The National Energy System Operator (NESO) has released an assessment of the illustrative costs associated with its Future Energy Scenarios 2025, revealing a potential halving of energy-related spending as a share of GDP by mid-century. The findings suggest that energy costs could drop from around 10% of GDP in 2025 to between 5-6% by 2050, despite rising demand driven by population growth, economic expansion, and increased data centre consumption.
NESO’s analysis considers three decarbonisation pathways outlined in the FES 2025, published in July. These pathways vary in their levels of electrification, hydrogen use, bioenergy deployment, and consumer engagement. The report aims to provide a clearer picture of the costs and trade-offs involved in each pathway, helping government and industry stakeholders make more informed decisions.
One of the key insights from the report is the reduced exposure to fossil fuel price volatility by 2050. The 2022 energy crisis, for instance, added extra costs equivalent to 1.8% of GDP compared to pre-crisis years. In contrast, an equivalent shock in the Holistic Transition pathway—one of the decarbonisation scenarios—would raise 2050 energy costs by only 0.3% of GDP.
The analysis also highlights a shift from imported fuels to investment in Great Britain’s renewables, networks, and more efficient electric heating systems. When carbon costs are included, the Holistic Transition pathway emerges as the lowest-cost option over the 2025-2050 period. However, if carbon costs are ignored, the Falling Behind scenario—characterized by slower decarbonisation—becomes cheaper by about 0.4% of GDP on average annually.
Claire Dykta, director of strategy and policy at NESO, emphasized the challenges and opportunities in projecting future energy costs. “Projecting future energy costs is notoriously difficult, but our analysis suggests that Britain could halve the share of spending related to energy by 2050,” she said. “Our analysis also shows that we would be less exposed to energy price volatility under a decarbonised energy system, reducing the economic impact of a spike in prices as we saw in 2022.”
Dykta added that the pathways are designed to provide insights that could support strategic planning and policy development. “We have also identified scope for costs to be lower than what we have modelled,” she noted, leaving room for further optimization and innovation in the energy sector.
This assessment could shape the development of the energy sector by influencing policy decisions, investment strategies, and technological advancements. The potential for reduced energy costs and lower exposure to price volatility may accelerate the transition to a decarbonised energy system, fostering greater investment in renewables and energy efficiency. The findings also underscore the importance of considering carbon costs in long-term planning, as ignoring them could lead to higher overall expenses and increased economic risks.