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    UK 'Going Green in the Dark' [GGP]

Summary

As the UK prepares to leave the European Union, it needs to redesign the energy market, the Gas Security Group told the Westminster Energy Forum at a meeting July 16.

by: Clive Moffatt

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UK 'Going Green in the Dark' [GGP]

  • The out-going UK prime minister's decision to commit the UK “unilaterally” to a 2050 zero carbon emissions target will, if implemented, be massively expensive for all consumers.
  • It will not only reduce industrial competitiveness, economic growth and employment but also the security of energy supplies with little or no compensatory environmental benefit.
  • Virtue signalling needs to make way for a more balanced debate on the compelling need for secure, affordable energy.
  • Post-Brexit energy policy needs to recognise the role of conventional gas and the need for more gas-fired power generation, underpinning energy supply and price security.
  • Reducing emissions requires a global approach, not one that simply results in some nations exporting emissions to others.

Necessary and continuing contribution of conventional gas to the UK economy

Since the 1990s, natural gas has been the cornerstone of UK energy policy. It is 50% cleaner than coal and a more reliable, flexible and cheaper form of energy.

Because of the dominant and reliable role of gas in the energy mix, the UK government has been able to raise the carbon price above the EU level and embark on a programme of massive subsidies for renewable energy. Our ability and willingness to rely on conventional gas has in effect underpinned the drive to shut down UK coal fired generation and subsequent dramatic fall in UK C02 emissions – which account now for only 1% of global emissions.

Conventional gas accounts for 75% of domestic heating and between 40% and 70% of UK power generation, depending on the variable seasonal supply of wind and solar power. According to the National Grid (2018) “gas will play a role in providing reliable and flexible energy supplies for the foreseeable future.” Conventional gas is an essential fuel in what should be a much longer-term transition to a lower carbon future.

Notwithstanding the significant technical and safety problems associated with removing C02 from heating and power generation, policies to remove conventional gas from the energy mix (eg using alternative gas networks or carbon capture and storage) would be both massively expensive and undermine the security and integrity of the existing gas network.

These huge capital infrastructure and annual subsidy costs to the UK economy paid for in higher energy costs and taxation would far outweigh any additional contribution the UK could make to reducing global warming. 

Essential role of conventional gas in filling the impending power generation gap

The combination of the demise of coal fired generation (2025) , the retirement of old nuclear generators, the delays and possible cancellation of all new nuclear programmes and the intermittent nature of wind and solar power together mean that we urgently need more and not less gas powered generation to meet both regular and peak electricity demand.

Despite optimistic talk about the future responsiveness and capacity of battery storage, the technology is still not at a point where our power needs can be met by simply subsidising more renewable generation supported by batteries.

Furthermore, the UK government's Department for Business, Energy and Industrial Strategy (Beis)’s reliance on more EU interconnectors to meet peak demand is unlikely to be justified especially post-Brexit. Beis is predicting 15 GW of interconnection by 2024 – up from 4GW currently. Brexit could harm this build out by (a) removal of the carbon support price exemption on imports (b) removal of network charging exemptions and (c) slow-down in market coupling with possible demise of the Single Energy market.  

Between now and 2030 the UK probably needs another 10 GW or so of gas generation (combined-cycle and open-cycle gas turbines). However, the suspension of the capacity mechanism, the virtual removal of TRIAD payments, uncertainty over Ofgem’s TCR and now fears of new carbon intensity targets and compulsory CCS has undermined new investment in all forms of conventional gas generation. The government needs to take action now to underpin new investment larger scale conventional gas generation.

Need to increase the short-term flexibility of gas supplies and energy price security

The UK currently imports 60% of its gas supplies and this will rise to 80% by 2030. In the same way we need to import food we need (for the reasons outlined) to continue to import natural gas. And given this inevitable dependency, it would be prudent for government to help protect the gas system from sudden imbalances in supply and demand (eg the “Beast from the East” in March 2018).

Such disruptions are more likely in years ahead owing to our greater reliance on imports; the very low level of UK gas storage relative to demand (2% compared with 25% in the EU); and greater daily variations in demand thanks to the growth in intermittent power generation.

The Gas Security Group (GSG) is working with Beis on assessing the need for greater short-term gas supply flexibility.

In terms of the scope for new investment to underpin greater flexibility, there is already significant import capacity viz LNG and pipelines. But LNG shipments cannot be relied upon to be here when we most need them. The fact that the UK’s import capacity exceeds a worse- case peak demand forecast is no guarantee of short-term flexibility and assumes all the infrastructure associated with the capacity is operational

Any further investment in LNG capacity or interconnection would require a significant and sustainable price differential to the detriment of the UK economy. On the other hand, efforts to underpin existing gas storage and potential investment in new capacity would pay dividends in terms of reducing the risk of sudden gas supply shortages which impact adversely on major energy users.

As The Times editorial stated in March 2018: “If the government can expect consumers to shell out billions of pounds to fund Hinkley Point C then it should be able to find a way to bankroll a few gas storage projects.”

Furthermore, additional sources of gas supply flexibility, such as storage, increases price security of supply by mitigating the impact of gas price increases on electricity prices given that in the absence of coal, it will be gas and the carbon price that determine the price of power in the foreseeable future.

The GSG has also instigated a survey amongst major industrial users of gas (including gas generators) to ascertain their reaction to the introduction by Beis of a more cost effective and attractive auction system of industrial demand side response (DSR) at times of system stress.

This envisages a Spring auction for voluntary curtailment with an option price incentive. This could help create some much-needed system flexibility, but this should not be seen as a sufficient condition – more UK gas storage is also required. 

The government has indicated that a new White Paper on energy policy will be published in the next few months – so what should this White Paper contain?

  • A balanced economic appraisal of all the energy sector options for consultation, which outlines in detail the potential economic and welfare costs and benefits associated with seeking to implement a “unilateral” target of zero carbon emissions in 2050 with particular reference to the impact on energy security and affordability.
  • A realistic assessment of the likelihood and costs to industry. consumers and taxpayer of the and potential benefits in terms of C02 emissions, affordability and security   associated with new investment in all forms of power generation and the need to facilitate competition for the delivery of firm capacity  on a level playing field for any form of capital cost subsidy.
  • Recommendations for (a) encouraging new investment in conventional gas generation (eg removing carbon intensity conditions on new investment and having a single competitive auction for all forms of firm capacity) and (b) improving short-term gas supply flexibility (for example, by underpinning  existing and new investment in gas storage (public service obligations) and implementing a more attractive system for DSR). 

Clive Moffatt

Chairman, Gas Security Group

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