By Conor Klapatyj, Risk Management Specialist, Consultus International
“Building resilience requires the UK to generate more power from domestic source.”
As spring begins, the coming season provides certainty of new life, warmer weather, and lighter days. Yet the shadow of conflict looms over Europe and energy markets remain under a shroud of uncertainty. In the past month and a half, Russia’s invasion of Ukraine exposed the fragility of Europe’s energy network and strategy. The continent’s dependence of Russian’ fossils fuels led to a sharp rise in prices and high volatility. Instability formed across the entirety of Europe due to the interconnectivity between all European energy markets. In their recently announced Energy Security Strategy, the government’s plans seek to protect the UK from exposure to outside markets and provide stability for future UK energy supply and prices.
Building resilience requires the UK to generate more power from domestic sources. The government plans to increase renewable, nuclear and hydrogen output whilst maximizing the North Sea gas fields.
In a continuation of the Government’s 10 step plan to net zero emissions by 2050, renewable output is set to increase further. Offshore wind sources remain a focal point in the UK’s renewable portfolio. The government plans to increase development and deployment of new offshore wind farms by 25%, delivering an output of 50GW. Government support, for offshore projects, would be through an accelerated planning process. Currently, the project is likely to take 13 years to complete, but the government aims to cut this in half. Opposition to the government’s plans came from its lack of ambition in utilizing onshore wind technology, a source that can become active within half the time of an offshore wind farm project.
The new strategy introduces a target for the UK solar capacity. The government plans to generate up to five times more by 2035. However, with the cost of solar still high, the government failed to commit to any serious plans or funding.
The strategic plans outline the aim to double the UK’s Hydrogen output to 10GW by 2030. The production capacity will consist of at least 50% electrolytic hydrogen, which could be hydrogen using either renewables or grid-sourced power. The project remains subject to affordability and value for money, but the government hopes to run annual allocation rounds in hopes of reducing the technology costs to competitive levels.
In a U-turn on nuclear generation, the government plans to utilize small modular reactors in delivering 24GW by 2050, a quarter of the UK’s energy demand and 3 times more than now. The government views nuclear as the only form of reliable, low carbon electricity generation and have committed over £210 million to the small nuclear technology project. A sway towards nuclear energy and movement away from oil and gas increases the amount of domestically produced power and protects prices from volatility. Eight nuclear projects are expected to be delivered by 2030, and an injection of new investment could see the rate of production reduce from ten years to one year.
Oil and gas
The UK’s dependency on power generated from gas is set to decrease in the long-term. However, a net zero carbon status cannot be realized instantaneously. New licensing for North Sea projects will commence in the Summer. Maximizing gas production in the North Sea reduces the requirement to import gas from abroad and can form stability to domestic prices.
The government still aims to reduce gas consumption by 40% by 2030. The role it plays in the UK’s electricity system will change from integral to transitory in the next decade as renewable sources become a more prominent source.
Networks, Storage and Flexibility
The government hope to modernize the connecting network infrastructure by creating a more efficient and locally-responsive system. Its target is to reduce costs by up to £10 billion by 2050. The plans’ first feature is to improve the planning process to understand demand ahead of time, minimizing costs and public disruption. The second feature is hyper-flexibility, to match supply and demand so that no energy is wasted.
What is the likely impact?
The new strategic direction provides a positive outlook for the UK energy market in the long-term. The steps taken by the government reduce the UK’s exposure to outside uncertainty. A higher generation from renewable sources can lead to lower prices. A dependence on domestic nuclear generation, rather than imported gas, will form stability.
However, there seems to be no short-term solution outlined in the government’s plans. In the UKERC’s initial comments on the Energy Security Strategy, Robert Gross, a professor at Imperial College said, “Even the quickest of the new technologies won’t be operational for years irrespective of streamlining of planning,”.
In March, a deal was reached between the UK and US to increase imports of liquid natural gas from US. This will provide a certain level of stability but still exposes the UK to global gas and power prices. Each project will take time to develop and implement, independence cannot be achieved overnight. Uncertainty will remain for as long as Putin continues to wage war on Ukraine and even then, the west will be reluctant to keep dependence upon Russian fossil fuels. It is likely that high prices and volatility will continue until a resolution is found between the two nations.