UK Green Transition Pushes Investment Costs, Energy Prices Higher

The United Kingdom may require significantly higher investments than previously estimated to reach its net zero target by 2050 without economic growth and prosperity declining.

The Boston Consulting Group (BCG) estimated in February that Britain will need to spend between £700 billion and £900 billion over the next five years to revamp its energy infrastructure. This is between a 2.1x and 2.7x increase on the previous five years, BCG said.

In comparison, the UK's Office for Budget Responsibility estimated the net cost to the UK of achieving net zero at approximately £321 billion (in 2019 prices) from 2021 to 2050 in its July 2021 Fiscal Risks Report.

The rising price tag for Britain’s energy transition mirrors a bigger reality. The global energy transition cost is now $14 plus trillion and rising at over $2 trillion/year (2% of global GDP), according to Bjorn Lomborg, Author of ‘Best Things First,’ ‘False Alarm,’ and ‘Skeptical Environmentalist,’

"Climate campaigners tell you green is cheap," Lomborg wrote on X. "It isn’t. 105x our spending to avoid hunger. Still, CO₂ emissions set another record last year."

UK Green Transition Slows GDP Growth

In line with global trends, the British energy transition will require increasingly large investments in expanding renewable energy sources, grid upgrades, and energy storage solutions.

At the same time, the push to hit net zero has dragged on the British economy.

UK GDP remained below 1% in the previous two years. On Monday, the Paris-based OECD trimmed its growth estimate for 2025 to 1.4%, a 0.3 percentage point reduction from its previous calculation.

EY Item Club cited the UK's energy transition as undermining the country's manufacturing sector, the Telegraph reported on Wednesday.

"UK businesses currently pay the highest electricity prices in the developed world," Peter Arnold, the UK chief economist at EY, said. "The UK has invested heavily in renewables like wind and solar but these are intermittent, as opposed to say nuclear power, and this can also increase pricing volatility."

Public Spending on UK Green Transition in Doubt

UK infrastructure investment must reach around £80 billion per year in the 2030s to keep up with the energy transition – up from around £55 billion per year over the last decade, according to the UK's Institution of Civil Engineers and the National Infrastructure Commission (NIC).

BCG identified eight key capital-intensive sectors, including fundamental necessities like energy, water, transport, and healthcare, that require significant investments.

However, funding availability is uncertain, mainly as the government looks to manage the budget deficit and scrutinizes environmental spending. In addition, the UK has had the lowest overall domestic investment among the G7 in 24 out of the last 30 years.

Higher interest rates are also curbing borrowing for infrastructure projects. Rates went from 0.1% in 2021 to 5.25% by August 2023 before slowly declining.

"The biggest challenge for our sector has been the macro environment," Philip Kent, the lead adviser of GCP Infrastructure Investments GCP, said in January. "We're expecting more interest rate cuts in the UK, which will make the income characteristics of infrastructure more attractive versus traditional income assets."

However, after inflation rose 0.6% monthly in February, the mortgage brokers expect only two interest rate cuts this year. The Bank of England (BOE) held rates steady at 4.5% on Thursday, citing a rise in global "trade policy uncertainty" and "indicators of financial market volatility."

The BOE's decision came just days before the UK government will enforce new taxation changes. These changes have proven unpopular with businesses, which say their rising tax burden could dent growth, investment, and jobs.

Industries Hurt by UK Green Transition

The green energy transition has hurt energy-intensive industries, such as cement and steel, that rely on competitive power prices. Factory output is expected to shrink by 0.6 percent this year, according to EY Item Club.

The Minerals Products Association (MPA) has warned that rising energy costs, the threat of carbon leakage, and deindustrialization have impacted mining. The transition to low-carbon energy sources is not happening fast enough to provide the cement sector with the affordable, clean energy it needs.

"Cement was recently identified as the UK's most vulnerable sector to carbon leakage," Dr.Diana Casey, MPA's Executive Director for Energy and Climate Change, said. "We're not in the same position as steel, yet, but we're on the same trajectory, with the same uncompetitive industrial energy costs."

The MPA has called for government support to help industries remain competitive during the country's energy transition.

The end of coal power use since October 2024, which ended the 12-year campaign to abandon coal, has caused additional strains on the country's energy infrastructure. Low wage growth since 2007 and a lack of skilled workers have slowed the UK's renewable efforts.

UK Green Transition Burdens British Households

Energy prices are also hurting British households. In February 2025, 59% of people surveyed felt their cost of living had increased, according to the Office of National Statistics.

The UK’s Office of Gas and Electricity Markets energy price cap increase of 6.4% announced for April to June 2025 will bring the typical household bill to £1,849 annually. Power price increases could hit every British household with a cost-of-living increase of over £900 by 2030, according to Net Zero Watch.

Cornwall Insight has forecasted that energy prices will remain elevated until late 2030. By then, the UK aims to triple solar capacity and significantly expand wind power. This will reduce energy bills in the long run.

"However, this transition will take time, funding, and market reforms, meaning it could be years before households see a decrease in energy costs," Cornwall Insight said.

Disclaimer:

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