Utility Week

Utility Week 8 July issue

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/700524

Contents of this Issue

Navigation

Page 14 of 31

PRICE SECURITY OF SUPPLY UTILITY WEEK | 8TH - 14TH JULY 2016 | 15 Policy & Regulation Post-Brexit, no new interconnection or Hinkley Point C threaten security of supply. The government may have to decide between meeting its car- bon commitments and security of supply. We have assumed that about 3GW more gas-fired power plant capacity is built by 2025 compared to the pre-Brexit case, that gas plant is worked much harder and that coal plant life is extended to fill the gap. It is important to stress that this depends on policy relaxation and will affect our carbon commitments. Comparison of GB wholesale electricity market prices in our post-Brexit to pre-Brexit scenarios points to an 18 per cent increase in wholesale electricity market prices in Great Britain by 2030, which will affect affordability for British consumers. In our post-Brexit scenario, GB wholesale electricity market prices are approximately 7 per cent higher in 2020 and 2035 compared with our pre-Brexit position. The increase is driven by the need for new gas build and by inability to access lower-cost generation on the continent. European policy. Does Brexit potentially pro- vide greater freedom to manoeuvre for the UK government? A response to any security of supply challenge and greater freedom from adherence to the Industrial Emissions Directive (IED), could result in the retention of our coal plant for its full life and a revision of our approach to renewable generation. These are of course complex areas and much is already enshrined in UK law, which would have to be repealed to enact the above options. Emissions are also covered by COP21 and the Paris discussions, but there are no binding initiatives at country level as yet. Would the government have the appetite for this? Certainly in their policy change on solar and onshore wind, the Con- servatives have indicated they are prepared to take rapid and firm decisions on renewa- bles projects. Decc could therefore have a substantive task in re-considering energy policy across a very broad spectrum in tandem with the findings of the Competitions and Markets Authority (CMA) report. PA has considered potential outcomes arising from the above and developed two scenarios using our energy modelling suite. The first can be characterised as a pre-Brexit scenario, assuming interconnector and gen- eration build continues largely as planned and there is no change in government policy. The second is a post-Brexit scenario, assum- ing changes across each of the areas above. These scenarios are summarised in the table below. If the post-Brexit scenario is a plausible outcome, the government may have to re- examine its existing policy commitments such as carbon-reduction targets, adherence to the IED and with it potential access to low- carbon, low-cost EU generation. In this world our modelling shows that there will be an increase in prices to consumers of 18 per cent by 2030 and we are unlikely to meet currently stated carbon-reduction targets from the energy sector. Britain will also need to secure investment in four or five new CCGTs to main- tain security of supply. Our initial modelling has focused on GB, but it is also important to recognise the posi- tion of Ireland and Northern Ireland. Ireland in particular depends on interconnection and closer coupling with the GB market to maintain its policy objectives and it could have a complex challenge understanding how it acts as part of the IEM when its con- nection to that market may be through a non-IEM country. Brexit alone is sufficient to change the policy landscape, but overlay the impact of recent CMA findings on the introduction of zonal transmission losses and the generation investment climate is once again subject to extensive re-evaluation. The post-Brexit scenario is only one of many potential outcomes, and businesses, investors and policy makers alike would do well to consider a range of plausible options before defining future direction. Liz Parminter, Olaf Remmler and Ted Hopcro are energy experts at PA Consulting Group 0 5 10 15 20 25 0 10 20 30 40 50 60 70 Flow (TWh) Percentage of total requirement Great Britain interconnector flows Electricity generation in Great Britain Impact on Great Britain's wholesale electricity price Installed capacity in Great Britain 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Pre-Brexit net imports Pre-Brexit % net imports Post-Brexit net imports Post-Brexit % net imports Pre-Brexit case Post- Brexit case Pre-Brexit case Post- Brexit case Pre-Brexit case Post- Brexit case Pre-Brexit case Post- Brexit case 2020 2025 2030 2035 0 100 200 TWh 300 400 Pre-Brexit case Post- Brexit case Pre-Brexit case Post- Brexit case Pre-Brexit case Post- Brexit case Pre-Brexit case Post- Brexit case 2020 2025 2030 2035 0 50 100 GW 150 Other renewables Interconnectors Solar Wind Other fossil Gas Coal Nuclear -9% -10% -3% -3% 2020 2025 2030 2030 Percentage difference compared with pre-Brexit case 0% 10% 20%

Articles in this issue

Archives of this issue

view archives of Utility Week - Utility Week 8 July issue