Opinion: The ‘coal’ truth is we need a gas resurgence

Peter Hughes argues that the UK still needs large gas plant 

In the chronicles of Great Britain’s energy industry, 2017 will go down as a significant year. At a time already characterised by change and uncertainty, two events stand out. One signals a break with the past, the other suggests the shape of things to come. In April, for the first time, Britain’s National Grid ran for 24 hours without any coal-generated power. In September, for the first time, the cost of wind power in Britain fell below that of nuclear power.

That “coal-free” day may now seem unsurprising, but it is easy to overlook its significance. Until recently, coal dominated Britain’s energy mix. In 1974, burning coal generated 80% of Britain’s power. In 2012, that not too distant Olympic year, coal still accounted for 40%. The tail-off in recent years has been more dramatic. In 2016, 9% of Britain’s power came from coal. Today it has a supporting role, called on mostly at times when demand is high and the weather unfavourable for wind and solar. During the short, cool summer of 2017, less than 2% of the country’s power was sourced from coal plants, the last of which the UK government wants to close by 2025.

Meanwhile, two offshore wind arrays, Hornsea 2 and Moray, secured a guaranteed price for their electricity of £57.50/MWh in the second contracts for difference (CfD) auction. The auction, for less-established technologies, awarded power purchase contracts worth £172 million to renewable energy projects – all of the successful bids were below the price secured by EDF for Hinkley Point C.

However, although last year was the first in which Britain got more power from wind than coal, there remains a huge capacity gap between coal and renewables. With no new nuclear plants due online in the short term, gas offers the logical bridge between coal and renewables.

In the 2016 capacity auction, more than 10GW of generating capacity – including 9.7GW from new gas plants – exited the T4 auction early, but gas remained key to the energy mix. Of the 3.3GW of new capacity contracted in the T4 auction, more than half came from new gas plant. But this comprises just one combined cycle gas turbine, a retrofit to Centrica’s 333MW project in Kings Lynn, Norfolk and one large-frame open cycle gas turbine (InterGen’s 299MW Spalding project).

The vast majority of new gas projects that secured capacity contracts were smaller, distributed generation units. On balance, it is clear the journey back towards gas has started. Not unsurprisingly, given the much lower capital cost, open cycle gas turbines (OCGTs) are likely to lead the pack to secure new capacity contracts. But although the new capacity derived from OCGTs is a welcome addition, contributing towards the security of supply, it is worth noting that these plants come with low efficiency. It is a “sticking plaster” for the underinvestment in generation capacity over the past decade.

If, as little as five years ago, you had asked industry leaders in the UK power generation market: “Is it likely we will build out gas and diesel engine plants and large OCGT projects in a mature energy market like the UK?”, the answer would likely been: “Why would we ever build inefficient plant, which cost more to run on a per-MW basis, than we have currently?” Accordingly, the “sticking plaster” strategy – which has been created, unintentionally, from the rules of the capacity market (because it cannot distinguish between efficient and inefficient technologies) – means the real answer, highly efficient CCGT plant, is delayed.

Look to Germany if you want a further sign that Britain’s need for gas-fired plant remains strong. The following comment, in the Frankfurter Allgemeine Zeitung newspaper, is by Christopher Delbrueck, chief financial officer of German utility Uniper: “It may be worth it to disassemble some of the [German gas] plants and to rebuild them in Great Britain.” He added: “In a couple of years I think taking stakes in new gas power stations in Great Britain is a possibility.” At a time characterised by change, uncertainty and Brexit this is a strong signal that rumours of the demise of gas are being greatly exaggerated.

The flexible, highly efficient new CCGT plants that our network requires can be built much more cheaply and quickly than nuclear. So what we will see is not a dash for gas, but a steady route march.

Peter Hughes
Director of business development,
Black & Veatch Europe


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