycling rates for municipal and industrial waste and ensuring that the processes used for disposing of remaining waste help meet wider environmental policy goals.
Here you will find a summary of the Commission’s position on key issues emerging from our work related to energy and waste.
Creating a highly renewable electricity system
The first National Infrastructure Assessment [LINK] showed that Britain can and should have low cost and low carbon electricity. With the country committed by law to reach net zero greenhouse gas emissions by 2050, decarbonising the power sector is essential.
The Assessment recommended that the electricity system should be running off 50 per cent renewable generation by 2030, as part of a transition to a highly renewable generation mix.
Since then, the Commission has published new research which showed how further falls in the cost of renewable technologies strengthen the case for a bolder target of 65 per cent renewable generation by 2030. This can be delivered at the same overall cost as meeting only half of total demand by that date.
The future of nuclear power
The Commission’s analysis suggests that investment in new technologies such as low carbon hydrogen generation could be the best way to deliver low cost power to UK consumers while also helping reach net zero greenhouse gas emissions by 2050. The case for committing to a new fleet of nuclear power stations now is weakened as the cost of bringing natural renewable technologies on stream continues to fall, and the prospect of using bioenergy with carbon capture and storage to run baseload increases.
The National Infrastructure Assessment recommended that government should not agree support for more than one nuclear power station beyond Hinkley Point C, before 2025.
The Assessment also stressed that future nuclear power plants will not be built by the private sector without government support. The shape this support takes has implications for the balance of risk between the private sector, electricity consumers and the taxpayer. These considerations impact the potential value for money a project offers and therefore its financial viability.
In October 2019, the Commission published a paper comparing different ways to procure nuclear infrastructure and providing a method for evaluating the type and size of costs associated with funding a nuclear plant under a regulated asset base (RAB) model.
Making progress towards zero carbon heat
Heating homes accounts for around 20 per cent of the UK’s greenhouse gas emissions. If the country is to meet its net zero target, this must change. However, there is no one technology that can solve the problem and the evidence base on alternatives to gas boilers is still developing.
The National Infrastructure Assessment recommended developing an evidence base that would help clarify the way forward. Large scale trials of hydrogen, from its production to use in homes, are needed to test whether it is a realistic solution. Similarly, an up-to-date evidence base on heat pump performance in the UK housing stock must be gathered.
Energy efficiency of buildings
Heating homes accounts for around 20 per cent of the UK’s greenhouse gas emissions. If the country is to meet its net zero target, this must change. However, the evidence base on alternatives to gas boilers is still developing.
Regardless of which technology replaces natural gas boilers one thing is clear: the UK’s housing stock must become more energy efficient. The National Infrastructure Assessment recommended that the rate of installations of energy efficiency measures in the building stock should reach 21,000 a week by 2020. This level should be maintained until a decision on future heat infrastructure is taken.
Enabling a rapid rollout of electric vehicles
Achieving net zero greenhouse gas emissions means helping drivers transition away from petrol/diesel engines – which account for a third quarter of UK emissions – and towards electric vehicles (EVs). EVs are an increasingly familiar sight on roads and offer real benefits for drivers and the environment.
A rapid transition to EVs needs the right infrastructure support. The National Infrastructure Assessment explored how to give drivers the confidence they need to switch to an EV.
A national rapid-charging network – focused initially in harder-to-reach areas – is crucial. The Assessment also proposed allocating more council parking spaces to charge points, and increased investment in a smarter electricity network to support innovations like smart charging.
Waste and recycling
The National Infrastructure Assessment identified that much of England’s waste is still incinerated to produce electricity and heat.
Lower cost, lower carbon options exist for many types of waste such as food waste and plastics. Currently the UK’s plastic recycling rate is just 30 per cent, and 53 per cent of households throw away items that could be recycled.
Here, the Commission has recommended practical steps to enable a step change: separate food waste collection for all households and businesses in England to enable biogas production, changes to how waste is collected to enable higher recycling rates, and revised packaging and labelling to use less resources and encourage easier recycling.
Smart Power
In October 2015, the Commission was asked to consider how the UK can better balance supply and demand for power, aiming for an electricity market where prices are reflective of costs to the overall system.
The Commission found that a flexible electricity system could save consumers up to £8 billion a year by 2030, help the UK meet its 2050 net zero greenhouse gas emissions target, and secure the UK’s energy supply for generations. This would be based on developing three key technologies: interconnectors, storage, and demand side response management.
Headline Recommendations
Clear, proportionate and realistic resilience standards set by government
Government should introduce a statutory requirement by 2022 for Secretaries of State to publish:
- clear, proportionate and realistic standards every five years for the resilience of energy, water, digital, road and rail services
- an assessment of how existing structures, powers and incentives enable operators to deliver these standards or where changes are needed.
Regulators should introduce obligations on infrastructure operators to meet these resilience standards by 2023.
Stress testing of infrastructure sectors
Regulators should require a system of regular stress testing by 2024 for energy, water, digital, road and rail infrastructure operators, to ensure that infrastructure operators’ systems and decision-making can credibly meet resilience standards for infrastructure services.
Regulators should introduce obligations by 2023 on infrastructure operators to require them to participate in stress tests and to require remedial action in case of failure of stress tests.
Infrastructure operators should develop strategies to ensure services meet resilience standards in the long term
Energy, water, digital, road and rail infrastructure operators should develop and maintain strategies to ensure infrastructure services can continue to meet resilience standards in the long term. To ensure this, regulators should:
- introduce obligations by 2023 on infrastructure operators to require them to develop and maintain long term resilience strategies (where there is no current requirement)
- set out, in future price reviews, how their determinations are consistent with meeting standards of resilience in both the short and long term.
A clearer strategic framework for the long-term investment needs of the country
Forward looking regulation, by independent regulators, remains the best approach to balancing the needs of consumers and investors, whilst incentivising efficiency. However, this should be embedded in a clearer strategic framework for the long-term investment needs of the country:
- The government should introduce legislation by 2021 to fulfil its previous proposal that regulators have regard to endorsed recommendations from the Commission
- The government should set out a long-term strategic vision for each of the regulated sectors, through strategic policy statements, within the first year of each Parliament, to support lasting plans and stable funding.
Regulatory frameworks should reflect the devolution of powers within the UK
Regulatory frameworks should reflect the devolution of powers within the UK:
- Ahead of the next price controls, regulators should put in place formal mechanisms, such as advisory committees, to ensure they have regard to the strategic vision set out by devolved administrations, where devolved and reserved powers interact
- In future price controls, regulators should demonstrate how they have taken consideration of the strategic vision of metro mayors and relevant local government, within devolved powers, where this has material impacts for network investment
- Regardless of specific devolved powers, regulators should engage with the views of elected representatives, alongside other sources of insight into consumers and the public’s preferences.
Updating regulators’ duties
Regulators’ duties need to be coherent, covering price, quality, resilience and environment. Government should introduce legislation by 2021 ensuring that, where they are currently missing, Ofwat, Ofgem and Ofcom have duties to require them to seek to:
- Ensure their decisions promote the resilience of infrastructure systems
- Ensure their decisions are consistent with, and promote the achievement of, the government’s legislated greenhouse gas emissions targets, currently achieving net zero greenhouse gases by 2050
- Collaborate with other regulators, where relevant, to avoid contradictory regulation and promote efficient outcomes for consumers on cross-sectoral issues.
Using competition to support innovation
The use of competition should be enhanced as the most reliable means of supporting innovation, particularly where there is rapid technological change:
- Regulators should focus ‘standard’ periodic price controls on the maintenance of existing networks and marginal enhancements
- Ofcom should continue to promote infrastructure competition for fibre and mobile networks
- Government should introduce legislation, ahead of the next price controls, to remove any barriers to the use of competition in the provision of strategic enhancements to water and energy networks
- For future price controls, Ofwat and Ofgem should separate consideration of strategic enhancements from the ‘standard’ periodic price control. Ofwat and Ofgem should develop tendering processes for strategic enhancements, with a clear, public justification required where tendering is not used
- Government should ensure that regulators have the resources they need to carry out competitive tenders for transformational investments.
Regulators should address financial risk and corporate governance issues
Regulators should be more proactive in addressing financial risk and corporate governance, to ensure that rewards reflect performance and risks that are genuinely taken by investors:
- In future price controls, regulators should take direct account of information asymmetries in assessing the weighted average cost of capital and total expenditure allowances, ‘aiming off’ to ensure a fair outcome for consumers and investors
- In future price controls, regulators should introduce outperformance sharing mechanisms to allow consumers to share in the benefits that equity investors achieve from high gearing, where companies have gearing levels which significantly exceed the level assumed by the regulators
- For natural monopoly companies, regulators should evaluate the case for an absolute cap on gearing
- For firms with a natural monopoly, regulators should ensure executive salaries are demonstrably linked to long-term performance for consumers and the public.
Prevent companies from engaging in price discrimination that does not provide an overall benefit to consumers
Regulators should be able to prevent companies from engaging in price discrimination that does not provide an overall benefit to consumers:
- Regulators should require companies to report annually on which groups of customers are paying more for the same service; companies should be required to publicly justify their price discrimination policies or rectify them
- Regulators should be able to require companies to change their price structures where price discrimination cannot be justified by benefits to consumers
- Government should introduce legislation, by 2021, to replace the current court-based enforcement of consumer law with an administrative compliance and enforcement model, subject to appropriate scrutiny by the courts.
Closer attention to distributional consequences for customers
Government and regulators cannot rely on a flawed assumption that market design and distributional consequences can be separated. For future regulatory proposals with significant distributional consequences:
- Regulators should publish an analysis of the distributional consequences for consumers and businesses of their proposals, and of the impact of possible mitigations for significant adverse effects
- Regulators’ boards should be given the power, by 2021, to seek explicit guidance from ministers on strategic policy direction and distributional choices, against a menu of feasible options provided by the regulator and within a fixed three-month period
A stronger role for the UK Regulators Network
The UK Regulators Network should have a stronger role, supported by an independent chair:
- By the end of 2020, the UK Regulators Network should appoint an independent chair
- By the end of 2020, the government should review data sharing powers by regulators to ensure they can develop a ‘whole customer view’
- By the end of 2021, regulators, with the support of the UK Regulators Network, should develop joint data sets to enable whole customer analysis
- By July 2021, the independent chair of the UK Regulators Network should publish a business plan setting out how the network will support collaboration on the achievement of common goals; coordination to avoid contradictory regulation and inefficiency; data and knowledge sharing, including supporting the regulators to improve their data management capability; improved performance reporting by regulators.
A nationwide full fibre connectivity plan
The Commission recommends that government should set out a nationwide full fibre connectivity plan by spring 2019, including proposals for connecting rural and remote communities. This should ensure that full fibre connectivity is available to 15 million homes and businesses by 2025, 25 million by 2030 with full coverage by 2033. To achieve these targets:
- Ofcom should promote network competition to drive the commercial rollout of full fibre, by deregulating where competition is effective and guaranteeing a fair bet on risky investments before regulating any uncompetitive areas.
- Government should part subsidise rollout to rural and remote communities, beginning by 2020, starting with the hardest to reach areas and community self-build.
- Government and Ofcom should allow for copper switch-off by 2025.
- Government and Ofcom should take action to cut the cost of full fibre deployment including:
- Government should ensure the processes for obtaining wayleaves and connecting new builds are the same for digital infrastructure as other utilities by 2019.
- Local government should designate ‘digital champions’ to improve telecoms processes such as street work permissions and access to publicly owned assets.
- Ofcom should monitor the accessibility of Openreach’s duct and pole infrastructure by levels of usage.
Accelerating the transition to a highly renewable generation mix
The Commission recommends that government should set out a pipeline of pot 1 Contracts for Difference auctions, to deliver at least 50 per cent renewable generation by 2030, as part of the transition to a highly renewable generation mix. Government should:
- Move technologies that have recently become cost competitive, such as offshore wind, to pot 1 following the next Contracts for Difference auction in Spring 2019. Pot 1 should be used for the overwhelming majority of the increase in renewable capacity required.
- Publish indicative auction dates and budgets for the next decade by 2020.
- Over time take whole systems costs into account in Contracts for Difference auctions, as far as possible.
- Consider whether there is a case for a small-scale, pot 2 auction in the 2020s, if there are technologies which are serious contenders for future pot 1 auctions.
- Not agree support for more than one nuclear power station beyond Hinkley Point C, before 2025.
More progress towards zero carbon heat
The Commission recommends that government needs to make progress towards zero carbon heat:
- Establishing the safety case for using hydrogen as a replacement for natural gas, followed by trialling hydrogen at community scale by 2021.
- Subject to the success of community trials, launching a trial to supply hydrogen to at least 10,000 homes by 2023, including hydrogen production with carbon capture and storage.
- By 2021, government should establish an up to date evidence base on the performance of heat pumps within the UK building stock and the scope for future reductions in the cost of installation.
- Set a target for the rate of installations of energy efficiency measures in the building stock of 21,000 measures a week by 2020, maintained at this level until a decision on future heat infrastructure is taken. Policies to deliver this should include:
- Allocating £3.8 billion between now and 2030 to deliver energy efficiency improvements in social housing.
- Government continuing to trial innovative approaches for driving energy efficiency within the owner occupier market.
- Government setting out, by the end of 2018, how regulations in the private rented sector will be tightened and enforced over time.
Increasing recycling rates of municipal waste and plastic packaging
The Commission recommends that government should set a target for recycling 65 per cent of municipal waste and 75 per cent of plastic packaging by 2030. Government should set individual targets for all local authorities and provide financial support for transitional costs. The government should establish:
- Separate food waste collection for households and businesses (to enable production of biogas) by 2025.
- Clear two symbol labelling (recyclable or not recyclable) across the UK by 2022.
- A consistent national standard of recycling for households and businesses by 2025.
- Restrictions on the use of hard-to-recycle plastic packaging (PVC and polystyrene) by 2025.
- Incentives to reduce packaging and for product design that is more easily recyclable by 2022.
- A common data reporting framework for businesses handling commercial and industrial waste by the end of 2019, ideally through voluntary reporting but if necessary by legislation.
Rolling out charging infrastructure to enable 100 per cent electric new car and van sales by 2030
The Commission recommends that government, Ofgem and local authorities should enable the roll out of charging infrastructure sufficient to allow consumer demand to reach close to 100 per cent electric new car and van sales by 2030. Government should address the implications of technological innovation in long term transport planning processes, including the next rail control period and road investment strategy.
- Ofgem should take on the role of regulating the interaction between electric vehicle charge points and the electricity network immediately, ensuring that electric vehicle charging and vehicle to grid services contribute to the optimisation of the energy system. Government, industry and Ofgem should work together to set minimum standards for a network of interoperable, smart charge points.
- Ofgem should commission electricity network operators to work with charge point providers to identify potential anticipatory investments required to accommodate public charging infrastructure. Opportunities for investment within the current price control period should be identified by Summer 2019.
- Government should place a requirement on local authorities to work with charge point providers to allocate 5 per cent of their parking spaces (including on-street) by 2020 and 20 per cent by 2025 which may be converted to electric vehicle charge points.
- Government should subsidise, by 2022, the provision of rapid charge points in rural and remote areas, where the market will not deliver in the short term.
- Government should establish a centre for advanced transport technology in the Department for Transport to bring together work on technological innovation and ensure its implications are central to future investment proposals. This should include developing and overseeing the Commission’s proposed connected and autonomous vehicles framework.
Cities should have the powers and funding they need to pursue ambitious, integrated strategies for transport, employment and housing
The Commission recommends that government should make £500 million a year of funding available from 2025/26 to 2034/35 for local highways authorities to address the local road maintenance backlog.
The Commission recommends that cities should have the powers and funding they need to pursue ambitious, integrated strategies for transport, employment and housing.
- By 2021, metro mayors and city leaders should develop and implement long term integrated strategies for transport, employment and housing that will support growth in their cities.
- By 2021, government should ensure city leaders have the right powers to deliver these integrated strategies, including the power for metro mayors to make decisions on major housing development sites.
- Government should set out devolved infrastructure budgets for individual cities for locally determined urban transport priorities in line with the funding profile set out by the Commission. Budgets for 2021-2026 should be confirmed by mid 2019. Government should pass legislation, by 2020, requiring cities to be given regular five year infrastructure budgets.
- Government should allocate significant long term funding for major capacity upgrades in selected growth priority cities, in line with the funding profile set out by the Commission. Cities benefiting from major projects should make commitments on housing delivery and provide at least 25 per cent of funding. Priority cities should be identified by mid 2019, with long term investment commitments agreed by 2020. Future rounds should take place no more than twice a parliament.
A strategy to deliver a nationwide standard of resilience to flooding
The Commission recommends that government should set out a strategy to deliver a nationwide standard of resilience to flooding with an annual likelihood of 0.5 per cent by 2050 where this is feasible. A higher standard of 0.1 per cent should be provided for densely populated areas where the costs per household are lower. To deliver the strategy:
- By the end of 2019, government should put in place a rolling 6 year funding programme in line with the funding profile set out by the Commission. This should enable efficient planning and delivery of projects and address the risks from all sources of flooding.
- The Environment Agency should update plans for all catchments and coastal cells in England before the end of 2023. These should identify how risk can be managed most effectively using a combination of measures including green and grey infrastructure, spatial planning and property level measures.
- Water companies and local authorities should work together to publish joint plans to manage surface water flood risk by 2022.
- The Ministry of Housing, Communities and Local Government and planning authorities should ensure that from 2019 all new development is resilient to flooding with an annual likelihood of 0.5 per cent for its lifetime and does not increase risk elsewhere.
Ensure plans are in place to deliver additional water supply and reduce demand
The Commission recommends that government should ensure that plans are in place to deliver additional supply and demand reduction of at least 4,000 Ml/day. Action to deliver this twin-track approach should start immediately:
- Ofwat should launch a competitive process by the end of 2019, complementing the Price Review, so that at least 1,300 Ml/day is provided through (i) a national water network and (ii) additional supply infrastructure by the 2030s.
- The Department for Environment, Food and Rural Affairs should set an objective for the water industry to halve leakage by 2050, with Ofwat agreeing 5 year commitments for each company (as part of the regulatory cycle) and reporting on progress.
- The Department for Environment, Food and Rural Affairs should enable companies to implement compulsory metering by the 2030s beyond water stressed areas, by amending regulations before the end of 2019 and requiring all companies to consider systematic roll out of smart meters as a first step in a concerted campaign to improve water efficiency.
Publish good quality data on infrastructure costs and performance
The Commission recommends that government should publish good quality data on infrastructure costs and performance. All public bodies taking decisions on strategic economic infrastructure should publish the forecast costs and benefits of their major infrastructure projects at each appraisal stage and at a suitable point after completion, by the end of 2019. The Infrastructure and Projects Authority should work with departments to ensure that costs are comparable between sectors.
Design should be embedded into the culture of infrastructure planning
The Commission recommends that design should be embedded into the culture of infrastructure planning, to save money, reduce risk, add value, support environmental net gain and create a legacy that looks good and works well, by:
- Government ensuring that all Nationally Significant Infrastructure Projects, including those authorised through hybrid parliamentary bills, have a board level design champion and use a design panel to maximise the value provided by the infrastructure.
- Design panels for nationally significant infrastructure projects having regard to design principles to be published by the National Infrastructure Commission based on advice received from the national infrastructure design group.
Deliver long term certainty over infrastructure funding
The Commission recommends that government should deliver long term certainty over infrastructure funding by adopting the funding profile set out in the ‘fiscal remit’ table in Spending Review 2019 and other future spending plans.
Establish an independent UK infrastructure finance institution
The Commission recommends that government should maintain access to the European Investment Bank if possible. If access is lost, a new, operationally independent, UK infrastructure finance institution should be established by 2021. To enable this, government should consult on a proposed design of the new institution by Spring 2019. The consultation should cover:
- Functions, including provision of finance to economic infrastructure projects in cases of market and coordination failures; catalysing innovation; and acting as a centre of excellence on infrastructure project development, procurement and delivery.
- A clear mandate, including sound banking, additionality and having a wider economic and social impact.
- Governance to safeguard the operational independence of the institution.
Enable local authorities to capture a fair proportion of land value increases from planning and infrastructure provision
The Commission recommends that local authorities should be given further powers to capture a fair proportion of increases in the value of land from planning and infrastructure provision. To enable this, government should:
- Remove pooling restrictions on Section 106 in all circumstances, through forthcoming secondary legislation by 2020.
- Remove the ballot requirement for upper tier authorities’ powers to levy a business rate supplement of 2p or less in the pound for infrastructure, except where the supplement exceeds one third of scheme costs by 2021.
- Give local authorities powers to levy zonal precepts on council tax, where public investments in infrastructure drive up surrounding property values by 2021.
- Provide greater certainty in compulsory purchase compensation negotiations by including independent valuations early in the process to be paid for by the acquiring authority by 2021.
Government should pursue additional interconnectors with other European countries where the benefits are most significant
Interconnection investment decisions should continue to sit primarily with the private sector, but there is a role for government-led diplomacy to unlock those markets that can offer potentially large benefits to UK consumers. The government should therefore focus its efforts on exploring increased interconnection to markets with abundant sources of flexible low carbon electricity, such as Norway and Iceland.
The UK should become a world leader in electricity storage systems
Two steps are required:
- DECC and Ofgem should review the regulatory and legal status of storage and remove outdated barriers to enable storage to compete fairly with generation across the various interlinked electricity markets. The reforms should be proposed by Spring 2017 and implemented as soon as possible thereafter
- Network owners should be incentivised by Ofgem to use storage (and other sources of flexibility) to improve the capacity and resilience of their networks as part of a more actively managed system.
The UK should make full use of demand flexibility
The UK should make full use of demand flexibility by improving regulation, informing the public of its benefits it can provide and piloting business models:
- Ofgem should start an immediate review of the regulations and commercial arrangements surrounding demand flexibility with a focus on making participation easier and clarifying the role of aggregators; this should be complete by Spring 2017
- DECC should make future changes to the capacity market to reduce the costs and barriers to entry for demand flexibility
- DECC, Ofgem and National Grid should ensure that large users and opinion formers are aware of the money saving opportunities that demand flexibility can offer and encourage more industrial and commercial consumers to take part.
- pilots focusing on business models which make demand flexibility easy and attractive to consumers should be established and fully evaluated. Government should demonstrate best practice by investigating the scope for demand flexibility on its estate.
The System Operator must create new markets
The System Operator must create new markets that will allow open competition for the services it procures and ensure it keeps pace with the network it oversees.
The creation of an entirely independent System Operator should not be treated as an immediate priority but should be kept under review in light of progress towards strengthening National Grid’s independence.
Ofgem should consider how it encourages the System Operator to develop new markets to provide ancillary services which allow new technologies to participate more easily. The long term goal must be for a more strategic and transparent approach to the procurement of ancillary services and more cost-reflective charging.
Enabling the transition to more actively managed local networks should be a government priority
Enabling the transition to more actively managed local networks should be a government priority. By Spring 2017 DECC and Ofgem should consult and set out how and under what timeframe this transition should best take place.
Ofgem should continue its work in encouraging network companies to make long term strategic decisions
Where upgrades to our networks are needed Ofgem should continue its work in encouraging network companies to make long term strategic decisions. Whilst this does increase the risk of stranded assets, the Commission believes that if there is a potential net gain to future consumers then this approach may be justified. If network owners are not best placed to manage this risk, they should work with third parties to help facilitate these investments.
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