Analysis: The UK’s ‘looming’ electricity supply gap

Rosamund Pearce

Retiring nuclear power stations and a planned coal phase-out could leave the UK facing a huge electricity supply gap by 2025, says the Institution of Mechanical Engineers (IMechE).

In a five-page report, it says the coming electricity capacity shortage cannot be filled with new gas-fired power stations alone. It calls for a renewed focus on energy efficiency and reducing demand.

Meanwhile, a letter from the Confederation of British Industry (CBI) asks for stable government policy to help secure the investment we need to create the energy system of the future.

Does the UK face an electricity supply crisis? Carbon Brief explores the evidence.

§ Media coverage

The IMechE report has been very widely covered. The stories take IMechE’s analysis at face value, without questioning its findings.

The Bloomberg headline is typical. It says: “Britain Needs 30 Gas Plants by 2025 to Fill Power Supply Gap.” The Guardian says: “Engineers warn of looming UK energy gap”.

A lead editorial in the Sun says:

The madness of rapidly closing down our old power stations on environmental grounds and not replacing them is blindingly obvious to anyone outside Whitehall. And experts at the Institution of Mechanical Engineers have now confirmed what we all suspected — we haven’t got a prayer of building the plants we need to avert potential calamity in just ten years.

The report was also covered by the Telegraph, Times and Press Association, among others.

§ Simplistic analysis

The IMechE analysis is simplistic and its conclusions are disputed.

Its starting point is the UK’s planned coal phaseout by 2025. It also assumes that all of the UK’s nuclear power stations could close by 2025, despite the expectation that life extensions will keep them running longer.

Rather than engaging in detailed energy and economic modelling of the likely consequences of these developments, the IMechE report relies on data from a single day last December.

Lead author Dr Jenifer Baxter tells Carbon Brief:

If you took a very simple view of how energy policy is presented…On the day in question when we looked at the [UK electricity] grid, a relatively low demand day, 22% [of supply] was from coal…and 23% from nuclear.

Together, these sources provided roughly 40% of supplies, Baxter explains. Windfarms supplied 13%, which cannot be guaranteed. Hence, the range of 40%-55%.

Baxter says the report was “not a big research project. It’s just a small report based on information that’s easily accessible.”

The report goes on to say that 30 gas-fired power stations (combined cycle gas turbines, CCGTs) are needed to fill the supply gap it identifies. It adds that the UK has “neither the time, resources nor enough people with the right skills” to build these CCGTs in time for the 2025 coal phaseout.

To help square the circle, IMechE says, the government should renew its focus on energy efficiency and reducing demand for power.

§ Critical response

Carbon Brief approached energy analysts, industry representatives and government sources to gauge views on the IMechE analysis. Several were unwilling to put their criticism on record.

Richard Howard, head of energy and environment at thinktank Policy Exchange, tells Carbon Brief:

We simply don’t need that scale of new build [gas]…The whole thing sets up a straw man…We’re not talking about trying to fill the capacity shortage with a load of CCGTs. It will be filled by all sorts of different things, including some interconnectors, some demand response, some renewables, peaking plant, storage and energy efficiency.

IMechE says interconnectors will raise prices and reduce energy security. In contrast, Policy Exchange says interconnectors will increase energy security and reduce bills. Wholesale electricity prices are lower on the continent. IMechE presents no evidence that this will change.

Mateusz Wronski, research associate at consultancy Aurora Energy Research, tells Carbon Brief:

These findings are not consistent with the economics of the UK power system…It is wrong to simply assume that the UK needs baseload capacity to replace coal…The UK has a competitive process for delivering the necessary capacity [see below], and current market conditions strongly favour flexible peak generators that are able to switch on quickly when wind is not blowing.

Another issue with IMechE analysis is that it assumes electricity demand will increase between now and 2025. In fact, the National Grid’s Future Energy Scenarios expect peak electricity demand to be effectively flat over the next 10 years. This follows a decade of steady demand reductions. In a letter to the Guardian, Andrew Warren, chairman of the British Energy Efficiency Federation argues that this trend could be continued with a sustained push towards on energy efficiency.

§ Coping with closure

Aurora has modelled the impacts of a UK coal phase-out, concluding that the power system could cope with closure by 2025, or even earlier, at minimal cost to consumers.

The UK already has a significant pipeline of capacity from offshore wind, additional interconnectors to other parts of Europe and new nuclear power stations, Wronski points out.

It also has a capacity market designed to guarantee sufficient supplies. While the scheme has its flaws — encouraging polluting small-scale diesel, for example —  there is a general expectation that the UK’s tight electricity capacity margins will improve once the capacity market kicks in.

Monne Depraetere, european power analyst at Bloomberg New Energy Finance (BNEF), tells Carbon Brief:

The main thing lacking from the IMechE study is that it omitted the key mechanism that is supposed to plug that supply gap: the capacity market, which is a crucial tool that will help the UK meet its electricity needs. Although not without its faults, we forecast the capacity market will drive new power plant build, especially since the UK government has indicated it will revise market guidelines in 2016.

The government wants to reform the scheme so to encourage new gas, though it’s worth repeating the view that the UK probably does not need large quantities of new baseload gas-fired generation.

The government’s own projections bear this out, forecasting only a small net increase in gas capacity. Depraetere says around 11GW of new gas might be needed over the next decade. At least 5GW of projects, able to start operating by winter 2019, failed to win capacity market contracts, he adds.

Energy and climate change minister Andrea Leadsom told MPs in early January the capacity market was being reviewed “to make sure we bring on new gas”. More recently Leadsom said:

We have said that we will consult on regulating the closure of all coal power stations by 2025. This gives an important investment signal to new gas developers. The capacity market is in place to drive investment in new capacity such as building new gas-fired power stations when they are required…We are currently reviewing whether the current framework maintains the confidence of gas investors, and will make any adjustments necessary.

Lawrence Slade, chief executive of industry group Energy UK, tells Carbon Brief:

We certainly need to see significant investment in thermal plant very quickly if we are to avoid a capacity gap in coming years, but we must also look at the value that renewables are already adding and will increasingly add in the future.
In other words, we need a policy framework that looks at the whole system, encourages innovation across different technologies, not focusing on single streams, and supports harnessing multiple technologies to deliver an affordable low carbon electricity supply.

§ Energy strategy

For all the criticism, there is a basic truth at the heart of the IMechE report. The UK’s electricity system is changing rapidly, the energy industry is being asked to invest to continue that transformation and yet there is little transparency over the details of government policy.

The CBI’s open letter, reported in the Times, makes this case loud and clear. It says:

The way we power our economy is being transformed. Building on the ambition of the recent Paris Agreement, much more of our energy will come from renewable and other lower-carbon sources. New technologies will also change how we store and use the power they provide…
Getting the investment we need to address this requires clear leadership and stable policy from government. We need more of this in 2016. To unlock investment, we need a clear long-term framework – so companies can plan for construction projects that will last into the next decade.

Newer technologies, including offshore wind and carbon capture and storage (CCS), need investment, the letter says. To keep costs down, the market should be open to all technologies, including onshore wind, it adds.

The UK must also look at the potential for energy storage and demand management, the CBI says, alongside unlocking investments in energy efficiency.

If the details of IMechE’s analysis are shaky, at least there seems to be agreement on the need to plan for the the UK’s energy future.

§ Reactions

Friends of the Earth energy campaigner Simon Bullock says:

The quickest and safest way to deal with any concerns about power capacity is to prioritise investment in energy efficiency and storage, as the report says, and develop the UK’s massive wind and solar potential.

Byron Orme, research fellow at the Institute for Public Policy Research, says:

The warning from the Institution of Mechanical Engineers that the UK faces a potential supply gap of 55% is overblown, but it is true that there are major challenges ahead for replacing our creaking energy infrastructure.
The government needs a clearer plan for incentivising the sort of clean generating capacity that the country needs but also the digital technology that will maximise the efficiency of the system and keep costs low for households and businesses. They should start by reforming the ‘Capacity Market’ to help achieve this.

Amber Rudd, energy and climate change secretary says:

We know that old and dirty coal, and some ageing nuclear power plants will be closing over the next few years, and that’s precisely why we’ve put in place a long-term plan to ensure we have secure, affordable and clean energy supplies that can be relied on now and in the future.
We are the first country to propose an end date to using unabated coal and we will do so in a way that maintains energy security, which comes first. We are clear that a range of energy sources, such as nuclear, offshore wind and shale gas, all have roles to play in the low-carbon energy mix, powering our country and safeguarding our future economic security.

The statement was sent to journalists with a list of “the top 10 things the government is doing to secure investment in clean secure energy”. It reiterates the caveat that coal will only be phased out “if we’re confident that the shift to new gas can be achieved within the necessary timescales”.

Update 27/1 – We added comments from Monne Depraetere.

Update 27/1 16:30 – We corrected IMechE’s name to the “Institution of Mechanical Engineers”. We had called it the “Institute”. We also added a note on electricity demand.

Main image: A worker walks past a gas turbine under construction at the gas turbines production unit of the General Electric plant in Belfort, June 24, 2014.

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