The Brexit vote to leave the EU has had no serious short-term implications for gas and electricity. In the longer term, however, it provides an opportunity for the UK to re-examine its existing energy policies in order to address a number of problems that threaten the supply of electricity in the next few years.
These problems stem from the failure of governments past and present to devise an energy policy capable of ensuring that the UK has sufficient generating capacity to meet the needs of a rapidly growing population. The problem is closely related to the issue of which fuels should be used to generate power and the role of gas in particular in the generating mix. Some of the decisions taken by governments relate to directives from the EU; but several of them are home grown.
The EU’s role has been to come up with policies designed to reduce emissions and promote the use of renewable forms of energy. Among these measures are the EU’s Large Combustion Plant Directives that were designed “to reduce emissions of acidifying pollutants, particles and ozone precursors”  from combustion plants of 50 MW or over. This led to the shutting down of a large number of coal-fired power stations.
During the 1980s and 1990s, coal stations were replaced with gas-fired plants. While this was partly for environmental reasons, it also resulted from the so-called “dash for gas” when gas-fired power stations were built to take advantage of the supply of cheap gas from the southern North Sea. Fossil fuels are also affected by the EU’s Climate and Energy Framework, which include “binding targets” for cuts of at least 40% in greenhouse gas emissions from their 1990 levels and a rise in the share of renewables to at least 27% of energy consumption by 2030 .
While these apply to the UK, British governments have often been described as having “gold-plated” the energy directives of the EU by imposing even more severe targets on the UK, notably under the provisions of the 2008 Climate Change Act, which obliges the UK to generate 33% of its electricity from renewables by 2020. The measure is backed-up with high carbon taxes and surcharges on electricity bills to provide subsidies for renewable sources.
The energy policies of the EU and the UK have led to the closure of nearly a third of the UK’s base-load generating capacity, greatly reducing the capacity available to meet future levels of demand, especially during cold winters. Opponents of these policies argue that new renewables-based capacity cannot be made available in time to prevent power cuts within the next few years, and that the surcharges on tariffs that subsidize renewables have resulted in high prices for electricity consumers, making high industrial users of electricity uncompetitive internationally.
One indication on the present squeeze on capacity is that the UK’s National Grid is paying large electricity users, including the National Health Service, to reduce their consumption when the country’s generating system is close to its maximum capacity. The Grid is also making payments to power stations that might otherwise be closed down to remain on standby during the periods of high power demand.
These measures, although, are palliatives, designed to avoid power cuts when demand is temporarily high. What is really needed is new generating capacity. Whilst much has been made of Hinkley Point C, EDF can’t afford to build Hinkley Point and Britain can’t afford to pay for it and whilst there are is a clear case to be made for stable baseload power, there are better options elsewhere. Although there are plans to go on adding wind power and photovoltaic installations, both are by their nature intermittent and not therefore suitable for base-load demand, or for sudden surges in demand during winter in many cases, either. Many are therefore calling for more gas-fired stations: either by taking some closed plants out of mothballs or by building new ones.
Paul Massara, former chief executive of energy giant RWE npower, believes repeated market interventions and the lack of a long-term decarbonisation strategy is causing serious problems across the energy market, hampering the ability of developers to step in and bridge the gap left by necessary coal closures.
“What we’ve seen is an incoherent set of strategies which is causing problems in the marketplace,” he said. “So, yes, the coal phase-out is good… [but] the problem is that we have created this environment where the free market is not working.”
One of the major problems is that investors are very wary of building new gas power plants – one of the simplest ways of replacing the baseload power provided by coal – without a strong financial incentive to counteract climate policy signals that suggest unabated gas-fired power plants will be unlikely to operate consistently in the UK much beyond 2030. Massara suggested the government may be forced to intervene again in the market to encourage new gas capacity to plug the hole left by coal plants until battery storage, new nuclear, and powerful renewables can dominate the system.
More Russian imports?
Any new gas stations will have to run on imported gas, with Russia an obvious source of supply. In recent years, however, imports of Russian gas have become a contentious issue within the EU, which imposed sanctions on trade and investment involving Russia because of the EU’s support for Ukraine . The EU Commission has also expressed concerns over what it sees as the EU’s over-dependence on Russia for energy, including gas and is reported to be considering taking powers to vet future deals with Russia. Some energy firms in the UK are meanwhile pressing for more gas deals with Moscow: another issue raised by the Brexit vote.
Redesign from the ground up
Massara and many of his counterparts in the energy sector describe the UK as entering a “transition” phase, moving from a centralised system to a flexible, responsive, and decentralised energy system. The problem is in navigating the interim years of this transition so that electricity keeps flowing while older plants are retired and cleaner generation sources come online.
Part of the answer lies in redesigning the grid around emerging technologies. One of the more nuanced points about the capacity crunch facing the UK next winter is that there is actually plenty of generation capacity on the grid to meet demand. The trouble is that thanks to the high proportion of intermittent renewable power, the electricity is not always available when it is needed.
Over the next 10 to 15 years battery technology will go a long way to solving this problem, This site has long argued that batteries and solar power will cause “significant” disruption in the market, as customers install batteries to minimise their consumption of grid electricity. We will see less usage of the grid and general electricity demand go down, which will prompt a fundamental shift in peak demand.
- European Commission: Large Combustion Plants Directive, June 2016; ec.europa.eu/environment/ archives/industry/stationary/lcp/legislation.htm.
- European Commission. 2030 Climate and Energy Framework, June 2016. ec.europa.eu/clima/policies/ strategies/2030/index_en.htm.
- Survey: Russia battles against low oil prices and Western sanctions. Oil and Energy Trends 2015; 40:2; pp 11–18, DOI: 10.1111/oet.12227.
- Oil and Energy Trends: Vol. 41 Issue 7