Ministers must take “bold policy steps” on renewables if the UK is to reduce its greenhouse gas emissions to net-zero by 2050, according to new analysis by Aurora Energy Research.

The market intelligence firm says they will need to address an emerging gap between revenues and costs as the growth in renewable generation leads to large surpluses and falling power prices.

Aurora has modelled three different scenarios for lowering emissions to zero – one based on the indicative generation mix from the Committee on Climate Change’s recent report and two alternatives in which there are higher volumes of either renewable or nuclear generation.

Realising these scenarios would require the installation of between 5GW and 10GW of renewables each year at an estimated annual cost of £5 billion to £9 billion. By 2050, there would be an overabundance of renewable generation in all three, particularly over the summer.

Significant volumes would be wasted and power prices would decline. In the high-renewables scenario, capture prices for wind could be expected to fall to just £18/MWh by the middle of the century as 38 per cent of annual output is curtailed. This compares to around £50/MWh currently.

Explaining the implications at an event in London yesterday (5 June), Aurora principal Benjamin Collie asked: “How you can reach net-zero if that creates the prospect of a growing gap between the revenue that renewables are able to capture and the cost of building and operating those renewables?

“Well, we might hope that technology will close part of the gap,” he responded. “It will help if declines in the capex and opex costs of renewables are faster than expected.

“And it will also help if we see advances in storage and in flexibility of demand. Those things will tend to allow renewables to capture higher prices on average.”

But, he added: “We still expect that on the road to net-zero a gap is going to emerge.”

Collie outlined some of the options for bridging that gap: “They could do it using mechanisms that make renewables more exposed to market forces.

“So that might be something like ramping up carbon prices, or it might be something more like a reintroduction of renewable obligation certificates.

“On the other hand, we could see a shift to more risk being taken on by the government – something more like a large-scale deployment of [contracts for difference] way beyond what we’ve seen so far.”

He added: “Now, I want to be clear that in today’s policy and market landscape we still see a very strong prospect for merchant renewables in the short term.

“However, if the government is serious, or becomes serious, about reaching a target of net-zero emissions by 2050, then that will raise mid-term challenges that will require a concerted policy effort to address.”

The government is currently considering its response after the Committee on Climate Change advised ministers to set this as a legally binding target.

In a letter sent to Theresa May last week, the chancellor Philip Hammond gave his backing, but also urged caution. He warned the prime minister that meeting the target could cost “well in excess of a trillion pounds”, leaving less money available for schools and hospitals.