Analysis: Dramatic shift in UK government outlook for gas and clean energy

The future UK electricity mix will have more renewables, batteries and interconnectors than expected, according to long-awaited new government projections.

The shift in Department for Business, Energy and Industrial Strategy (BEIS)modelling, which includes a marked reduction in new gas capacity, parallels similarchangesmade by National Grid.

Despite these shifts, the UK remains off track for its carbon budgets to 2030, the BEIS projections show. Carbon Brief breaks down how things have changed – and why.

Clean capacity

The UK government last published its energy and emissions projections out to 2035 inlate 2015. Its latest analysis was published last week, but is described as the “2016 projections”. It incorporates new assumptions about the price offossil fuels,CO2 emissionsand electricitygeneratingtechnologies.

一个特别重要的变化是,雷内wables aremuch cheaperthan expected. A NovemberBEIS reportcut the cost of wind and solar power by 15-30%, both now and in the future. For more on the price assumptions underlying the BEIS projections, see below.

These changing price assumptions drive the BEIS electricity market model, which has also been updated to better reflect thewhole system costsof integrating variable renewables into the grid. (A model description anddocumentationdating from 2012 is available. BEIS refused a Carbon Brief freedom of information request to see updated details.)

One striking result is a marked increase in the amount of new renewable capacity being built in the model, now projected to reach 36 gigawatts (GW) by 2030 (top left chart, below). This is 71% more than the 21GW of new build capacity seen in the 2015 BEIS projections, which hadcut renewablesin the wake of then-secretary of state Amber Rudd’s “reset speech“.

Cumulative newbuild electricity capacity until 2035, in BEIS projections dated 2013-2016. Source: BEIS. Charts by Carbon Brief usingHighcharts.

The new renewable capacity is not broken down by type. According toBusiness Green然而,届e new projections include 10GW of small-scale subsidy-free solar by 2030.

The latest BEIS costestimatessuggest onshore wind and solar will be as cheap or cheaper than gas in 2020, gaining a clear cost advantage by 2025. Similarly, the Committee on Climate Change (CCC) says onshore wind and solar will becheaperthan gas by 2020.

Alongside an increased role for renewables, BEIS projections now include battery storage for the first time, with capacity reaching 3GW in 2030 and 4GW in 2035. Last year, National Grid alsointroducedbatteries into its forward view for the first time and it is now increasingly bullish.

At a 14 Marchmeetingat Imperial College, Cordi O’Hara, director of system operator National Grid, suggested that if costs continued to fall at 20% per year, then the UK could see 8GW of battery storage connected within five years.

A slightly less optimistic analysis from consultancyAurora Energy Researchsuggests battery storage capacity couldreach3GW-8GW by 2030, depending on howquicklycosts fall.

Also of note in the 2016 BEIS numbers is a big increase in expected new interconnector capacity, linking the UK’s electricity grid to the rest of Europe. BEIS now sees 15GW of such links by 2024, up from 9GW in the last set of projections.

Interconnectors are seen as a vital component of theflexible gridthe UK will need, as it expands the supply of variable renewables in the mix. They also help reduce energy bills, since wholesale electricity prices are lower in continental Europe than in the UK. Plans for new interconnectors include a second 2GW link toFranceand 1.4GW link toNorway, among others.

Fossil capacity

Another clear shift in the projections is a marked reduction in new gas capacity, adding just 7GW by 2029 (see top right chart, above). BEIS had expected 15GW by 2029 in its 2015 numbers and 33GW in the 2013 edition. The 2012 governmentgas generation strategyhad suggested 26GW would be needed by 2030.

Now, it appears that the government is walking back from theideathat the UK needs many large newcombined cycle gas turbines(CCGTs). Instead, it haswelcomedsmall new plants that will be built atKings LynnandSpalding, as well as “innovative low-carbon capacity like battery storage”.

These schemes are among 3GW of new gas capacity contracted under thecapacity market, almost all of which is smallerpeaking plant. Along with the 880MW Carrington gas plant in Manchester,commissionedlate last year and officiallyopenedby energy minister Jesse Norman earlier this month, more than half of the new gas BEIS expects by 2022 is already contracted or built.

Finally, on the capacity side, the new BEIS projections show how hopes for carbon capture and storage (CCS) have been dashed, after the governmentwithdrew£10亿的资金竞争。一度被认为达到5兆瓦by 2030 and 12GW by 2035, CCS is now virtually non-existent, with zero capacity until the final year of the projections.

The current lack of investment in CCS is the biggest challenge to meeting the goals of the Paris Agreement,studiessuggest. It is particularly important for efforts to decarboniseheavy industry, as well as fornegative emissions, which the UK is likely toneedto meet its share of Paris effort.

Generation change

图片有点不清楚时,to BEIS projections of electricity generation. Nevertheless, the 2016 figures do throw up some interesting changes compared to previous years.

First, coal generation declines much more quickly, falling close to zero as early as 2022 (bottom left chart, below). This faster fall reflects theclosureof several coal-fired power stations last year as well as cheaper-than-expected gas prices (see below for more on this).

Second, the lack of CCS capacity translates directly into a lack of CCS generation. Back in 2014, BEIS expected CCS to deliver 15% of UK electricity supplies by 2035. Now, this has been cut to less than 2%.

Electricity generation by source until 2035, in BEIS projections dated 2013-2016. Source: BEIS. Charts by Carbon Brief usingHighcharts.

Third, nuclear generation is now seen falling in the early 2020s, before picking up again later in the decade (centre right chart, above). In 2024, BEIS expects nuclear to be generating 34 terawatt hours (TWh) of electricity, down from 44TWh projected in 2015 and 67TWh in 2014, in total a reduction of around 50%, with the shortfall persisting until the late 2020s.

This reflects ongoing delays to the UK’s new nuclear programme and the retirement of old reactors. Even after contracts were signed on theHinkley Cscheme in Somerset, doubts hang over itstimingand the prospects for several other schemes, such as the Toshiba-backedMoorside plantin Cumbria.

Finally, in the latest BEIS projections, the output of renewables dips in the early 2020s. BEIS says: “This is due to a number of factors, including the temporary increase in gas generation to maintain system flexibility.” Consequently, gas output picks up the slack in the projections.

It is not clear why renewable plant would voluntarily reduce output, with the implication being that wind and solar could be increasinglycurtailedin this period, until system flexibility increases as batteries are built. However, this aspect of the projections is as likely to reflect the constraints of the BEIS model as it is real limits to renewablegrid integration.

Future mix

Despite these shifting projections and uncertainties, clear trends in the UK’s electricity generation mix emerge from the BEIS figures. The most obvious is a shift away from fossil-fuelled electricity generation, with coalphasing outwell before the government’s 2025 deadline and gas shrinking steadily, despite its role in ensuring system flexibility (see chart, below).

Electricity generation by source until 2035 in the 2016 BEIS projection. Top: Output in terawatt hours. Bottom: Shares of total output. Projections are denoted by the shaded grey background. Note that the 2016 figure for coal is at odds with data reportedelsewhere. Source: BEIS. Charts by Carbon Brief usingHighcharts.

It is also clear that BEIS expects renewable and nuclear generation to increase in the longer term. One oddity is the large role for electricity imports (the purple area and line in the charts, below), which BEIS projects reaching 23% of total supply in 2025.

Given the disparity in wholesale electricity prices between the UK and continental Europe, it is reasonable to expect that rising interconnector capacity would drive rising power imports. However, this projection is likely to be both politically difficult and sensitive to changes in relative prices, future carbon prices and the outcome of negotiations over Brexit.

It’s worth adding that the BEIS projections have inprevious yearsbeen fixed to meet a 2030 decarbonisation target, as recommended by the CCC. This means the rise of imports could be filling in for a gap in low-carbon electricity supplies, highlighted in a recentCCC report.

Since greenhouse gas emissions are measured on a territorial basis, electricity imported to the UK counts as zero carbon. Some imports come from France, where low-carbon nuclear supplies most electricity, and future links to Norway will also be low-carbon. However, the continental market is tightly linked such that French exports of nuclear power to the UK could increase German coal generation.

Whether or not electricity imports are truly low-carbon, there is a sizeable gap in home-grown low-carbon power supplies in the late 2020s. This gap is a result of the government’s opposition to expanding onshore wind and solar, its strictly limited support for offshore wind and the lack of clear signals on tidal power or biomass, combined with ongoing delays for new nuclear.

Conclusion

It isn’t only the power sector where there is more to be done if the UK is to meet its legally-binding carbon targets in the 2020s and 2030s. It has beenclearforseveralyears that the UK will likely fall short of the fourth and fifth carbon budget goals, for the years from 2023 through to 2032.

The BEIS projections reiterate this, noting:

“There are projected shortfalls against the fourth and fifth carbon budgets of 146 MtCO2e [million tonnes of CO2 equivalent] and 247 MtCO2e, respectively. The government will be publishing its emissions reduction plan, setting out plans for decarbonising in the 2020s.”

This shortfall to the fifth carbon budget is even larger than expected in the previous round of BEIS projections. However, the complexities of carbonbudget accountingmake it hard to unpick why this is. Not least, the UK’s carbon budgets are currently entangled in the EU ETS.

While the gap in carbon budget compliance has grown, the UK’s projected emissions are actually lower than expected last year, as the chart below shows. This is primarily down to a change in methodology for agriculture, land use change and forestry (LULUCF).

Within that total, emissions from homes and transport are higher than expected. This change is driven by cheap oil, real-world data showing cars use more fuel than thought and lower-than-expected benefits from energy efficiency and renewable heat policies, BEISsays.

The emissions reduction plan, referred to in the BEIS quote above, has been repeatedly delayed and renamed. It is now being referred to byministersas the “Clean Growth Plan”, and is scheduled to be published “as early on in 2017 as possible in order to move on to the delivery phase”.

A note on changing assumptions

Compared to its 2015 projections, BEIS has also sharply cut coal and gas prices (see charts, below). BEIS was late in adjusting to several years of falling markets. However, this trend has now reversed: gas broke through50p per thermand coal topped$75 per tonnein early 2017.

The cuts in projected fossil fuel prices were made last year, but until now had filtered through to the BEIS energy and emissions projections because of the long delay in producing the 2016 numbers.

Future price assumptions for gas, coal, power sector CO2 emissions and wholesale electricity in BEIS projections from 2013-2016. Source: BEIS. Charts by Carbon Brief usingHighcharts.

The latest assumptions for power sector CO2 prices are also significant, with BEIS now expecting no change until 2027. These prices reflect the EU Emissions Trading System (EU ETS) and the UK’s top-up carbon tax, the carbon price floor, which is officially frozen until 2022.

The extended period to 2027, with flat CO2 prices in the power sector, is merely a modelling assumption, BEISinsists, and is “not [an] indication of wider government policy”. (Note that the longer-term increases in the chart, above, reflect the price required to meet carbon targets, not an expectation of future market conditions).

Carbon prices, therefore, remain uncertain. The UK may leave the EU ETS when it leaves the European Union. At hisspring budget, chancellor Philip Hammond put off changing or extending the price floor. However, the government “remains committed” to power sector carbon pricing.

Lower wholesale power price assumptions – down around 1p per kilowatt hour (kWh) versus the 2015 figures – likely reflect several factors, including the cut in expected gas and CO2 prices.

Lower wholesale prices would increase the cost of low-carbon subsidies for renewables andnew nuclear. Each 1p/kWh reduction in the wholesale price adds around £250m to the annual subsidy and £9bn to the lifetime subsidy of the Hinkley C scheme, for example.