The decade from 2020 to 2030 will be crucial for ramping up renewable energy investment in Europe, if full decarbonisation is to be achieved by 2050.
This is feasible technically and financially, but individual countries will have to step up and make changes. There needs to be a shift in the operating regime of power generation so load adjusts to capacity, especially in countries with intermittent renewable energy sources.
Currently, open and combined cycle gas-fired plants are the most economic type of generation that is capable of providing flexible electricity production. So it is apparent that natural gas will support the transition to a high renewable generation mix across Europe, until at least 2030 or even further.
This provides a comfortable time line for a new generation of natural gas plant, supported by a long market, new natural gas reserves emerging in southeast Europe, and liquefied natural gas (LNG) investment on the rise.
Closer to home, the Department of Energy and Climate Change (Decc) has made significant steps towards electricity market reform (EMR). In addition to improving the UK’s energy security, one of the core objectives of EMR is to increase investment in both low-carbon and conventional energy sources to address the generating capacity shortages set to arise in coming years. Electricity demand could nearly double in the years to 2030, especially if domestic heating and personal transport electrification is gradually introduced.
The UK is on course to become the world’s largest offshore wind energy producer, and it is expected that gas-fired power generation will be the most prominent fuel to support the transition to wind and other sustainable energy sources.
UK-specific studies have shown that wind intermittency can be mitigated with flexible gas-fired generation. This prediction has been proved to a certain extent in Spain’s power grid. Large amounts of renewables in the generation mix will entirely change gas plant operating regimes and increase short run marginal costs, even if power plants are optimised for frequent cycling.
Even so, open and combined cycle gas plants have the capability to make up for the shortfalls in production when the wind is not there. No other competing technology such as coal or nuclear can offer this advantage currently at that cost.
Outside the power sector, natural gas provides much of the UK heat requirement, for both industry and households. Heat accounts for approximately 40 per cent of UK greenhouse gas emissions; therefore decarbonisation of heat has become an energy policy priority. With policies such as the Renewable Heat Incentive (RHI) aiming to substitute gas for competing technologies such as electricity and some biogas, it would seem that the future of gas for heating purposes is bleak.
However, the reality is that it would be very difficult to substitute natural gas in a domestic setting. Electrification of the heating sector is challenging, with very long lead times for retrofit or replacement. This essentially means that natural gas will remain the dominant fuel for heating in the UK for the mid- to long term.
Gas would be even harder to substitute in manufacturing. Current alternatives to natural gas – such as waste-to-heat, biomass-fired combined heat and power (CHP) and biogas – have much more difficult plant economics, even with government support. Technical and logistical issues frequently render investment in gas alternatives not worthwhile.
What of biogas? It is largely an untapped resource in the UK, yet opportunities exist to utilise the current gas network; for biogas injection as one example. Working with the economic and technical limitations that exist in the UK today, biogas injection would in theory increase added value for the gas grid and “pay” for its maintenance even at the times that natural gas is a small share of throughput.
But again, in reality, many barriers still exist before biogas injection can begin integration. Plant economics, lack of standards, grid connection, misaligned incentives and other factors prohibit the implementation of biogas resources. Even when the barriers are removed, natural gas would still have to serve as a ”carrier” for biomethane and support the gradual decarbonisation of the gas network.
So, natural gas will continue to enjoy a prominent, yet slightly different, role as power markets in Europe adapt to the transition to more sustainable economies. In the UK, gas-fired generation is likely to contribute significantly in bridging the capacity gap projected for the next ten years. It can also complement the output of large offshore wind Round 2 projects, and the gradual electrification of transport and heating.
This raises the stakes for the effectiveness of EMR in inducing, among others, new gas-fired power assets. With current positive gas market fundamentals such as low prices, increasing LNG investment and more reserves, it remains to be seen if investor confidence in new gas investment can be restored despite increased uncertainty in the economic environment.
Martin Chitty is managing director and John Dimitropoulos is senior consultant at KEMA UK
Gas on top
· Climate policy agreements such as the successor of the Kyoto Protocol remain uncertain, especially within the current economic environment
· The EU, although shaken by the fiscal crisis, has managed to maintain momentum in renewable energy investment, much of which has been undertaken by the domestic and SME sector, as in the cases of Germany and Italy. But with slowly receding subsidies and project financing becoming increasingly difficult, it is unclear whether some EU countries can continue to grow investment in renewable energy
· The development of energy efficiency policies has been sidetracked by renewable energy support schemes. Yet energy efficiency improvements feature prominently in all major analyses of emissions trajectories that meet the ambitious European carbon emissions targets
· Carbon capture and storage (CCS) has not picked up to the required levels, with several member states not achieving significant breakthroughs in promoting CCS technology
· Post-Fukushima, nuclear power is still on the table in Europe, although has lost some of its revival appeal
· The EU Emissions Trading System is in need of reform, as carbon price levels have failed to provide confidence to investors, and many prominent commentators now argue for the need of a firm carbon price floor across Europe
This article first appeared in Utility Week’s print edition of 23 March 2012.
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