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.