UK Energy Projections & Costs

By Paul Homewood 

 

 

I mentioned a few weeks ago that I had asked DECC for a list of power stations that were due to close in the next few years in the UK. As they previously intimated, they have decided not to release this information because of commercial confidentiality, which I can appreciate.

However, they have given me the information which I really wanted anyway, which is the overall assumptions they have made for planning purposes. This is part of their “Updated Energy & Emissions Projections 2014”, published last September. I would stress that this is not some secret document, but, as far as I know, it has not been widely reported on or analysed in the media.

 

The projections contain a range of scenarios, but I will concentrate on the “Reference Scenario”, which is based on central estimates of growth and fossil fuel prices.

 

Let’s start by looking at electrical generating capacity. The projections give annual figures up to 2035, but for clarity I am just showing the figures for 2014 and 2030.

 

 

Capacity

Capacity by fuel: all power producers
GW
	2014	2030
Coal	21	0
Coal and natural gas CCS	0	5
Oil	2	0
Natural gas	38	39
Nuclear	9	14
Other Thermal	1	1
Renewables	25	62
Interconnectors	5	10
Storage	3	3
Total capacity	103	133

 

Highlights:

1) Coal is totally gone (by 2026).

2) There is an assumption that CCS will be commercially viable.

3) Doubling of interconnector capacity, which assumes that there will be surplus power that France and others will be prepared to sell.

4) Excluding renewables and CCS, the reliable baseload appears to be 67GW. Currently maximum demand is around 50GW, but allowing for cold winters, plant outages and sensible safety margins, 67GW appears to be exceptionally tight.

5) There is also the question of the extra power required if transport and domestic heat are to be decarbonised, as the govt plan. The Committee on Climate Change has already estimated that demand for electricity will increase by 30% by 2030.

Interestingly though, the projections only show a small reduction in the use of oil and gas in these sectors, suggesting that a swift changeover to electric cars, for instance, is regarded as unpractical.

 

New Build Capacity

The figures take on more meaning when we look at the extra capacity which needs to be built, to meet these targets as well as replace shut down of older plant.

 

Cumulative new build for all power producers
GW
	2014	2030
Coal	0	0
Coal and natural gas CCS	0	5
Oil	0	0
Natural gas	1	17
Nuclear	0	10
Other Thermal	0	0
Renewables	4	43
Interconnectors	0	5
Storage	0	0
Total cumulative new build	5	80

 

 

Three things stand out:

1) Although the total gas fired capacity remains virtually unchanged, to offset closures an extra 17GW is required. The new gas power station being built at Carrington is 880MW, so another nineteen of these will be needed, more than one a year.

2) The 10GW of nuclear is equivalent to three Hinkley Points. With the prospect of Hinkley being delayed for several years by legal challenges to the EU, time must be soon running out to get two more on stream by 2030.

3) The extra renewable capacity, most of which can only logically be offshore wind, represents a ten-fold increase on current offshore capacity.

 

New build for gas poses problems, because many gas plants are being closed because of losses caused by intermittent working and competition from subsidised renewables. It is questionable whether utility companies will be prepared to invest billions in new plants under these circumstances, particularly since the govt projections plan for gas to be progessively phased out during the 2030’s. (Gas generation is projected to drop from 72TWh in 2030 to just 30TWh by 2035).

Investment in gas power stations needs an operational life of maybe 30 to 40 years for it to be properly economic. Who is going to build one when they know it will be turned off after a decade or so?

The only logical conclusion is that they will be paid enough compensation under the Capacity Market mechanism, in which case the cost to bill payers could be prohibitive.

 

Effectively, we are faced with a situation where we will need enough baseload capacity from gas and nuclear to supply all of the UK’s power needs, all running in parallel with a huge renewable capacity.

 

Capacity Utilisation

It is worth looking at this in more detail. Based on the above projections, the capacity utilisation for gas and renewables in 2030 would be 21% and 26% respectively.

The number for renewables is not surprising and is in line with past experience.

Utilisation of gas fired capacity fell from 60% in 2009 to 27% in 2013, hence the financial problems incurred. A further drop to 21% will simply add to losses already suffered.

 

Electricity Generation

 

Projection of electricity generation by source: all power producers
TWh
	2014	2030
Coal	135	0
Coal and natural gas CCS	0	32
Oil	2	1
Natural gas	87	72
Nuclear	59	103
Other Thermal	2	2
Renewables	59	148
Storage	4	4
Total electricity supplied (gross)	348	362
Used in pumping	5	5
Total electricity supplied (net of pumping)	343	357

 

 

These figures largely follow on from the capacity figures.

 

 

Cost of Subsidies

Now we come to the $64000 question – just how much will all this cost?

 

We can make a few informed guesstimates.

 

1) Renewables

Compared with 2014, there is projected to be an extra 89TWh. The govt has already announced its intention to wind down any new onshore capacity, and with solar being a dead duck, most of this extra requirement can only come from offshore.

Based on the published Strike Prices of £140/MWh (for new capacity coming on  stream after 2017, at 2012 prices), and a current wholesale price of under £50/MWh, the subsidy would equate to around £97/MWh. Therefore the extra 89TWh will attract a subsidy of £8.6bn a year by 2030.

 

2) Nuclear

On a pro-rata basis, the extra 10GW of nuclear capacity will generate 74TWh a year.

The agreed Strike Price, assuming two or more stations are built is £89.50/MWh, again in 2012 prices. This would equate to a subsidy of about £44/MWh, giving a total subsidy of £3.2bn a year by 2030.

 

3) Other costs

As we have already seen, there will be a need to pay massive payments under the Capacity Market mechanism, for gas power stations to operate on standby.

The recent auction to provide back up for 2018 has cost £990 million, but most of this has gone to existing plants where fixed costs are already being covered. To persuade energy companies to build new plants, fixed costs will need to be covered as well, so the cost will certainly be much greater by the time we get to 2030.

 

Even based on £990 million, the cost of this together with the subsidies to nuclear and renewables is already going to be in excess of £12bn a year by 2030. And, of course, this is in addition to the £3.3bn in subsidies that we are currently paying out.

 

 

Source

Updated energy and emissions projections: 2014 – DECC

https://www.gov.uk/government/publications/updated-energy-and-emissions-projections-2014