This story has originally been published for ICIS Long-Term Power Analytics subscribers on 6 October 2021 and was written by Matthew Jones, Lead Analyst - EU Power at ICIS.
Our ICIS Long-Term Power Analytics customers have access to extensive modelling of different options and proposals with forecasts now extended to 2050. If you have not yet subscribed to our products, please get in contact with Justin Banrey (Justin.Banrey@icis.com) or Audrius Sveikys (Audrius.Sveikys@icis.com).
On Monday Prime Minister Boris Johnson announced plans for the UK to run on 100% clean electricity by 2035. The government has shown a fondness for headline grabbing announcements, with the 2050 net zero target laid out in 2019 and an ambitious emissions cut by 2035 declared earlier this year. The new announcement, made ahead of COP 26 and at a time of surging power prices, fits with the trend, though again there is a lack of clear policy put forward on how the ever- increasing ambition can be achieved.
In this update, we look at the different definitions of what this target could mean and how achievable each one is. We also assess the implications for energy policy.
What is the target? It is achievable?
The precise meaning of the announced target is not clear and has been reported in different ways by the media. In our view, there are three definitions for what running on 100% clean power could mean:
100% clean energy share of demand (at the annual level)
- This is the target that has been adopted by other countries, such as the Austrian target for 2030. It essentially means that the total generation from renewables and nuclear at the annual level would need to exceed consumption (meaning that by definition the country must be a net exporter).
- Under our current Base Case assumptions, GB is expected to reach a 91% clean energy share of demand by 2035. In order to increase the share to 100%, the country would need to add around 10GW of additional offshore wind capacity by 2035 (55GW total), which is achievable given the right government support.
- However, from the statements it appears that the goal is more ambitious than this.
Fully clean power system
- At the other extreme of the potential definition is a totally clean power system where no hydrocarbons are used to meet GB demand at any time. This definition was suggested by Johnson in his statement that the target would mean that “for the first time, the UK is not dependent on hydrocarbons coming from overseas with all the vagaries in hydrocarbon prices”.
- However, this definition is impossible to achieve in our view due to the absence of equivalent goals in the rest of Europe. Unless all interconnectors were to be shut down (which would completely undermine the economics of GB offshore wind by preventing exports), there will always be periods where power is flowing from connected countries where fossil fuels are still in the mix.
- Indeed, as we have previously analysed, GB policy in recent years has been consistently based on interconnectors being used to help meet security of supply
Fully clean domestic power system
- This would mean that all fossil fuels were out of the GB mix by 2035 but would exclude power flows from Europe under the definition. In our view, this is likely to be what was intended by the statement.
- The GB market is already on course to get relatively close to achieving this target. In our Base Case, clean production (renewables + nuclear) is expected to make up 96% of electricity generation in 2035, with the remaining 4% coming from gas.
- However, getting rid of the last 4% of gas generation is extremely difficult to achieve, which becomes clearer when looking at the hourly data for 2035:
- Gas is still producing in 38% of hours.
- The gas share of generation is 10% or greater in 14% of hours.
- At the most extreme hour, the gas share of generation is 60%.
- To fully remove gas from the grid, a solution would need to be found for what to do when the sun is not shining and the wind not blowing.
- Moreover, removing gas from the grid also undermines the price setting role of gas in the market, especially given the expectation for increasing carbon prices. This would weaken the economics for renewable and nuclear projects in terms of their captured price and mean that increased subsidies are required.
What could fill the supply gap to replace gas-fired generation?
- There are several potential solutions, but
each one is either extremely expensive,
technically challenging, or both:
- Nuclear capacity could be expanded beyond the anticipated 11GW to 30-40GW. However, given the lead times of projects (10+ years) this is highly unlikely to be achieved by 2035. Moreover, very high levels of nuclear and renewables would lead to low nuclear load factors as the technology would need to ramp up and down based on renewable output. This is not the role that nuclear currently plays in the market and would make an expensive technology that is struggling to achieve funding even less economically attractive.
- Lithium ion batteries will certainly play a role, but the quantities required to fill the supply gap would be prohibitively expensive. Long-duration energy storage could also help, but the technology is unlikely to be deployed at scale by the mid-2030s.
- Massive overbuild of wind could in theory fill the gap, but the hundreds of GWs required to ensure security of supply would be too expensive to be realistically considered.
- Carbon capture and storage (CCS) fixed to gas or biomass plants could help, but the technology has not yet been proven. We assume small amounts of CCS capacity in our Base Case from 2040 and it is possible that capacity is added sooner, but the 20+ GW required by 2035 to fill the supply gap is highly unlike to emerge.
Energy policy expectations
- Nuclear power is likely to benefit from the new policy with the government likely to provide backing to the 3.2GW Sizewell project over the winter, though agreement of a new regulated asset base (RAB) financing model will be needed to bring down costs.
- There was also an announcement this week that the government had met with a consortia interested in building the proposed Wylfa project, which was cancelled by Hitachi in 2019
- Offshore wind
- Johnson hinted at the weekend in an interview with the Times that the offshore wind target for 2030 could be increased further from the 40GW agreed last year to 60GW, though again his phrasing was unclear. If adopted, this would put the EU offshore wind target in line with that of the rest of EU 27 combined.
- We analysed previously how an increase to 40GW was likely to prove difficult due to the lead times of projects and scale of the additions. We believe that an expansion to anywhere near 60GW by 2030 is highly unlikely.
- In the government’s 2020 budget there was a commitment to supporting 1 CCS project in the power sector by 2030. It seems likely that the government will increase this target in light of the new ambition for moving away from unabated gas.
- While the Prime Minister’s exact meaning is unclear, we believe that the most likely interpretation of the target is for UK production to be completely decarbonised by 2035 (i.e., ignoring imports).
- In our Base Case, the GB market is already expected to make significant progress towards this goal, with the clean (i.e., renewables + nuclear) share of generation increasing from around 70% currently to 96% by 2035.
- However, moving to 100% clean generation by removing unabated gas from the grid in its entirety by 2035 is highly unlikely to be achieved in our view due to economic and technical constraints.
- We expect some new policies to follow over the winter, especially approval of the Sizewell nuclear plant, though additional policy measures to meet the goal are unclear at this stage. A further increase in offshore wind ambition and additional funding for CCS are possible.