The UK will only need to build a small number of new gas power plants over the next two decades, as it continues to shift to low-carbon sources of electricity.
This is according to new energy and emissions projections published by the UK Department for Business, Energy and Industrial Strategy (BEIS), which see renewables overtaking gas by 2020 to become the UK’s number one source of electricity generation.
The projections include less than half as much new gas capacity by 2035 as expected last year and a quarter of the 2015 figure. In contrast, by 2035 BEIS now expects twice as much renewable capacity as it did in 2015 and twice as much battery storage as projected last year.
However, the UK is still set to miss its legally binding carbon targets, BEIS projects, with emissions from transport and homes falling slowly or not at all. It says the gap to meeting targets will be closed as its plans and policies are fleshed out.
Each year, BEIS publishes detailed projections setting out how the UK’s energy use and emissions will change out to 2035 as a result of economic growth, price changes and the impact of government policy.
Despite this political aspect, the projections have historically been presented in a neutral way. For example, the 2016 report was introduced as follows:
“This report presents the 2016 projections of the UK’s energy demand and greenhouse gas (GHG) emissions up to 2035…Compared to the 2015 Energy and Emissions Projections, total projected emissions are lower.”
The latest version departs from this neutral language with an overtly political introduction:
“The UK has been among the most successful countries in the developed world in growing our economy while reducing emissions…The analysis set out in this report shows that the UK’s projected performance against our carbon budgets has improved.”
The details behind the projections are also relatively opaque. Last year, Carbon Brief was refused a freedom of information request for more details on the BEIS models. This year, BEIS says: “In 2018 we intend to share more details of the [projection] methodology.”
One issue is that only certain policies are included – where BEIS has quantified the impact they will have – yet some other policies are simply assumed to be effective.
For example, the projections do not appear to reflect the 2040 ban on sales of standard combustion engine vehicles announced last year, with only relatively limited growth in transport electricity demand. This is probably because the government has yet to draw up any policy to implement the ban.
On the other hand, the projections assume a “steady frequency of deployment of new nuclear plants” between 2025 and 2035, even though only one scheme – the Hinkley C plant – has signed a contract with government. (As BEIS notes: “These projections are not based on developers’ proposed pipeline of nuclear projects.”)
One consequence of all this is that the projections continue to show the UK missing its legally binding fourth and fifth carbon budgets, covering the decade from 2023 to 2032.
This is despite finding emissions will be lower than expected last year, for reasons unrelated to government policy. (The drop is due to warmer-than-expected temperatures cutting heat demand, higher fossil fuel prices – see the final section, below – and other small methodological changes.)
Including the quantified parts of the Clean Growth Strategy – published in October and meant to bridge the gap to meeting carbon targets – the new projections still show the UK falling short, as the chart below shows.Annual emissions during the UK’s first five carbon budgets (millions of tonnes of CO2 equivalent). The annual average emissions cap is shown in black, along with projections under existing policies (dashed blue line) and with the quantified policies of the Clean Growth Strategy (red line). Source: BEIS energy and emissions projections 2017. Chart by Carbon Brief using Highcharts.
Instead of the mandated 57% cut below 1990 levels during the fifth carbon budget period, BEIS expects UK emissions to fall 54% by 2028-2032. It describes this as “95% of our required performance” and points to additional, as-yet-unquantified policies and the option to carry forward over-achievement from the second and third carbon budget periods (2013-2022).
The report says: “The full impact of new policies and proposals from the Clean Growth Strategy will be included in future [projections] when they are developed more fully.” Climate minister Claire Perry says she is “confident” the UK will meet its carbon targets.
In the electricity sector, the projections point to a future fuelled by low-carbon sources of power. (Note that power plant emissions – for now – are covered by the EU Emissions Trading System (EU ETS) and do not directly affect the UK carbon budgets.)
This future includes a rapid rise in renewable electricity and declines for coal and gas. Nuclear, as noted above, is assumed to enjoy a steady renaissance starting from 2025. Compared to last year, however, BEIS now expects one less new nuclear plant to be completed by 2030.
Overall, BEIS expects low-carbon sources of electricity to supply 68% of generation by 2020, 70% by 2025, 76% by 2030 and 86% by 2035. Recent Carbon Brief analysis shows low-carbon sources passed a 50% share for the first time in 2017.
BEIS also sees electricity demand starting to rise by 2023, after years of declines. This is a due to rising demand from electric heat and transport, as well as a growing economy and population.
Although the broad picture is the same, there are some notable differences between the 2016 and 2017 projections, continuing the shift in BEIS outlooks away from gas and towards renewables and storage. These changes are explored in more detail, below.
Note that in both years, the projections rely on very large increases in imported electricity. This year, BEIS expects imports to rise from 21 terawatt hours (TWh) in 2017 to 78TWh in 2025, equivalent to 23% of total UK demand.
It is true that a large number of new cross-border electricity cables (interconnectors) are in the pipeline. But lower wholesale power prices in continental Europe, which drive imports to the UK market, may not continue if EU ETS prices rise and German nuclear plants close down.
Note also that the 2017 projections include coal-fired generation continuing for a longer period than expected last year, albeit at lower levels. Either way, coal is expected to phase out in line with the 1 October 2025 deadline announced by BEIS on 5 January.
The most striking shift in recent BEIS projections is away from new gas capacity. Back in 2012, the government’s gas generation strategy had suggested 26 gigawatts (GW) of new gas would be needed by 2030 to replace retiring coal and nuclear plants. Ed Davey, the then energy and climate secretary, said at the time that 20 new gas plants would likely to be built.
More recently, the Institution of Mechanical Engineers (IMechE) argued up to 30 new gas plants would be needed by 2025.
Now, BEIS expects just 6GW of new gas to be built by 2035, with most of this coming in the next four years. This represents a dramatic scaling back from the 14GW by 2035, expected in 2016, and 25GW seen in the 2015 projections (see chart, below). The slower expected rate of nuclear newbuild is also apparent in the charts.Cumulative newbuild electricity capacity until 2035, in BEIS projections dated 2013-2017. Source: BEIS. Charts by Carbon Brief using Highcharts.
In contrast, BEIS has become increasingly optimistic about the expansion of renewables, seen adding 45GW by 2035 (up from 23GW in 2015 and 39GW last year). The prospects have also improved for storage, now expected to reach 8GW (up from zero in 2015 and 4GW last year). Even this number could prove low, with nearly 5GW already being proposed.
As Carbon Brief noted last year, the continuing shift in BEIS projections matches similar changes in the outlooks of National Grid and others. As Mike Thompson, Committee on Climate Change head of carbon budgets, explains in a recent blog, the costs of renewables and batteries have fallen far more quickly than assumed, while projected costs of nuclear power have increased.
Along with less new gas capacity, this year’s projections also see less gas-fired generation in the mid-2020s. This would see gas output nearly halving, from 134TWh in 2017 to 74TWh in 2025. By 2030, gas would fall further to 49TWh, providing only a quarter of the UK’s electricity generation.
On the flip side of this coin, renewable electricity generation increases more quickly. Output would increase from 98TWh in 2017 to 149TWh by 2025, whereas last year’s outlook was for 111TWh.Sources of electricity supply until 2035, in BEIS projections dated 2013-2017. Source: BEIS. Charts by Carbon Brief using Highcharts.
This is a result of the faster build-out of renewable capacity, noted above, but also changes in the way the electricity grid is to be managed.
Another factor is fossil fuel prices being higher than expected last year, see below.
One question raised by the higher projections for renewable generation is whether enough new wind or solar farms will be built to supply this extra electricity. The projections suggest renewable output must increase 51TWh by 2025 and 65TWh by 2030.
BEIS has already signed contracts with schemes that will deliver an estimated 37TWh, according to analysis from the Grantham Institute on Climate Change and the Environment. This leaves a gap of 28TWh to be filled in the 2020s, equivalent to around 6.7GW of offshore wind.
Contracts for Difference: The new subsidy scheme to support investments in low-carbon electricity generation. Schemes are paid a fixed “strike price” for each unit of electricity they produce, giving investors the promise of steady returns. If wholesale electricity prices are below the strike price, contracted schemes receive the difference as a top-up payment. If prices rise above the strike price, they must pay back the difference.
A second auction for contracts for difference was held last year and secured 3.3GW of capacity, mainly offshore wind, for record low prices and an estimated annual cost of £176m. The government has said it will support up to 10GW of offshore wind in the 2020s.
A third auction is due to take place in spring 2019. This will have up to another £557m available, which, on its own, is enough for more than 10GW of offshore wind, even if prices are no lower than they were last year.
The money set aside by BEIS is, therefore, more than enough to deliver the extra renewable generation implied by its projections, without any contribution from extra onshore wind or solar, which lack government support and access to contracts. Subsidy-free onshore wind and solar are becoming increasingly viable, however, potentially bypassing government plans.
Note that the gap to be filled by new renewables will be much larger, if electricity imports are lower and if nuclear newbuild fails to materialise, or is slower than expected.
Higher fossil fuel prices contribute to the changes in the latest BEIS projections. After several years of falling coal and gas prices, the trend was reversed last year as a result of rising demand and – for coal – restrictions on mining in China.
Rising gas prices will filter through to slightly higher wholesale power prices, BEIS says, though the increase compared to last year projections is relatively small (around 0.5p per kilowatt hour).Future price assumptions for gas, coal, power sector CO2 emissions and wholesale electricity in BEIS projections from 2013-2017. Source: BEIS. Charts by Carbon Brief using Highcharts.
Also of note in the projections is the flat power sector carbon price, extended this year out to 2027. In his autumn budget, chancellor Philip Hammond committed to maintain CO2 prices at similar levels to today, though he did not explain how he would do this. The UK’s future participation in the EU ETS remains uncertain, further clouding this picture.