Low carbon traffic lights and the ‘energy reset’: Green, Amber, Rudd?


Quite a few things have happened since I last produced a piece just for this blog (nailing up articles I have written for publication elsewhere don’t really count). We have had an ‘energy reset’ – Amber Rudd’s November speech on ‘a new direction for UK energy policy’ (more of that in a moment) and the results of the second capacity auction in the middle of December (you know, those auctions that were supposed to secure lots of new gas fired power stations to replace all those others going out of commission – more of that in a moment). By the way, I’m now not the Hon. Member for Southampton member of Energy and Climate Change Committee, but the Hon. Member etc. Shadow Energy Minister. This means that I will continue to ruminate about energy and climate change policy, with one difference: previously you knew that my ramblings on an assortment of renewables, climate change and energy topics were definitely not Labour policy, now you have to assume that they are not (and you’d normally be right). I hope that’s clear.

Looking at those and other recent events, you might think then, that with the establishment of that new direction in UK energy policy set out in in that speech entitled – ‘a new direction in UK Energy Policy’ that, into 2016, there will be… er, a new direction in Energy Policy. Try as I might, I can’t actually find one, though. Or rather, I can’t exactly piece together the link between where we are now, what it is we’re all supposed to be looking at on the horizon as the weather vane swings, and how we actually travel along the path marked ‘direction’ towards that indicated horizon.

I think the horizon marker is still supposed to be ‘a low carbon future,’ but by means of a very different mix of energy than that which was supposed to have informed previous low carbon programmes, and still does seem to inform bodies that might know a thing or two about this, such as the Committee for Climate Change. And the horizon is now illuminated by the phase out of coal by 2025 at the latest (hooray!).  Well, not quite… The government will  be ‘consulting’ on a phase out of coal from the system by 2025, and the alternative much lower carbon emission source is largely going to be gas. If this happens, it will keep the emission figures going down for some time, even as other more nailed-on ways of doing it, such as onshore wind and solar, are to be tipped overboard (with the exception of offshore wind, providing it is a bit cheaper). Oh, and there’s going to be a lot more low carbon nuclear, although I suppose it hardly bears mentioning that even after the wining and dining of the Chinese Premier, no financial closure has yet emerged on the (seven years delayed) Hinkley Point plant: but there will lots more after 2025, apparently.

So how do you get to that horizon by these means? The means are not immediately apparent, because although gas is of course lower carbon than coal, it too will largely have to come off the system by the early 2030s (as the CCC reminds us) if carbon targets are to be met. And that timescale is well within the period over which the developers of the many new gas fired plants that the Secretary of State is anticipating might now be built will need to run the plant to get their investment money back. So even the formula that the Secretary of State sets out for her review of coal on the system doesn’t quite add up. She says, in a rather passed over, but significant line, ‘let me be clear: we’ll only proceed if we’re confident that the switch to new gas can be achieved within these timescales.’

Well, I’d start to smell a rat (or a gas leak) at this point, were I cynically inclined. If coal is to come off the system, then there has to be enough gas already on to replace it, even though the quantities of gas envisaged themselves recreate the problem further down the road that we are trying to make progress on in the shorter term. Hmm…

But there’s also the further problem of whether new gas can indeed come onto the system in time to cover for coal’s removal. Right now –and here the capacity auctions shamble onto the stage – there is not much evidence that they will. As I’ve previously outlined, the capacity auctions were confidently expected to establish a chain of new build through competitively priced 15 year capacity deals: but nothing much emerged from the first auction to suggest that such deals would emerge. One deal only was struck – which now seems bogged down in investor uncertainty, and won’t be on line by 2018. This year NO new large capacity cleared inside the final price: one new power station, Carrington, got a one year deal, but is largely built anyway. The new capacity that did get longer term deals largely consisted of small diesel sets, widely estimated to produce emissions, if used at all extensively, round about those of coal.

Worse, it looks as if the existing capacity that missed out on short term deals may close or be mothballed, as some of last year’s non-paid capacity has done, which even suggests that, when the next auction takes place, there may not be enough in to make an auction work. And all this is leading to some odd, and I think possibly portentous alternative decisions. National Grid has extended its 2.5GW of contracts that have been held on standby this winter outside the market under the SBR (Strategic Balancing Reserve) to a whopping additional 3.6GW for next winter. In other words, an incipient strategic reserve for gas supply that may scoop up some of the plant that has not got into the market and might close into a reserve that can come on stream to cope with the consequences of plants closing (if you’re still following me…).

So the pathway to ‘the switch to new gas’ looks ever more weed-strewn as new plant already permissioned does not get developed because of low and uneconomic gas-to-electricity prices and new plant entered into the auctions gets frozen out through a consequent low clearing price for existing capacity.

The Secretary of State, in the ‘reset’ speech was clear, though, about what she wanted.  ‘It is imperative’ she said, ‘that we get new gas fired power stations built, we need to get the right signals in the electricity market to achieve this’ and so… ‘we are consulting on how to improve the Capacity Market… and after this year’s auction we will take stock and ensure it delivers the gas we need.’ I wonder, though, quite what will come out of the ‘taking stock’? What kind of changes to the Capacity Market might there be, Secretary of State, that fix the problem? It is apparent that capacity auctions as they stand have failed to do what they were set out to do. The level at which next year’s auction would have to clear to get new gas build even partly on track would now be so high even if it could be manipulated to do so, the consumer would wince far harder than if he or she had been subjected to a modest consequence of, say – more solar.  On the other hand, a ‘new plant only’ auction might run into state aid rules.

The central problem is, I think, that there are precious few ‘right signals’ that can be injected into the market over the next few years (unless something unanticipated happens to gas prices – say they suddenly went up almost vertically over the next year) which will sort out the mess we have got ourselves into, within the constraints of the market arrangements as they are presently set up. A ‘solution’ will have to come from outside the market, which I guess is what National Grid are quietly working on, constrained, though, by the length of standby contracts that can be issued and the paucity therefore of committed longer term takers. Alternatively, it might come from government commissioning new gas plant outside of the market and then leasing the results into the market for a specified period. Either ‘solution’ might start to get the right amount of new gas onto a changing system whilst not burning the renewable boats that the present ‘reset’ looks as if it is doing.

My fear right now is that staying within ‘market signals’ will have only one outcome as the wreckage of the Capacity Market is reviewed. This is that it will be decided that, well, sorry and all that, it worked to put Britain in a good place as far as the Paris talks were concerned, but in the end we can’t get coal off the system by 2025 after all, because you know, we’ve got to stick with the market and keep the lights on. And that would be indeed a ‘new direction for energy’ indeed, but not one that I would want to contemplate in the same sentence as the Secretary of State’s ‘as we transform to a low carbon economy’ at the head of the ‘reset’ speech. We need to sort ends and means out; surely.

Capacity crunch – can we store our way out of it?

This article originally appeared in the Environmentalist, 4th November 2015

The conventional wisdom for a long time has been that you cannot store electricity – you have to generate it, send it down the wires, and, by the way engage in a lot of complicated balancing arrangements to ensure that, on any one day, anticipated demand meets whatever it is you are sending out. And it is this ‘truth’ that lies behind the forecasts of tightening capacity margins that we are again hearing about for this winter – the capacity of the power stations we have on the system to provide for the highest likely demand at some stages in the coming winter is increasingly marginal. This is not helped by some gas fired power stations being ‘mothballed’ by their owners because they don’t make money generating, and the closure of some coal fired power stations as they wear out and fail to meet important pollution standards.

I don’t think that the lights will go out this winter because of this – National Grid has developed a number of intervention back-up programmes, and we still can access additional power through interconnectors from Holland and France; but if the rate of power station closures without replacements coming on stream continues, then there certainly could be a ‘crunch’ point in a few years’ time.

It is the nature of those replacements, though, that ought to give us pause for thought, because we are no longer in a position nationally, where the ‘mix’ on the grid is that simple. Even after the recent Government announcements curtailing the development of renewable energy, there is already a vast amount of renewables on the system – about 13GW of offshore and onshore wind, and by next year, even after the effective ending of the solar FITs programme, about 10GW of solar of all shapes and sizes. That represents in size, about a quarter of Britain’s overall installed capacity.  The problem is that these installations are scattered across the country, and are all, to a greater or lesser degree, intermittent – they don’t generate all the time.

And this is where I think the storage question comes back at us. It is no longer really true that we cannot store electricity: in fact there have been short term storage schemes, using electricity generated in times of low demand to pump water uphill and release it downhill again to recreate electricity at peak times. But these are essentially ‘day balancing schemes’ and also lose a lot of electricity in the process.

What we can now do, increasingly effectively, is store electricity in batteries. Essentially the domestic rechargeable battery multiplied thousands of times in size, and using fast-developing technology that now really can present storage facilities at scale.  And this technology is particularly suited to the range of dispersed renewables we now have on the system. It is not that renewables do not generate well, but they often do so when the system doesn’t need their power – and it is therefore wasted. Attach battery storage to large windfarms, or solar field installations that are already there, and – hey presto – you have a much more reliable stream of output from the plant, and a substantial increase in overall available power. Do the same for smaller installations, and there is the prospect of a number of homes and buildings effectively taking themselves off the grid because, all in all, they make much lower demands for outside power.

Now I’m not saying that batteries will solve all our problems: we will undoubtedly need to combine new conventional power stations into the energy mix for many years to come, but I do think Government ought to get seriously behind the next stages of battery storage development. Battery power may well turn out to be that additional arm of reliable back up power that fills the gap between sufficient and insufficient capacity for winter demand – and by the way, it potentially flattens that demand if operated smartly in any event. And it may not need subsidies in operation to any great extent, because of the ability it has, at scale, to sell into the system at most advantageous points, and make its investment costs back fairly rapidly. That’s why I think Government ought to get seriously behind the next phase of storage development. It could literally have a very bright future as far as our lights/no lights debate is concerned.

Get more gas – pay more money?

This article originally appeared in BusinessGreen, 26 October 2015

The noises are getting louder. Noises, that is, that the ‘replacement’ for the wholesale curtailment of renewables deployment that has been the consequence of the chaotic series of announcements and cancellations that the government has made on renewable and low carbon energy over the summer will be… gas. Lots of it. The development of perhaps 20 or so new gas power stations over the next 10 years is on the cards, both to replace those gas plants that are falling off the system and substitute for inevitable coal closures, but also to reset assumptions about the balance of renewables and other forms of generation over the next 15 years.

It will be argued this strategy offers a lower carbon alternative to continuation of coal power, which will, following the provisions of the Energy Act, have to come off the system entirely by the early 2020s.

A recent report in The Times newspaper suggests we should stand by for an announcement that coal will definitively go by – say – 2023. This follows on from the joint pledge the Prime Minister made together with Ed Miliband in February to work in a bipartisan way to phase out unabated coal use. We should expect that a ramping up of the deployment of gas will be the government’s proposed remedy. Indeed, that the role of gas as a percentage supplier of electricity will increase very substantially over the next decade or so: especially since those ‘expensive’ renewables won’t be there to any great extent over and above what is already planned or commissioned (for example, through those offshore wind projects that have secured early investment contracts).

Well you might say, at least that is a coherent plan B – it will be good to see something firm to tie up the uncertainty that all the damaging announcements have introduced. Certainty will return: some renewables, a lot of gas.

Except that it isn’t a coherent plan at all, for the simple reason that there is no real likelihood that 20 or so gas fired power stations can get built over that period without some pretty heavy duty additional policy instruments – ie subsidies – placed behind a building programme by the government.

That is because gas-fired power stations are quite uninvestable right now for two reasons.

Firstly, they don’t make money with energy prices as they are, and unless things change substantially over the medium term, no-one is going to invest in a new power station that is guaranteed not to return its investment. And secondly, whatever the government wants to do to renewables right now, there already are sufficient suppliers of renewable energy on the system to disrupt long-term assumptions about how regularly any new gas fired power station would actually run once built. DECC’s own figures in its 2012 Gas Generation Strategy, suggested that, by about 2030, gas would be running essentially as back up plant, operating to only about 27 per cent of its capacity. And that means, in addition, that the ability to produce an easy return on investment is still harder.

‘Well’, you might say, ‘the government has this in hand. They’ve introduced a Capacity Market to attract new investors to invest by underwriting their operational readiness to supply for 15 years. That will fix it, surely?’

Well, judging by the last capacity auction… er… no. One new gas plant survived the auction; everything else went to existing generators, largely coal and, astonishingly, in ‘persuading’ existing nuclear to continue to produce electricity. That one new plant – Trafford – seems unlikely to get built in the near future, and most other new plants were well out of the running. To bring new build back in, it is estimated contracts on offer through an auction would need to be at least double that of the £19.40 per megawatt hour that resulted from the last auction, and if that were to happen, the ‘free money’ going to existing generators as collateral damage would be simply huge.

In other words, a policy intervention to persuade gas plants to get built instead of renewable deployment might well end up costing as much, if not more, in levies on the public (which is the truth about who ultimately pays for Capacity Market funds) than continuing with relatively modest and degressing underwriting for renewables as they reach market parity: a result on eventual deployment which, I am sure you might say (finally), would be a very strange and illogical outcome.

We are certainly going to need gas as part of the system (along with a far wider deployment of renewables) for a very long time: but right now it doesn’t seem that Plan B would even guarantee the element that we will need to be in place. It is time to return to the arguments about what a more affordable clean energy strategy might really look like if we are to secure Britain’s power supplies.