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2019 Strategic Directions:

Electric Report

UK Electricity Market: An Imbalance of Power

By Peter Hughes

The power generation market is awash with misconceptions. Not the least of which is the misconception about who “invented” electricity — noting, of course, that electricity is a form of energy and it occurs in nature, so technically it was never “invented” but more accurately it was “discovered.”

Some give credit to Benjamin Franklin’s experiments of 1752, when he reportedly used a kite and a key in a storm to establish the connection between lightning and electricity. But the truth about the discovery of electricity is more complex than a man flying his kite.

The Climate Change Agenda

In about 600 B.C., the ancient Greeks discovered that rubbing fur on amber (fossilized tree resin) caused an attraction between the two — the Greeks had discovered static electricity. In the 1930s, archeologists discovered pots with sheets of copper inside that they believe were used as batteries to produce light at ancient Roman sites. Although contested by some, it has been reported that similar devices were found in archeological digs near Baghdad, suggesting ancient Persians may have also used an early form of batteries.

Ironically, in the context of Great Britain’s power generation market — once the envy of free-marketeers around the world —we head back in 2019 toward technologies that may have been deployed by the ancient Persians to support our electricity network

In January 2019, Sir David Attenborough, the 92-year-old British naturalist, delivered a compelling speech at the opening ceremony of the World Economic Forum annual meeting in Davos, Switzerland. He called on businesses and governments to find a “practical solution” to the issue of climate change, adding that without action on climate change, civilization would collapse. It was up to humans, he said, to use their natural problem-solving skills to find a solution.

In April 2019, climate change protesters filled the streets of central London, bringing many of the streets to an eerie standstill. The Extinction Rebellion movement, backed by many senior academics, politicians and scientists, prompted the United Kingdom`s Environment Secretary, Michael Gove, to state that “the UK has not done nearly enough, suddenly in the past few years it has been inescapable that we have to act. The time to act is now, the challenge could not be clearer, you have been heard.”

The wind of change, blowing more strongly than in any other previous generation, is upon us — and for all the right reasons. However, the concept of an electric grid entirely powered by renewables remains a distant goal, given the limits of current technologies and the intermittency of wind and solar energy. 

The Stalwarts of the UK Energy System Much like the contributions of the Greeks and Persians, whose efforts in discovering electricity have been overshadowed, it would be improper not to acknowledge the stalwarts of Great Britain’s generation landscape.

As the UK’s aged coal-fired generation capacity heads toward exiting the system in 2025 — if not before — two forms of generation work with renewables to meet the UK’s electricity demand, 365 days a year, whatever the weather.

Our reliance on nuclear and gas-fired capacity cannot be understated and, in many regards, both forms of generation have suffered from lack of a clear, coherent energy policy and major under-investment.

Nuclear: Back in 2006, Tony Blair told Britain’s biggest business lobby that the country needed a new generation of nuclear reactors or it risked becoming dependent on imported fossil fuels while missing commitments to reduce greenhouse gas emissions. “If we don’t take these long-term decisions now, we will be committing a serious dereliction of our duty to the future of the country,” the then-prime minister said in a speech at the Confederation of British Industry’s annual dinner.

Thirteen years later, just one plant is under construction — the Hinkley Point C project being built by EDF France’s state power company in southwest England. Other projects, such as Moorside (developed by Toshiba) and Wylfa (developed by Hitachi), have been suspended and others still in the development phase such as Sizewell C and Bradwell B remain optimistic. But such optimism maybe unfounded unless the UK government engages to provide meaningful financial support.

The cancellation of Hitachi’s 2.9-GW Wylfa project recently prompted Laurent Segalen, a managing partner at Megawatt-X in London, who advises on financing wind and solar projects to declare, “the UK nuclear renaissance is a zombie.”

To put the UK nuclear generation industry in context, one should remember that nuclear is a low carbon option and during 2018 it met 19.5 percent of the UK’s demand. The issue, of course, is that many of the nuclear plants are heading toward retirement after supporting the UK well beyond their original design life, and the country has little by the way of a carbon-free baseload power replacement.

Gas: Back in the early 1990s, under then-Prime Minister Margaret Thatcher, the “Dash for Gas” was the shift by the newly privatized electricity companies toward generation of electricity using natural gas.

There were three key reasons for this shift:

Political: The privatization of the UK electricity industry in 1990; the regulatory change that allowed gas to be used as a fuel for power generation;

Economic: The high interest rates of the time, which favored gas turbine power stations that were quick to build when compared to coal and nuclear power stations, which were larger but slower to build; the decline in wholesale gas prices; the desire by the regional electricity companies to diversify their sources of electricity supply and establish a foothold in the profitable generation market; and

Technical: Advances in electricity generation technology (specifically combined cycle gas turbine generators (CCGTs) with higher relative efficiencies and lower capital costs). An underpinning factor in the dash for gas was the development of North Sea gas.

● In 1990, gas turbine power stations made up 5 percent of the UK's generating capacity. By 2003, the new CCGTs made up approximately 30 percent.  Ironically, one of the benefits we crave today, which was not publicized at the time, was the reduction of carbon emissions that materialized when switching from coal to gas, given CCGTs typically generate around 50 percent of the carbon of a similar sized coal fired plant.

Today in 2019, the UK has in excess of 32.2 GW of installed gas-fired capacity — which is flexible and therefore well placed to balance demand with renewables. Indeed, as many industry experts point out, gas has enabled the deployment of renewables, because intermittent forms of renewable capacity, such as wind or solar, cannot be on the grid, without gas to replace it when the wind doesn’t blow and sun doesn’t shine.

In 2018, gas-fired capacity met roughly 40 percent of the UK demand. Given the gas dominance and the fact it enables renewables to operate effectively means any suggestion of its demise in the short term is another one of the UK power market’s myths. 

As with nuclear, much of the capacity is heading toward retirement and all of which is much less efficient than today’s modern counterpart. What is missing is the commercial incentive to encourage new-build capacity into construction and onto the grid.

UK Generation ‘Resilience’ Strategy

Interconnectors: The UK has developed electrical interconnectors, providing the ability to import and export power to the European Union (EU). At the end of 2018, the UK had four GW of interconnectors with a further 13 GW of capacity in planning. 

In 2018, net imports from interconnectors met just 5.7 percent of UK electricity supply. These links, many of which were developed before the vote for Britain

to leave the EU (BREXIT), provide added flexibility for the UK system to cope with peaks in demand and surpluses of electricity.

Energy Storage: The UK energy storage market has demonstrated significant growth in recent years with infrastructural and regulatory developments showing both private and public commitment to increasing the role of storage on the UK electricity grid.

In the last T-4 capacity market auction, pumped storage accounted for 2.5 GW, equating to about seven-tenths of a percent of the UK`s electricity demand in 2018. 

Battery storage is anticipated to increase dramatically in the short to medium term, evidenced in the volume of planning applications being submitted. Back in 2012, applications to install battery storage totaled just 2 MW; by contrast, in 2018 that figure soared to a cumulative total of 6,874 MW.  In addition, the capacity of each battery storage project is increasing; in 2016, they averaged 10 MW per project. In 2018, that grew significantly to over 27 MW — noting that 92 percent of planning applications for storage projects are approved for the first time by planning authorities.

Mind the Gap

“Please mind the gap” is a term used frequently on Great Britain’s railway system to highlight the risks when alighting from trains. In recent times, it is a term used all too often to describe the tightening capacity margins on the UK’s power generation landscape, which is set to worsen.

Capacity margins are expected to tighten to less than 7 percent in 2020, with further pressure materializing as the coal, nuclear and aged CCGTs enter retirement. To put this into a global context, the average capacity margins in other countries are forecast as follows for 2020: Japan 10 percent, United States 11 percent to 16 percent, Germany 18 percent, China 27 percent and Singapore more than 40 percent.

Experts predict that without any new build development — beyond those developments already in construction — the UK security of supply could be compromised as early as 2025, at which point we could see negative capacity margins.

One answer to meet this challenge, but unlikely to be desirable by everyone, is the new build of CCGT plants. Such plants can be built within four years, incorporating carbon capture storage facilities and be used to balance out the intermittency of renewables.

Longer term, nuclear power provides the obvious answer to providing the most reliable baseload capacity, in a low carbon manner.

100-Percent Renewables Now?

Extinction Rebellion hailed the recent London protests as a huge success, and data suggested they caused a five-fold increase in the number of online searches for “climate change” and the awareness of what has been called an unprecedented global emergency.

The UK’s drive for renewables is strong and will continue to gain momentum. The immediate cessation of using fossil fuel-derived power generation, as some have called for, would require major sacrifices. Based upon the electricity sources that met the demand of 2018, this change would equate to the immediate withdrawal of 46.1 GW (coal 13.9 GW and gas 32.2 GW) of installed capacity, reflecting a reduction of nearly half — 47.4 percent — of the UK’s power generation capacity. Such a course of action likely would generate mass protests and might put at risk the general public’s support for tackling climate change.

The Wind of Change

As we head down our journey of combining the objectives of reducing carbon emissions and serving increasing power demands, it appears we need to accept two basic principles:

1) The deployment of renewable energy must continue, and it must continue in the knowledge that our journey in moving toward a lower carbon generation mix will take investment. We must all make that investment and accept together the affordability challenges and the repayment of that investment, with the full knowledge that, not to do so would be unforgiveable.

2) We also need to be cognizant of the fact that gas-fired generation is a prerequisite to support the long-term, large scale deployment of renewables into our energy system as it fills the gap when weather conditions do not support wind or solar generation. Nuclear power, whilst it has affordability challenges, provides the most practical, low carbon solution to provide the most reliable form of baseload capacity.

It appears the time for flying kites in the face of Great Britain’s low carbon future is at an end, and informed action needs to be enacted without delay.

What is required is a coherent government intervention that provides the policies, the incentives and a framework from which to support the development of new gas, nuclear and renewables generation capacity — before the capacity margins tighten further and challenge the grid’s ability to meet the country’s increasing power demand.

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Peter Hughes is director of business development for Black & Veatch’s Europe operations. He is responsible for the company’s development strategy, as well as sales and marketing activities in the region. He has extensive experience in gas-fired generation asset construction.

SIDEBAR

The UK's Impressive Low Carbon Journey

Wind

The UK is one of the best locations for offshore wind power in the world and is considered the best in Europe. The deployment of wind powered generation has been a historic success and in 2016, for the first time, the UK generated more electricity from wind power than from coal. 

Wind power delivers a growing percentage of the electricity of the UK and by the end of April 2019, it consisted of 9,702 wind turbines with a total installed capacity of over 20.8 GW: 12,904 MW of onshore capacity and 7,895 MW of offshore capacity. This placed the UK as the world's sixth largest producer of wind power.

The deployment of UK wind power generation looks certain to continue, with experts predicting that more than 30 GW will be available to generate by 2025.

Solar

Great Britain’s weather, not famed for outdoor barbeques, beach parties and blistering sunshine, has warmed to solar power. Solar power represented a very small part of electricity production in the UK until the 2010s, when it increased rapidly; for most of that decade, new installations were subsidized with a feed-in tariff (FIT) and the cost of PV panels was falling.

As of 2019, installed capacity was more than 13 GW; however peak generation is less than 10 GW. As panels have a capacity factor of about 10 percent in the UK climate, average annual generation is roughly the installed capacity multiplied by 1,000 hours, or slightly under 13 terawatt hours in 2018, somewhat under 5 percent of UK electricity consumption.

In addition to wind and solar, the UK has an impressive lineup of renewable energy sources such as biofuels, hydroelectric, geothermal and tidal, all of which come together to position the UK as one of the leading countries driving forward the low carbon agenda. In 2018, one-third of the UK’s demand was met by renewable energy alone.

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