The cost of green transition for industry and consumers in the UK
The “green premium” in the UK involves the costs of transitioning to renewable energy sources, alongside the financial and structural support needed to make these technologies competitive and accessible. Haush has looked at the breakdown of the key elements and factors to consider, along with insights on how they are projected to evolve by 2030 and 2035.
What is the Green Premium
- The “green premium” refers to the additional cost of choosing clean energy over traditional fossil fuels. This premium currently exists due to higher upfront costs, limited economies of scale, and the expense of developing renewable infrastructure.
- In the context of the UK, the green premium is particularly relevant for technologies like wind, solar, green hydrogen, battery storage, fuel cells, and hydrogen fuel cell electric vehicles (FCEVs).
Current Infrastructure and Operational Costs
- Renewable Energy Infrastructure: The UK’s renewable infrastructure, particularly offshore wind and solar, has seen rapid growth. As of 2023, the cost per MW for offshore wind in the UK is around £40-50/MWh, while onshore wind is closer to £30-40/MWh. Solar power has a cost of approximately £35-45/MWh. However, these costs vary due to factors like location and grid connectivity.
- Battery Storage: Battery costs are declining, but utility-scale storage remains expensive at around £100-200 per kWh for capacity installation. These costs need to decrease further to facilitate large-scale storage, which is crucial for balancing renewable energy intermittency.
- Hydrogen Production and Storage: Green hydrogen, generated via electrolysis using renewable power, currently costs between £4 and £8 per kilogram in the UK. This makes it 2-4 times more expensive than grey hydrogen (derived from natural gas), hence contributing to the green premium.
Government Subsidies and Support
- Renewable Energy Subsidies: The UK government provides Contracts for Difference (CfD) for wind and solar projects, ensuring stable revenue and helping lower project risks, thereby gradually reducing the green premium.
- Electric Vehicles (EVs): Subsidies on EVs, including battery electric vehicles (BEVs) and FCEVs, aim to make low-emission vehicles more accessible. The government has also funded the rollout of EV charging points.
- Hydrogen and Industrial Decarbonisation: The UK’s Hydrogen Strategy includes subsidies for green hydrogen production to help scale the market. Similarly, industrial sectors receive support through initiatives like the Industrial Decarbonisation Strategy, targeting heavy emitters and helping them transition to hydrogen and other low-carbon technologies.
Factors That Will Reduce the Green Premium Over Time
- Economies of Scale: As renewable technology scales, costs will decrease. Offshore wind prices, for instance, are expected to drop further as more projects come online.
- Technological Advancements: Efficiency improvements in solar panels, wind turbines, and battery storage will lower production costs.
- Grid Modernisation: Investment in smart grid infrastructure, including battery storage and demand response systems, is essential for optimizing renewable integration and reducing operational costs.
- Government Policies and Carbon Pricing: Effective carbon pricing and taxes on fossil fuel emissions could make green technologies more competitive sooner. The UK’s Emissions Trading Scheme, for example, could incentivise cleaner energy choices by raising the cost of carbon-intensive options.
Projected Costs and Green Premium for 2030 and 2035
- Renewable Energy (Wind and Solar): By 2030, the levelized cost of energy (LCOE) for wind and solar is projected to decrease by 15-25%. Offshore wind may reach as low as £30/MWh, making it competitive with fossil fuels, particularly as carbon prices increase. Solar is expected to see a similar reduction, with potential costs falling to £25-30/MWh.
- Battery Storage: By 2030, the cost of battery storage could fall to approximately £50-100/kWh, with further reductions likely by 2035 due to technology improvements and mass production. Lower storage costs will support grid reliability and renewable energy availability, reducing the green premium.
- Green Hydrogen: Green hydrogen costs are expected to decrease by around 50% by 2035, reaching £1.50-2 per kilogram. This decrease will make it more viable for industrial use and hydrogen-powered transport.
Ultimate User Prices and the Green Premium from Today to 2035
- For the end user, the green premium is most visible in electricity bills, transportation costs, and industrial product pricing. Currently, the average household in the UK pays approximately 30% more for renewable electricity than conventional energy. However, this premium is expected to drop to below 10% by 2030 as renewables become more cost competitive.
- In transportation, the green premium for BEVs and FCEVs remains high due to battery and fuel cell costs, but as subsidies persist and production scales up, BEVs could reach price parity with conventional vehicles by 2030, with FCEVs following closer to 2035.
- In industry, hydrogen will play a key role, especially in sectors like steel and chemicals. As green hydrogen becomes more affordable, the green premium for low-carbon products is expected to decrease significantly by 2035.
Challenges to Reducing the Green Premium
- Infrastructure Costs: Expanding the grid and building renewable capacity requires significant upfront investment. Government subsidies are necessary to make this feasible in the short term, but sustained support will be needed through 2035.
- Public Acceptance and Behavioural Changes: Encouraging society to adopt electric vehicles, energy-efficient appliances, and green heating solutions like hydrogen boilers will be key. This often requires incentives and clear communication about the benefits.
The Role of Society in Paying the Green Premium
- The green premium, though a temporary economic burden, is a necessary step in reaching net zero and ensuring climate resilience. By 2035, the cumulative impact of government policies, technological progress, and economies of scale should make green technologies cost-competitive or even cheaper than fossil fuel alternatives.
- Paying the green premium now facilitates investments in critical infrastructure, encouraging the private sector to innovate and produce affordable green energy solutions, thus paving the way for a sustainable future.
We at Haush have structured a table outlining the estimated current, 2030, and 2035 costs for key green technologies in the UK. This table will include the estimated cost per unit (e.g., MWh for electricity, kg for hydrogen) and a simplified green premium percentage, which represents the additional cost of green energy or technology relative to its fossil fuel or conventional counterpart.
| Technology/Category | 2023 Cost | Green Premium (2023) | 2030 Projected Cost | Green Premium (2030) | 2035 Projected Cost | Green Premium (2035) |
| Offshore Wind | £40-50/MWh | 10-20% over gas | £30-35/MWh | 5% | £25-30/MWh | 0% or negative |
| Onshore Wind | £30-40/MWh | 10-15% over gas | £25-30/MWh | 0-5% | £20-25/MWh | 0% |
| Solar Power | £35-45/MWh | 10-15% over gas | £25-30/MWh | 0-5% | £20-25/MWh | 0% |
| Battery Storage | £100-200/kWh | High, uncompetitive | £50-100/kWh | Moderate | £30-50/kWh | Low to none |
| Green Hydrogen | £4-8/kg | 2-4x cost of grey hydrogen | £2-3/kg | 50-75% above grey hydrogen | £1.5-2/kg | 10-20% above grey hydrogen |
| Electric Vehicles (BEVs) | £35,000-40,000 per unit | 25-30% more than petrol | £25,000-30,000 per unit | 5-10% above petrol | Parity with petrol (£20,000-25,000) | 0% |
| Fuel Cell EVs (FCEVs) | £40,000-50,000 per unit | 40-50% more than petrol | £30,000-35,000 per unit | 15-20% above petrol | £25,000-30,000 per unit | 5-10% above petrol |
| Domestic Heating (Green Hydrogen) | £90/MWh (green hydrogen heating) | 50% more than natural gas | £50-60/MWh | ~25-30% more than natural gas | £40-50/MWh | 10-15% above natural gas |
| Industrial Decarbonisation (Steel/Chemicals) | £250-300/MWh | 75-100% over conventional | £150-200/MWh | 40-50% over conventional | £100-150/MWh | 20-30% over conventional |
Notes on the Table
- Green Premium values represent an estimated additional cost of using green technology relative to fossil fuel or conventional options as of each year. These percentages indicate how much more expensive green options are compared to fossil-based options.
- Cost Projections rely on advancements in technology, increased production scale, and government incentives, which are all expected to drive prices downward over time.
- Battery Storage costs are particularly impactful for balancing renewable energy supply and grid stability, with an expected steep decrease by 2035.
- Hydrogen costs are projected to drop significantly by 2030 and 2035, making green hydrogen more viable for both industrial and domestic use, though it may still carry a modest premium over grey hydrogen.
These estimates form the basis for analysing how the green premium will evolve and diminish as renewables and green technologies become more mainstream and cost-competitive in the UK energy market.
The post The Green Premium first appeared on Haush.