The electricity market reform is supposed to prepare the UK for future power demand, but how will it be delivered? Ines Nastali reports on ideas to secure sustainable capacity.
‘We are overgrowing offshore wind,’ said Gareth Miller, CEO of consultancy Cornwall Insight, when speaking at the Westminster Energy, Environment and Transport Forum in London in November. Acknowledging that it does a great job to reduce the carbon footprint of the UK, after all the UK generates more electricity from offshore wind than any other country according to the Crown Estate, he warned the audience that a ‘broader basket’ of energy sources is needed to secure the sustainable future of the island.
Of the 15% electricity the government wants to see generated by renewable sources in 2020, 5% is produced by offshore wind farms located in UK waters. The Crown Estate estimates that this will grow to 10% by 2020.
But with offshore wind already generating so much energy, does it need more subsidies? Costs for the generation of offshore wind have been reduced by a third since 2012. Additionally, ‘the target of £100/MWh for offshore wind has been achieved four years ahead of forecast,’ according to an Offshore Wind Programme Board report, with the levelised cost of energy falling to £97/MWh back in 2016.
Moreover, in September the UK Government awarded contracts for difference (CfD) to offshore wind providers at £57MW/h. CfDs have a fixed strike price and duration of 15 years. The deal: The government agrees to subsidise renewable energy generation by paying the difference between a wholesale and the strike price. The Department for Business, Energy and Industrial Strategy estimates the wholesale price to be around £53/MWh from 2023 onwards, making a subsidy superfluous.
CfDs are part of the UK’s electricity market reform, together with the capacity market, which delivers payments to invest in low-carbon technologies.
Miller therefore argues that offshore wind can make the step towards being an established technology and others could benefit from payments.
New kids on the block
But, what are these non-established technologies that might help build the UK’s capacity market? Until 2030, the country needs to find a way to produce 100TWh from renewable sources to satisfy electricity needs, said Ruth Herbert, Head of Strategy and External Relations for the Low Carbon Contracts Company, who also spoke at the
Westminster Forum event.
One presentation touched upon how to withdraw from coal-based power plants. Coal no longer represents the majority of energy generation in the UK, meeting the government’s plans to phase it out by 2025. According to Charles Phillips, Head of the Capacity Market at the Department for Business, Energy and Industrial Strategy, it has been replaced by offshore wind, but also by natural gas. Additionally to offshore wind, another CfD favourite was battery storage, he said. ‘It was quite a juicy auction, and a surprise to us because we wonder, how many batteries already have a duration beyond 30 minutes?’ he said, adding that it will be technically interesting how to make batteries that can store produced energy more efficiently (read more about this here).
The seminar also suggested converting coal power stations so that they can burn gas or biomass. This is only viable if the plant can generate a certain capacity that allows a good return on investment, and if the fuel used, such as wood, comes from sources that allow for re-growing in order to actually reduce the carbon footprint.
In the UK, Drax Power started the conversion process in 2012. Three of its six generators at its coal-fired power plant in Yorkshire have been retrofitted to burn organic waste and wood scrap or gas, saving the operator from closure. Drax Power invested £700m and completed its conversion project in 2016. It imports 15% of its wood pellets from its own plant in Mississippi, USA.
As well as offshore wind, renewables like tidal and solar will deliver the UK’s capacity in future, but also energy from gas and nuclear - with new plant Hinkley Point C still being built - will play a role, a report by trade association Energy UK has revealed. While most of the technology is already there, it is now on the government to ‘make the market design evolutionary and based on open and transparent policy making,’ the association stated.