The Dash (for Gas) Isn't Over Yet

Over the weekend the UK Secretary for Energy and Climate Change, Ed Davey, announced plans to secure a continuing role for natural gas in the UK power generation sector.

Over the weekend the UK Secretary for Energy and Climate Change, Ed Davey, announced plans to secure a continuing role for natural gas in the UK power generation sector. Mr Davey noted;

"Gas will continue to play a vital role in a low-carbon economy. Modern gas-fired power stations are relatively quick to build and twice as clean as many of the coal plant they're replacing. Carbon capture and storage promises to give gas an even longer term future in the mix."

The announcement from the Department of Energy and Climate Change (DECC) introduced further policy additions to the Electricity Market Reform as follows;

The Energy and Climate Change Secretary set out measures to be included in the intended Electricity Market Reform legislation to provide certainty to gas investors:

  • The level of the Emissions Performance Standard (EPS), designed to limit the emissions from individual plant, will be enshrined in primary legislation. Power stations consented under the 450g/kWh-based level would then be subject to that level until 2045, a process called 'grandfathering' which provides long-term certainty to gas investors.
  • The Capacity Market will be designed to bring forward sufficient investment in new reliable capacity, including gas, in order to ensure security of electricity supply. This will help to ensure that there is sufficient capacity in place to cope with peaks and troughs in demand.
  • The government intends to bring forward this legislation, subject to the Queen's Speech, in the next Session of Parliament.

    He also announced plans to publish a new gas generation strategy in the Autumn.

    So continues the rollout of a comprehensive policy framework designed to decarbonise the UK power sector, ensure security of supply / cost and provide sufficient certainty for the necessary investments to take place. The announcement fits well with the statements made by Oliver Letwin MP, Minister of State (providing policy advice to the prime minister in the Cabinet Office) and Cabinet attendee, at a recent panel debate held by the Daily Telegraph. At that event Mr Letwin argued that there was a need for the government to ensure that the resulting energy mix was built on a variety of energy sources and technologies. These included renewables, nuclear and fossil fuels, the latter also supported by CCS.

    Regular readers will note that I have grumbled about some of the EMR provisions in the past, particularly the role of the carbon floor price in the context of an EU wide ETS (Emissions Trading System). However my concerns pale in comparison with those of a number of correspondents and NGOs who argued in the media this week that the level (450 g/kWh) and longevity (until 2045 for those receiving consent) of the EPS would threaten the core UK target of near complete power sector decarbonisation by 2030.

    I can't subscribe to this view.

    They seem to have missed the fact that the UK power sector, like the power sector in the rest of the EU, is covered by the EU ETS. Ultimately this is what will determine the level of decarbonisation on any given date, not for the UK in isolation but for the EU as a whole. The targets set at EU level may well embed a certain desired trajectory for the UK, but once allowances are auctioned and trade is underway, actual decarbonisation in the UK may take a variety of courses. This will be influenced by the overall EU cap and the prevailing price of carbon, the economics of various UK power generation options and any local supplementary measures unique to the UK, such as the carbon floor price and the EPS. Gas will almost certainly find a home within the mix, particularly given the favourable capital cost for new facilities and the relatively low emissions from modern high efficiency gas fired CHP.

    What the UK government has done is provide a level of investment certainty for the generators. This has been done for renewable energy, nuclear and now fossil energy. But the eventual mix will be determined by the overall carbon constraint in combination with other factors discussed above. The UK will find its own way forward within this, with each generator surrendering allowances against CO2 emitted. Actual UK power sector emissions in 2030 and beyond will not be determined by the EPS details announced on the weekend, but by a complex mix of factors, including the value of EU allowances.


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