Investing.com -- The United Kingdom (TADAWUL: 4280 )’s ambitious Clean Power Plan 2030 (CPP 2030) has been a topic of discussion among investors, particularly regarding its affordability.
The plan, which aims to have clean sources produce at least 95% of GB’s power by 2030, up from 60% in 2023, is expected to significantly increase the country’s renewable energy capacity.
The current capacity of 46GW of wind and solar is expected to rise to 117-126GW, with offshore wind capacity alone increasing from 14GW to 43-50GW.
According to Bernstein, the impact of higher investments in grids and renewables under various scenarios has been quantified. In their base-case model, they anticipate wholesale charges to fall by 47% due to a normalisation of wholesale gas and power prices to pre-crisis levels.
Network (LON: NETW ) charges are expected to rise by 27%, led by the investment in transmission networks. Transmission charges currently constitute around 5% of the customer bill, but are forecasted to make up about 10% of the overall bill by 2030.
The policy costs are projected to rise from 22% to 38% of the bill, driven by the expansion of renewables and a fall in wholesale power prices. Although renewable contracts for difference (CfD) charges are expected to increase from £31/year today to £194/year by 2030, only £71/year would be from new renewable capacity yet to be contracted.
The rest of the increase is from existing capacity and already contracted capacity.
Based on these assumptions, Bernstein finds that the overall bills will rise at about 1.5% p.a. by 2030, or £81/year. This analysis does not assume any increase in power demand at the system or typical customer bill level.
The bill structure in 2030 will be far more resilient to commodity price shocks than in 2022, due to the CfD scheme.
Bernstein also ran several sensitivities on their analysis. They found that if there is a 2% p.a. growth in demand, bills will remain at current levels due to higher fixed system cost absorption, which would make up about 60% of the bill by 2030.
In a lower renewable growth scenario, with 81GW renewable capacity and 35GW offshore, bill increases are limited to 0.7% p.a., or £35/year. If no new renewable capacity is contracted from now on, bills will remain flat.
Higher wholesale prices would result in higher bills; however, due to the CfD scheme, the overall impact on bills would be a 2.2% growth p.a., or £121/year. Assuming new offshore wind clears at 24% higher than AR6 (versus 10% in the base case), bill increases would be 1.7% p.a., or £91/year.
Bernstein’s analysis indicates that likely bill rises under the CPP 2030 will be at 1.5-2.2% p.a. and come with a number of strategic benefits to the U.K., including resilience to external commodity price shocks, lower gas imports, industrial policy benefits, and a very low carbon power system that can decarbonize other sectors such as transport and heating.
However, they believe that unless there is strong evidence of demand growth, the extremely ambitious renewable expansion targets should be moderated to limit price increases for consumers while still providing ample opportunities for renewables growth.
In terms of investment implications, Bernstein rates SSE PLC (LON: SSE ) and National Grid PLC (LON: NG ) as Outperform, while RWE AG (OTC: RWEOY ) (ETR: RWEG ) ST O.N. (BIT: RWE ), Iberdrola (OTC: IBDRY ) (BME: IBE ), and Oersted AS (CSE: ORSTED ) are rated as Market-Perform.
These ratings are based on the companies’ heavy investments into U.K. grids and renewables.