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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. Technically, it was never “invented” but rather “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.

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 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 2020 toward technologies that may have been deployed by the ancient Persians to support our electricity network.

The Climate Change UK Agenda

In January 2019, Sir David Attenborough, the 93-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, 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 UK protesters filled the streets of central London, bringing many of the streets to an eerie standstill. The Extinction Rebellion movement, a UK climate change strategy activist group, 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. UK renewable energy has a long way to go before it can allow the country to claim a low carbon footprint.

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 can 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. 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 a low carbon footprint via reduced 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 footprint option and that in 2018, it met 19.5 percent of the UK’s demand. The issue, of course, is that many 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 low carbon footprint 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 as well as 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.
  • Technical. Advances in electricity generation technology, specifically combined cycle gas turbine generators, or 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 five 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 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

Two of the most important factors in today’s energy resilience strategy include:

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 made up just 5.7 percent of the 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 two MW. 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. It’s also important to note 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’s often used 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 seven percent in the UK electricity market in 2020, with further pressure materializing as coal, nuclear and aged CCGT installations enter retirement. To put this into a global context, the average capacity margins in other countries are forecast to be 10 percent for Japan, 11 to 16 percent for the United States, 18 percent for Germany, 27 percent for China and more than 40 percent for Singapore.

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 – though unlikely to be desirable by everyone -- is the new build of CCGT plants, which can be accomplished in about four years. These new plans can incorporate carbon capture storage facilities and be used to balance out the intermittency of renewables.

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

100 Percent UK Renewable Energy 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 UK” and the awareness of what has been called an unprecedented global emergency.

The drive for UK renewable energy is strong and will continue to gain momentum. The immediate cessation of the use of fossil fuel-derived power generation, as some in the climate change UK movement 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 (13.9 GW of coal and 32.2 GW of gas) of installed capacity, reflecting a reduction of nearly half — 47.4 percent — of the UK’s power generation capacity. Such a course of action would likely generate mass protests, risk the general public’s support for tackling climate change and possibly endanger current UK renewable energy projects.

The Wind of Change

As we endeavor to achieve the twin UK climate change strategy objectives of reducing carbon emissions and serving increasing power demands, it appears we need to accept two basic principles:

1) The deployment of UK renewable energy must continue with the knowledge that attaining a lower carbon generation mix will take investment. We must all make that investment and accept 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 to the UK electricity market.

It appears the time for flying kites in the face of Great Britain’s low carbon footprint future is at an end, and informed action in the UK electricity market needs to be enacted without delay. A coherent and workable UK climate change strategy should be at the foundation of this action. 

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.

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: in 2016, for the first time, the UK electricity market generated more power from wind than from coal. 

Wind power delivers a growing percentage of the UK’s electricity. By the end of April 2019, wind 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 ranked 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 the UK electricity market 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. This represents just under five 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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