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Building back better
The developments in the sector over the last three months have led to a feeling that the industry is moving on from Covid-19 and looking forwards. A recent virtual roundtable hosted by Osborne Clarke and LCP concentrated on building back post-Covid and how, in light of the government's promise of a "green recovery" net-zero can be achieved in practice. The event followed a similar roundtable held in June that focused on the immediate challenges in the energy investment landscape arising as a result of the Covid-19 pandemic.
The Prime Minister's commitment that we will "build back better, build back greener" and the launch of the Green Homes grant scheme, reinforce the sense that this a unique opportunity for a greener recovery. Although the energy sector welcomes the challenge, more detail is needed as to what this means for green investment and how the industry should in practice "build build build". The wait for the energy white paper only exacerbates this lack of certainty from a policy perspective – and consequentially on the opportunities and challenges which different recovery models could offer.
National Grid's future energy scenarios (FES), published in July, set out four credible but materially different pathways for the future of energy over the next thirty years. Each FES modelled requires significant levels of investment and deployment of low carbon technologies to achieve net-zero, signalling the level of work needed for the UK to reach its carbon emission goals.
As a post-Covid world edges closer, the UK government has demonstrated a focus on economic recovery, with priorities including the reduction of barriers for key infrastructure projects, and a renewed focus on research and development. While details of these initiatives are to be finalised, it is clear that both significant investment and clear policies are essential for the UK to meet its net-zero targets.
Future energy scenarios
Ranging from 'Leading the Way', which requires early investment to 'System Transformation' and 'Consumer Transformation', the three of four scenarios which achieve net-zero vary in terms of ambition, but each concludes that rapid decarbonisation of power generation is essential. These models represent a shift away from the scenarios that National Grid had outlined in its FES models last year, and offer a more practical insight into what steps are needed to reach net-zero by 2050.
The FES modelling is ambitious in its approach with the earliest date on which the net-zero target will be reached in the power system being 2030. If this wasn’t enough the forecasts predict that the entire power system will need to be net-negative, to help offset emissions from the wider economy, further heightening the challenge for the power sector. However, the total cost of the investment required to meet the modelled scenarios is unclear. There is also an underlying assumption that renewable capacity will become the dominant source of power on the system along with a number of nascent technologies , but the FES models do not look at the financial viability of pathway or how they might need to be subsidised.
These factors, mean that the FES models provide a credible range of pathways to decarbonise but no definitive answer to how we build back green.
The future is storage
Large-scale investment in wind and solar capacity is expected to continue, and it is predicted that by 2040, renewable capacity will be twice the level of demand at peak times. Despite continuing strong investor appetite for renewables, there remain challenges for renewable generation in terms of both the regulatory framework and financing.
It is anticipated that we will see an increase in the total system demand as we switch to Electric Vehicles (EVs) and electric heating. While renewables will provide the majority of power in the future there will be a need for new capacity coming from nuclear and Bioenergy with Carbon Capture and Storage (BECCS) technologies. The negative carbon emission status of BECCS will prove fundamental to achieving net-zero. We can also expect to see greater interconnection, battery storage and other types of storage as the role of storage is expected to step up and fulfil the role currently occupied by 'gas peakers' (gas plants that run only during periods of peak demand).
Switching to a reliance on these storage models will require politicians to be comfortable that they will have the level of security of supply, since an increased storage model does not offer the same levels of dispatchable capacity as the current model.