The UK will not be able to meet its long-term emissions targets unless the government does “something” to support renewables, the head of Aurora Energy Research has warned.
Depending on how we get there, the UK will need to spend between £4 billion and £9 billion per year between now and 2050 to lower greenhouse gas emissions to net zero, said managing director John Fedderson.
“Irrespective of which route you go, this country is going to spend a lot of money on solar and wind over the next 30 years,” he explained.
But as more and more renewables are added to the system, capture prices will collapse: “The punchline is we are not going to get to net zero with market arrangements as they currently are. There won’t be enough value in the energy market to deploy the renewables or anything else that we need.”
He continued: “At the moment, the way we’ve done that is through CfDs (Contracts for Difference) or ROCs (Renewables Obligation Certificates) or some form of government-contracted revenue. And that would be one version of this – the government continues supporting the buildout of these assets.
“There are lots of other versions.”
One option would be to raise the carbon price: “If the government were to put up the carbon price substantially that would put up the price of electricity and we would be able to deploy more renewables at a given cost.”
Another would be to support hydrogen production, which would create lots of additional demand for electricity and again raise prices.
“In the current world, if the government steps back and isn’t supporting renewables, there’s just not enough value in the power market to deliver the renewables that we need to get net zero,” he concluded.
“The government is going to have to do something, and that something will have profound implications for the value of renewables.”
Fedderson made the comments during a talk on “deep decarbonisation” at an event held by ratings agency Moody’s in London. He said the low cost of renewables would make it “economically sensible to overbuild”, meaning by 2050 there will be surplus of power through much of the year, and only few periods when demand outstrips supply.
This raises two questions, firstly: “If renewables are cheap; if we’re going to have a surplus of renewables on the system; what are you going to do with all the other power you’re producing when the sun’s shining and the wind’s blowing? How big is that opportunity?”
Under the Two Degrees scenario from National Grid latest Future Energy Scenario’s report, Fedderson said this excess power would amount to 190TWh – more than half of the UK’s current annual electricity demand.
He identified two main options for soaking up this gigantic surplus – long-term energy storage or sector coupling. The latter could involve setting up factories to only operate during periods when renewable power is plentiful and cheap.
Fedderson said there is also the question of how to maintain supplies during the occasional “wind-droughts” that can sometimes last up to two weeks.
“Essentially by 2050 you’ll need an extra 3.6TWh of power to cover that two-week period,” he told delegates, “and so you’re going to need something like 21GW of dispatchable zero emissions generation”.
Although he made no suggestion as to which technologies could fill this role, he said: “There’s a pretty big opportunity for something which is low capex, is there when you need it but basically isn’t being used in most years.”
Alongside the event, Moody’s published its latest analysis of the power sector. The firm forecast that by 2025 renewables will account for half of electricity production in Great Britain. With the exception of Iberia, which benefits from large hydroelectric capacity, this would be “the highest share of any large European market”.
Moody’s also predicted that wholesale power prices will remain in the £45-55MWh range until 2022 but start declining beyond then as interconnector capacity grows. It identified a reduction in the carbon price as the biggest potential downside risk.
Its base case is that the total carbon price will be around £41 per tonne out to 2022. The price of EU Emission Trading System (ETS) allowances is expected to remain at around £23 per tonne until then and the Carbon Price Support – the GB-only top-up payments – has been frozen at £18 per tonne until April 2021.
However, in his 2017 autumn budget, the then-chancellor Philip Hammond, said the total carbon price at the time of around £24.5 per tonne was “set at the right level”. He said the government would “continue to target a similar total carbon price until unabated coal is no longer used”.
Moody’s said this raised the prospect of a significant reduction in the CPS from as early as April 2021. If coal generation is forced of the system by 2022, as it expects will happen, then it could be removed entirely.
Brexit could also lead to a reduction in the carbon price, it added.
If the UK leaves with EU with a withdrawal agreement in place, then the government’s plan is to replace membership of the ETS with a linked mirror scheme.
But if the UK leaves without a deal, then it will instead be replaced with a carbon tax of £16 per tonne. As Moody’s noted, this is almost a third less than the expected price of EU ETS allowances.