Chris Cullen, Sam Taylor and Adam Baddeley of Eunomia Research & Consulting analyse the problems of securing the UK’s future electricity supply
Affordable, secure and clean – these are the objectives for the future of electricity supply in the UK, as stated in July’s white paper on electricity market reform (EMR). The question of what levels of support should be given to each technology type is a relevant one. This should be prefixed, however, by asking what generation mix we need to meet the above policy objectives? Or, perhaps more pertinently, is it even possible that they can all be met?
A Secure Future?
Many coal and nuclear plants will be forced to close in the next decade, resulting in about 25% of total current generating capacity being lost, which could have significant implications for the security of UK electricity supply. Currently, over 30 gigawatts of new ‘base-load’ and ‘mid-merit’ generation capacity (primarily combined-cycle gas turbine (CCGT) plant and nuclear stations) and 35GW of ‘intermittent’ renewable capacity (primarily off-shore wind farms) is in the consenting process or proposed.
Using Eunomia’s electricity market model, we estimate that total ‘de-rated’ capacity will be somewhere in the region of 89GW in 2015 and 73GW in 2030. The central case within a recent study published by the energy and climate department (DECC) and the energy regulator Ofgem suggests that peak electricity demand will not extend too far beyond the 2010 level of 60GW. Under such a scenario, therefore, future electricity supply appears relatively secure. It should be acknowledged, however, that the upper bound in the sensitivity analysis undertaken within DECC and Ofgem’s paper estimates a peak demand of 80GW, a level that exceeds our de-rated capacity estimate in 2030.
A Clean Future?
With regard to the carbon intensity of this future generation capacity, it is very questionable whether the mechanisms proposed in the white paper go far enough. The sheer volume of CCGT plant in operation, under construction or consented suggests the UK is increasingly at risk of being locked in to an electricity mix which will not meet the targets set by the Committee on Climate Change (CCC). Based on a range of assumptions within Eunomia’s electricity market model, figure 1 shows that the UK will exceed its decarbonisation target after 2020.
Figure 1: CO2 Emissions from the Fossil Fuel Power Sector (2010 – 2035)
The EMR white paper appears to support the ongoing operation of unabated CCGT plant, which, for some time, is likely to remain competitive with other thermal generation, even when the costs associated with the Carbon Price Floor are taken into consideration. Potential solutions might be to limit the operating hours of existing CCGT plant, but this would potentially impact upon security of supply, while the option of mandating retrofit of carbon capture and storage on CCGT plant has so far been avoided by government.
An Affordable Future?
While meeting security of supply and low-carbon objectives is technically feasible, it is very challenging to do this at an affordable cost. The CCC’s 2011 Renewable Energy Review suggests that offshore wind is likely to be the most expensive major form of low-carbon generation. With this in mind, it is questionable as to whether this information is being adequately transposed in to policymaking, as offshore wind is expected to see the largest growth in the future. Furthermore, the intermittent nature of wind requires equivalent back-up capacity, potentially funded by the proposed capacity mechanism, to ensure security of supply.
Achievable Policy Goals?
The government has stated that it is technology neutral. Rather it would like to rely on the market to deliver on its three core policy objectives of low carbon, secure and affordable energy. What it cannot escape, however, is that its design of EMR mechanisms will unavoidably favour some forms of generation over others, which does in fact mean it will be effectively ‘picking winners’. At the same time, meeting all three policy objectives appears very unlikely with the current status of available technologies. The costs associated with feed-in tariffs and the capacity mechanism, which will be essential to ensure sufficient investment in new low-carbon energy capacity, will unequivocally become a more central part of domestic and business expenditure. That is our energy future.
