DAVID TURVER

If NESO cannot produce proper energy scenarios and costs of Net Zero why does it exist?

Introduction

Regular readers may have seen the report I produced for the Institute of Economic Affairs (IEA) into the costs of Net Zero, see link to download the report below.

To my surprise, the report received a great deal of press attention with mentions in the Telegraph, Express and Spectator to name just three. All focused on the headline gross cost figures from the latest NESO report (covered here) of £7.6 trillion, or £9 trillion including carbon costs.

The fact the report got quite so much prominent coverage has upset many people in what we might term the Green Blob. Bob Ward of the Grantham Institute wrote to the IEA demanding the report be withdrawn and Simon Evans of Carbon Brief compiled a thread on Bluesky describing the report as shameless and stupid. The Chief Economist of NESO also took to LinkedIn to cast shade on the report, describing the numbers as “wild”. The BBC’s More or Less programme also got in touch to discuss the figures in the report.

What is so controversial about the report and what does it tell us about NESO?

Gross or Net Costs

The introduction to the IEA report makes clear its purpose is to “discuss the different approaches and identify the gaps in knowledge and data to support a proper public debate.” The report then wades through the various official estimates of the costs of Net Zero, starting with Phil Hammond’s estimate of “in excess of £1 trillion”, through NESO’s estimates from 2020, the Climate Change Committee’s various estimates and of course NESO’s latest attempt.

The controversy arises because the basis for the estimates changes over time or is not clear at all. Most of the estimates from NESO are the gross costs of building and operating an energy system that is Net Zero compliant by 2050. Their Falling Behind scenario falls short of Net Zero but still includes hundreds of billions of spending towards meeting the target.

The controversial table in the report is shown in Figure 1 below:

The table merely adds up the costs of each scenario contained in NESO’s Economic Outputs workbook that accompanied the economic annex. The report makes clear the £7.6 trillion (or £9 trillion) represents the gross costs of the Holistic Transition. Note the table also calculates the difference between Holistic Transition and Falling Behind. However, we should note that this does not represent the net costs of Net Zero, because NESO do not produce a “Stop the Race to Net Zero.”

As the IEA report makes clear, the gross costs estimated by NESO are likely a significant under-estimate because they assume offshore wind will cost just £53/MWh for 2035 delivery, well below the strike prices awarded in AR6 (£85/MWh in 2025 money) and AR7 (£94/MWh). They cost estimates for solar power that are less than half AR6 contract awards. This means the capex numbers are under-stated because we will have to spend more on renewables. The operating expenses are also under-stated because the electricity from renewables will be much more expensive. The operating costs in Falling Behind are also over-stated because they assume extremely high costs for gas-fired electricity by lumping in huge costs of carbon.

The Holistic Transition scenario includes £1.4 trillion of carbon costs for emissions out to 2050. This is about half GDP in 2024. Averaging this out over 25 years means NESO expects us to pay ~2% of GDP or £56 billion per year, just in carbon taxes. Emissions costs in Falling Behind are almost twice as high, getting on for 4% of GDP. Taxes like this act as an anchor on the economy, stifling growth – where is their analysis of the opportunity costs of attempting to achieve Net Zero?

There are other savings to be made in EV’s, electricity transmission and distribution amounting to hundreds of billions of pounds. Their estimate of net savings in aviation and relatively small costs to electrify rail also look suspect.

It is perfectly reasonable to add up and publish the gross costs. Any business looking to make a big change would look at the gross costs of the transition and compare it to doing nothing or something else. Of course, they would also calculate the net costs of change before deciding action. The big weakness in the NESO analysis is that they have not costed stopping the race to Net Zero.

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NESO Defensiveness

The Chief Economist of NESO, Mike Thompson took to LinkedIn to attack the IEA report and defend NESO’s work. He was also interviewed for the More or Less segment about the report, where your truly was also given a say (from 6:15):

However, Thompson’s intervention was revealing in several ways. First, he described the NESO pathways as “illustrative” and went on in the comments to downgrade them further to “exploratory pathways,” see Figure 2.

Wait a minute. NESO is the National Energy System Operator. Their role is to:

“Give independent advice on how to plan and run the energy system. We look at the whole picture, considering all the different problems and the choices that must be made. Our goal is to find the best outcomes for people who use energy.”

They should not be producing “exploratory” or “illustrative” pathways, they should be producing definitive plans for our energy system. According to their own description of themselves they should be looking at the “whole picture” and finding the “best outcomes.” Surely, this must include exploring a scenario that stops the race to net zero.

It is unfortunate that Thompson should the hide behind the Climate Change Committee (CCC) reports because they are even worse than NESO’s effort. The CCC estimates offshore wind will cost just £38/MWh in 2030 and 2035, even lower than NESO’s £53/MWh. And the CCC’s baseline scenario is not a no-action pathway either.

Thompson also tried the same dissembling approach as Nigel Topping, chair of the CCC, by trying to claim that Levelised Cost of Energy (LCOE) calculations cannot be compared to Contracts for Difference strike prices. This is hogwash. LCOE calculations are just a model and bear little resemblance to reality. CfD strike prices represent what we actually pay in our bills. Thompson’s position is further undermined by the Government’s latest Electricity Generation Costs 2025 report which shows offshore wind costing £97/MWh for 2035 delivery, nearly double NESO’s estimate of £53/MWh.

Conclusions

The intention of the IEA report was to discuss the different approaches and identify the gaps in knowledge and data to support a proper public debate about Net Zero. It is entirely valid to compare the gross costs of the different NESO scenarios and highlight the absence of a Stop the Race scenario.

The vampire-like reaction of the Green Blob to the light being shone on the numbers is quite telling. They are afraid to enter into a debate about the costs of Net Zero. The reaction of Mike Thompson is also quite revealing. He is doubling down on NESO’s lowball estimates of costs and is downgrading all the FES scenarios to merely illustrative or exploratory pathways and effectively says their numbers cannot be relied upon.

But this is the National Energy System Operator. If their scenarios are not definitive, if they shy away from producing a complete set of pathways that includes a Stop the Race scenario and their numbers do not really mean anything, then what is the point of the FES report and what is the point of NESO?

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This article (What is the Point of NESO?) was created and published by David Turver and is republished here under “Fair Use”

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