Why We Need New Gas Fired Stations, BUT How It Could Be Done Better
Steve Wardlaw, March 2024
Sometimes in life, a statement can seem to contradict itself, and the government has produced one this week. The government has announced (12 March 2024) that there will be new gas-fired power stations as part of the drive to meet net zero. As ever, this scores a solid five out of ten from me.
So what’s the gripe? My issue is with the unnecessary theatrics from the Government. This in my view is a boring technical issue – gas is a transition fuel, we have a number of gas generators that are retiring or old/inefficient, and for system security purposes we need a generating profile that gas can provide.
However, the government has decided to frame this as a dramatic intervention. Here is what the Government website says:
“Energy Security Secretary to set out strategy for gas in speech and take common-sense action to futureproof the country’s long term energy security.”
Sigh. Please don’t use ‘common sense’. It implies that you are flying in the
face of convention, you know, the way Lee Anderson talks ‘common sense’. Staging
this like a decisive action in a battle is designed as a poke to the green
lobby as the Government gradually turns away from net zero for electoral
purposes.
Better would have been to bring everybody onside. If the energy secretary had
noted the transition nature of gas, with perhaps a hope that these were the
last gas stations to be built in the UK, then we could have brought more people
to agree, instead of manufacturing some kind of face-off between woke and
common sense. And it doesn’t need to be so muscular – you can point out the
need to strengthen energy security in these turbulent times rather than note
this sticks it to “foreign dictators like Putin”
And, more to the point,
there were better ways to handle this whole issue, and to accelerate the
transition away from gas, as explained in this blog.
The reaction
Oddly, the prime minister is right about new gas still putting us on track for
net zero (at least, not knocking us off). There are some old gas power stations
that do need replacing, or that are inefficient. Remember that net zero targets
can be helped by more efficient use of fossil fuels, not just an immediate
removal. Time and cost are always an issue.
However, there is a big gap in this announcement. There are no details of when
and how many. This would have helped many on the ‘greener’ side to understand
the scale, and if this is being done for the right reasons (ie more efficient
replacements). There is also no provision for carbon-capture and storage (CCS) technology.
While this is expensive technology, overall costs have reduced, and a promise
to require this/underwrite that cost would be more in keeping with the spirit
of net zero.
Currently the requirement is that they have the capacity to be
retrofitted for hydrogen fuels or CCS. This makes little sense; it will always
cost more to retro-fit than to design in. Also, add in the fact that the power
stations are to be built by the private sector and we can see why this is a
rookie error. If there are requirements to fit that capacity now, the
construction contract and therefore the price charged by the private sector is
going to take that into account and the contractor and government share price
risk and commercial risk.
The point is, if the government is going to ask for something in the future,
where the cost is unknown, the private party will (reasonably) want the
government to reimburse pound for pound, whatever the cost. The result is that
in effect the government takes on an unknown liability and the contractor bears
no commercial risk. So you can guess what happens to the final bill (which is
passed through in higher energy costs). My extra gripe here? The government has
form on this one – part of the skyrocketing costs of Hinkley C are due to 7,000
design changes required by British regulations to a proven-safe French model.
Surely someone suggested perhaps reviewing the regulations rather than chucking
another £10bn at the problem?
This retrofit requirement is the perfect definition of ‘kicking the can down
the road’. It is crazy for two reasons – first is that the government could
have capped the exposure by requiring CCS now, fixing a price for it and
allowing the contractor to take commercial risk. The second (to be honest, I
suspect rather than know) is to do with government accounts. The Treasury uses
the ‘green book’ to evaluate projects. Their job is to be conservative and so
likely they will account for the maximum exposure there, limiting spending in
other areas. Please do correct me on that second point if needed!
Despite some of the objections of climate campaigners, the Government’s
independent adviser, the Climate Change Committee has noted that a small amount
of gas generation without CCS is still compatible with decarbonisation as a
security measure – within a limit of 2%. However, without details we are unable
to see the scale of replacement generation, or the relative costs of retrofitting
versus up-front requirements.
If, as the government states, the aim of more efficient gas power stations is
to reduce the need for foreign gas from dictators (blah), fine. But this means
gas from the North Sea, a declining asset unless more large scale drilling is
allowed. We can already see a finite supply curve going down, and so the scale,
use and timing of these stations, by the government’s own admission, need to
keep overall gas consumption below that curve, otherwise demand for foreign gas
will rise again. The North Sea oil
and gas sector is project to be one third of its current size (already much
diminished from its peak days) in a net zero economy, so the gas power station
demand will need to start reducing almost from the date of their first
operation.
The summary then is this feels like another headline without much substance (GB
Nuclear anyone?) that could have been done better with more thought, meaning in
this case a huge change of policy.
How to do it – better
Let’s start with the basic framework. At its most simple, there are three types of generating profile (ie how power flows):
Power that flows at a set level and is tricky to adjust quickly (nuclear)
Power that flows when circumstances allow (renewables - wind,solar)
Power that you can turn up and down quickly (gas and to a limited extent coal, pumped storage)
So
from a system security point of view, you need gas currently to plug the gap
between nuclear and renewables. If you did nothing with the current generating
profile then gas (or some other similar profile) then there is a risk to system
security at times of rapid change in demand. This is why even the Climate
Change Committee is accepting 2% of gas generation without CCS.
However, that is not the end of the story. There are other ways around the
inflexibility of renewables – we need to take into account (a) batteries and
(b) more renewables.
When the UK power sector was restructured and privatised in the 1990s, battery
technology was not available, so there needed to be a lot more flexibility in
power production. Now however, the numbers could be very interesting. Although
at an early stage, energy storage projects (battery banks) under development
amount to 84.8GW even if we only have 3.5GW operational[1].
Battery technology has the ability to smooth demand curves, which would over
time reduce the need for gas-generated power. However, design is all. Currently
there is still a question of battery duration – two hours is the duration of
many current designs, but to plug the gap that can be left by renewables
non-generation we would need eight-hour batteries. Technology is getting there,
but at the moment batteries reduce rather than remove the need for gas
generation.
The second area that would reduce the need for gas is more renewables – but in
different areas of the country. That would not be a silver bullet, but you
would have the best chance of picking up wind while other areas are quiet, or
just having more turbines for when they can turn.
This one is more problematic for the Government, as this means dropping the
disincentives on onshore wind (the de facto ban of sorts), an issue which has
become totemic for the Conservatives with a mind to votes. In the event of a
Labour government then expect to see a big push for onshore again, and also a
better auction for offshore wind. (As a reminder, the current government effectively
banned onshore wind, and then ran an offshore wind auction so badly that no-one
bid – September 2023). Onshore and offshore wind are very different and the UK
is a global leader in offshore wind, but on its own it does not solve the
problem of flexibility.
Summary
So where does this leave us? The story has followed a trajectory similar to
many of this government’s energy announcements. The headline looks good, but
the argument supporting it has not been thought through to better get people
onside, and behind the headline there is a material lack of detail, leading to
the assumption that there is no detail for the government to publish.
If I were marking this government’s homework on this, I would have started with
an explanation of how gas fits as a transition fuels and details of the number
and location of the new gas stations. The stations would already have CCS
technology to reduce cost, and this initiative would have been tied into a
drive on battery technology and onshore wind.
Why hasn’t this been done? Well, often at the end of an administration, there
is less concern for seeing through long project, and a desire for short term
wins. However, this could have been done at the same time without much extra
effort, and so instead we have a headline that has already disappeared, with no
substantive legacy to work towards net zero and achieve the government’s goals.
Sigh indeed.
[1]
Renewables UK December 2023
Cover: stock