Recent weeks have seen an increasing focus among the government, regulators and the energy industry on the UK’s energy security in coming years. Analysis from think tanks and Parliament has suggested that serious challenges confront the sector, especially in the context of Brexit and decarbonisation.
Brexit consequences
The House of Lords EU Energy and Environment Sub-Committee has in recent weeks gathered evidence about the implications for energy of Brexit.
The committee published its findings on 29 January. It concluded that a reliable and affordable supply of energy for UK homes and businesses had been achieved by working in partnership with the EU, making cross-border energy trading easier and cheaper.
The committee found that EU investment has made a significant contribution to constructing and maintaining a secure energy system in the UK, and that replacing this funding will be critical to ensuring sufficient infrastructure is in place to enable future energy trading.
Seen as particularly important by the committee was the impact of Brexit on the UK’s interconnectors with Europe. Currently the UK has 4GW of electricity interconnection and three gas interconnectors. The committee cited evidence from the Institution of Chemical engineers that interconnectors are of “mutual benefit to the UK and the other countries, providing resilience through increased flexibility and diversity of supply”.
The committee concluded that regulatory convergence on either side of the interconnectors helps to ensure they operate efficiently. The government is urged to seek to maintain this convergence and the UK’s enduring access to common trading platforms. The committee also urged the government to clarify as soon as possible what regulatory regime will apply to UK-EU interconnectors post-Brexit, in order to support the further development of the infrastructure, thus helping to maintain energy security and enabling the UK to meet its decarbonisation and international climate targets.
The report concluded that, post-Brexit, the UK may be more vulnerable to energy shortages in the event of extreme weather or unplanned generation outages, and asked the government to set out how it will work with the EU to anticipate and manage such conditions.
Committee Chair Lord Teverson commented: “Individuals and businesses across the UK depend on a reliable and affordable supply of energy […] over the course of the inquiry the Committee heard benefits of the UK’s current energy relationship with the EU, and the Minister acknowledged these benefits when he stated his hope that Brexit would result in as little change as possible. It remains unclear, however, how this can be achieved.”
Decarbonisation challenge
A second threat to the future of the UK’s energy security was outlined in research issued by think tank Policy Exchange on 25 January.
The UK has binding decarbonisation goals that it must achieve, ultimately leading to an 80% reduction in emissions by 2050 on a 1990 baseline.
Policy Exchange illustrated the considerable challenge of running the electricity grid on 100% renewable power. By their nature wind and solar power sources are intermittent. For example, wind turbines and solar panels need back-up from flexible generation sources when the wind doesn’t blow or the sun doesn’t shine.
The demand for low-carbon electricity will also only continue to increase as the transition to electric vehicles increases in pace and heat is decarbonised.
Policy Exchange concluded that the answer to this challenge is nuclear – specifically small modular reactors (SMRs). These offer reliability as nuclear is run at baseload – generating close to 100% of its potential capacity at all times. SMRs could also offer cost savings over larger nuclear stations and be easier to construct thanks to their modular design. SMRs could also be used in other applications like district heating and hydrogen production. Policy Exchange’s recommendations include:
- Use SMRs as part of the GB energy mix to reduce the system costs of decarbonisation, thereby reducing consumer bills in the long term
- The government should proceed swiftly with the development of at least one third generation small modular reactor design after the results of an ongoing consultation on the subject are published
- Launch a consultation with heavy industry into what services advanced fourth generation reactor designs could also bring that would be of use to them, like hydrogen production to use in low carbon steel manufacturing
Matt Rooney, Policy Exchange’s Energy and Environment Research Fellow, who wrote the report, said: “There is no other low-carbon energy which can match nuclear power for scale and reliability”.
Auction competition
As the debate on energy security continues, National Grid is in the short term looking to guarantee supply security by again running Capacity Market Auctions.
The Capacity Market is open to all capacity providers including new and existing power stations, electricity storage plant, capacity provided by voluntary demand reduction. It offers a steady, predictable revenue stream on which providers can base their future investments. In return for Capacity Payments revenue, providers must deliver energy at times of system stress, or face penalties.
Potential providers secure the right to receive capacity revenues by participating in a competitive auction process which will set the level of Capacity Payments.
The T-1 auction (for capacity in the winter of 2018-19) cleared on 1 February, securing 5.7GW at a cost of £6.00/kW. The T-4 auction (for delivery in winter 2021-22) will start on 6 February.
