A tricky problem needs some creative thinking

Britain will not need to build new gas fired power plants to replace coal stations that the Government has pledged to switch off by 2025. That’s the main conclusion of a recent report by the environmental group World Wide Fund for Nature (WWF).

The study claimed that the power gap can be filled by a combination of renewables, battery storage and flexible technologies – a view at odds with former Energy Secretary Amber Rudd’s claim that new gas fired stations are imperative for Britain to meet its future energy needs.

A couple of weeks on from WWF’s report, the UK power market has moved on with some significant announcements for future investments. Against the background of how the UK market is operating currently and what the new announcements signal, we have looked at the reasons why the market looks to be not going in the direction advocated by WWF.

The UK power market still requires a fair amount of conventional fossil fired thermal generation and won’t be able to cope without some level of power from thermal stations for many years to come.

While renewables are making an increasingly significant contribution to the country’s overall power mix, they are still, by their very nature, intermittent – meaning that some form of backup power is required, ideally a flexible form which can fit efficiently around renewables.

Energy storage is best placed to do this but the current cost of batteries and build times and cost of pumped storage make a difficult business case when operating to ‘time shift’ wind and solar generation from low-demand periods to high.

Without a reduction in the cost of this technology and/or some level of regulatory support, the power gap will be filled by lower cost alternatives in the short to medium term. This makes the entry of large scale energy storage harder as it has to displace incumbent generation.

Most of the flexible/reserve requirement in the UK market is currently being met by the construction of small flexible gas fired engine generating sets and flexible operation of the existing thermal fleet. Both of these asset groups contribute emissions. The build of large, efficient, new gas-fired power stations that displace older power stations will reduce emissions overall, but the business case for this relies upon an assumption on the rate of build of renewables.

SSE’s recent announcement to progress construction of a new 840 megawatt gas fired generator at Keadby without a long term guaranteed payment by the UK government demonstrates the company’s view that new build large stations have a part to play in the transition, and that being quick to market is a benefit to the business case.

Singaporean based energy group Sembcorp Industries has just announced that it is to purchase UK Power Reserve, which is the largest player in construction of flexible generation plant (predominantly gas fired). The portfolio includes 0.8 gigawatts of fossil fired generators (predominantly gas) and 0.2 megawatts of batteries.

This signals the market’s belief that reciprocating engines will play a role in plugging the power gap. The majority of battery projects in the UK are being built to provide stability services to the electricity transmission system, with the ‘time shifting’ role becoming a fall-back service.

In the short term, gas and coal still provide a very large percentage of our electricity needs, with oil and gas providing an additional share of our total energy needs, supporting our transport and heating requirements. Beyond the power industry, petroleum alone provided 45% of final energy consumption in 2016, with gas generating a dominant share of our heating demand.

The latest market summary from EnAppSys shows that gas was the main contributor to Britain’s power mix in the first three months of this year, generating 37.3% of the total. Although coal’s contribution was only 9.4% – a record low – its significance in the market remains relatively high.

When gas supplies were running short and the system needed alternative sources of power generation this winter, the market fell back on coal and in doing so, insulated itself against the most extreme consequences of any supply shortfalls.

Coal is not the future of Britain’s power market but provides an interesting example of some of the hidden roles currently played by different technology types in the market. Drax Power Station’s recent announcement to progress work on carbon capture technology for its remaining coal-fired units shows potential for the survival of some coal in the mix, which would provide fuel diversity in the future.

One of the challenges posed by a transition to renewables will be the similarity of the transitions being carried out across neighbouring regions. Much of Europe is set to switch to renewables at the same time while rejecting coal.

It is from here that the greatest challenges of this transition are likely to arise. The whole of Europe is set to face similar periods of wind/ solar oversupply and encounter similar challenges around gas supply during unexpectedly cold winter periods. As this continues, the historic diversification and fallbacks of the markets will be replaced by a need to better manage the risks associated with homologous supply.

Whilst creating a truly green electricity system brings some weighty challenges, the destination of extreme renewable supply supported by cheap storage remains a goal that looks possible but is not the UK’s current trajectory.

To get to this point, however, will undoubtedly require a significant upsurge in renewables capacity, as well as greater support and certainty to the deployment of energy storage.

Current and planned levels of renewables capacity are insufficient to fill the power gap left by coal plant shutdowns and make a serious dent in Britain’s carbon emissions. Whilst the UK has identified the barriers to energy storage deployment, resolving the identified issues has been slow and certain actions taken have sent conflicting messages to the nascent battery storage industry.

In the absence of political policy and will to support renewables and energy storage, the market (as evidenced by recent announcements) will continue on a more transitional path, employing a ‘gas bridge’ to facilitate increased levels of renewables generation. 

Interestingly, the more this transitional path is followed, the harder it will be to switch to a world with high levels of energy storage. To enter the market, energy storage will have to displace energy projects that have in part paid off their capex and are operating in a world where overall fossil fuel prices will have declined as demand reduces in an increasingly decarbonised world.

WWF’s report has done its job in promoting the debate but, in our view, the market will not deliver this vision in the short to medium term without clear incentives to do so and a view of what the UK and Europe see as a target level of renewable build.

By Paul Verrill of EnAppSys