As the country undergoes an “energy revolution” nearly half – £95 billion – will need to be spent on disruptive technologies such as renewables, battery storage and distributed generation.
“With electricity security of supply already on a knife edge, the UK faces the obsolescence of approximately 40 per cent of its current aged [combined cycle gas turbine] fleet by around 2020 and approximately 70 per cent of all reliable generation capacity by 2030,” the report said.
In addition to losing 15GW of unabated coal capacity by 2025 due to the pledged phase out, the report said by 2030 the UK is also expected to lose: 7.7GW of the current 8.9GW of operational nuclear capacity; 22GW of gas generation capacity, 13GW of it by 2020; and 2.3GW of biomass conversion capacity due to the ending of government subsidies in 2027.
“Shoring up the UK’s current tenuous electricity security of supply in the face of this mass obsolescence of baseload generation capacity, combined with government policy to achieve a 57 per cent reduction in greenhouse gas emissions by 2032, will require an eye-watering level of investment over coming years,” it said.
The report’s estimates are based on an average of National Grid’s four ‘Future Energy Scenarios’ published in July. This average scenario sees a 5 per cent (16TWh) increase in annual energy demand, as a 42TWh increase in demand from electric vehicles and the electrification of heating more than offsets a 25TWh reduction due to energy efficiency measures. To meet this demand, it envisions a 45GW increase in overall capacity, most of it coming from intermittent renewables.
Securing sufficient investment will require “transparent, stable and supportive policies”, especially as the wholesale pricing mechanism is “effectively permanently broken as a signal to develop new generation capacity, undermined by the introduction of significant levels of subsidised low/zero dispatch cost renewables”.
“The wholesale price and load factor uncertainty resulting from further renewables capacity growth mean the vast majority of the UK’s required new generation capacity investment will not materialise without a subsidy or other high confidence revenue stream,” the report added.
It praised both the contracts for difference and capacity market mechanisms for doing just that, but said other policies such as the levy control framework have “proven themselves unable to cope with changing market conditions and require both adjustment and increased transparency”. The current policy portfolio will be “insufficient” to meet the target of reducing emissions by 57 per cent on 1990 levels during the fifth carbon budget (2028-2032).
Investing £215 billion in the energy system was predicted to generate earnings before interest, taxation, depreciation and amortization (EBITDA) of £25.2 billion each year by 2030. The report said National Grid and SSE are likely be the biggest winners from this profit growth: National Grid because of its investments in interconnectors and the transmission network; and SSE because of its investments in wind capacity and both transmission and distribution grids.