Post-coal: the future of the UK energy mix

In her “reset” speech last November, Amber Rudd announced plans to close all the UK’s unabated coal power stations by 2025. With this announcement, the UK earned praise from the likes of Al Gore for its leadership in consigning one of the dirtiest forms of power generation to the history books.

The big question, of course, was what would fill the gap left by coal. Ms Rudd’s answer was unambiguous: gas and nuclear.

But investors don’t exactly seem to be queuing up to build new gas power stations. And even if the government can put in place the right incentives for new gas turbines to be built, unless this “dash for gas” is coupled with Carbon Capture and Storage (CCS) technology, the UK will break its international commitments on decarbonisation. The prospects for CCS nose-dived when, just a few days after Ms Rudd’s speech, the government quietly cancelled its £1 billion competition to develop the technology.

So much for gas – and, if anything, the outlook for nuclear is even less rosy.  The government has pinned its hopes for the first UK nuclear power station to come online since 1995 on EDF’s Hinkley Point C. But the omens aren’t good. The final investment decision has been pushed back again and again; EDF’s Chief Financial Officer has resigned over the project; and the company’s own engineers argue that the official project timeline is unrealistic and that the reactor needs to be redesigned. The other power station that EDF is building with the same “European Pressurised Reactor” technology - at Flamanville in France - was, at the last count, running three times over budget and six years late.

So, a troubled picture for gas and nuclear, which are supposed to pick up the slack from coal. No doubt we can expect another slew of headlines promising “black outs”. In the short and medium term any such headlines will be unfounded: yes, winter margins are tighter than they have been in the past, but this is all relative to the UK’s excellent energy security standards.

Nevertheless in the longer term, if the government’s hopes for gas and nuclear prove unfounded – as it seems they might - and as existing power plants continue to reach the end of their lives, there is a genuine question about the UK’s future energy mix. The answer to this question could be renewables, which accounted for over 22% of UK power in the first quarter of 2016.

But the rise of renewables poses challenges: National Grid has warned that this summer we may actually have too much power during windy, sunny days, which, if not properly managed, could lead to surges that damage grid infrastructure and even domestic electronics. Tidal lagoon technology would ease this issue by providing utterly predictable power, but until the government supports it, our renewable generation will continue to be largely in the form of wind and solar.

The need to balance the demand for power with the variable supply from wind and solar leads to some novel economics. We have reached the point where energy customers could, at certain times, actually be paid to consume power. This could be heaven for energy-intensive industries with non-time critical processes that they are happy to start and stop at short notice.

By the same token, owners of batteries could be paid to soak up excess energy by charging their batteries - and could then be paid again to provide the energy back to the grid at times of high demand. This possibility, combined with the continued fall in the cost of storage technology, will create fascinating new markets and business models.

Increased demand-side flexibility and greater use of energy storage will both be critical as we transition from a system of large centralised power stations, to one of decentralised renewables. The National Infrastructure Commission’s recognised this in its excellent Smart Power report. Sensibly, HM Treasury accepted all the report’s recommendations – a more enlightened approach than relying solely on nuclear and gas.

Juliet Davenport is CEO and founder of Good Energy

The views expressed in this article are those of the author, not necessarily those of Bright Blue.