This is a guest post by Jim Watson, director of Sussex Energy Group.
The role of natural gas is at the heart of the increasingly fractious debates about UK energy policy – whether it is the pros and cons of shale gas, the heated arguments over renewables policy, or the allegations of price manipulation in wholesale energy markets.
Gas supplies 30 per cent of the energy we use in the UK: to heat our homes, to power industry and to generate electricity. Within the low carbon transition that the UK needs to make, gas will continue to be important. It will be some time before the millions of households that rely on gas will be able to switch to electric or renewable heating. Gas also accounts for 40 per cent of UK electricity generation, and the shift to gas in this sector has delivered a large share of our emissions reductions to date.
Limits to gas
But this does not mean that gas is the solution to all of our energy policy challenges. Contrary to the arguments of some enthusiasts, it is unlikely that the UK will see a repeat of the shale gas revolution that has had such an impact in the United States. Whilst the UK’s gas security position is relatively strong, it is likely that gas prices will remain high for some time. The most comprehensive assessments emphasise uncertainty, but show that economically viable shale resources will not be anywhere near as large as they are in the US.
The role of gas in the power sector needs to change particularly rapidly as we move into the 2020s in response to climate change targets. It is therefore crucial that the UK government’s much awaited gas generation strategy reflects this. As the Green Alliance briefing paper The future of gas power shows, it will not be possible to have large numbers of unabated gas-fired power plants running at high load factors if the carbon intensity of electricity is to remain within limits implied by the UK’s legally binding carbon budgets. The decision by the government to exclude an ambitious electricity decarbonisation target for 2030 from the Energy Bill is unhelpful. It leaves too much ambiguity about what the role of gas should be.
Renewables and energy efficiency
Gas-fired power can provide much needed flexibly to help balance the more complex, renewables-intensive electricity system that we need. Despite the negative campaigns against wind in particular, the share of renewables in our electricity mix has been growing rapidly, and is now over ten per cent. Continuing this expansion, plus an acceleration of energy efficiency, represents the quickest way to reduce emissions further in the short to medium term. Alongside this, a key challenge is to find a way of financing gas-fired plants that will need to operate at much lower load factors in the 2020s, though new plants could operate for several years at higher load factors if constructed now.
Bringing in CCS
If gas-fired plants are to continue to operate at baseload for longer, carbon capture and storage (CCS) technologies will need to be deployed. These technologies are still unproven at scale in the power sector. Alongside many other countries, the UK has committed to support the demonstration of CCS. But whilst significant public funding is on the table, a final investment decision has not yet been taken to construct any full-scale projects, let alone deploy CCS commercially. Ironically, the UK proposals to finance demonstrations have attracted widespread international praise, but the first two full-scale power projects are being built in North America.
A new shortlist of bidders for government CCS funding was recently published which includes one gas-fired plant at Peterhead in Scotland. Whilst funding is available in principle to finance more than one plant, the government now needs to move fast to ensure that capital funding and long-term contracts promised through the Energy Bill are brought together in time. This is especially urgent given worrying reports (which have not yet been confirmed by the government) that UK projects may miss out on extra funding from the EU emissions trading scheme. But even if this policy package is successfully implemented, it would be unwise to rely on CCS to decarbonise gas-fired power until we know whether it can deliver both technically and economically.