Why growing gas demand and coal’s revival raises vital questions over energy policy and social licence

Gas is set to become an increasingly important part of the world’s energy mix … at least for the next two or three decades. Specifically, by 2050, oil and gas is predicted to account for 40 per cent of the total, according to a recent DNV GV report highlighted in UK Energy Strategies’ weekly Monitoring Service.

An increasing global demand for oil and gas surely makes it all-the-more important that Britain, like many other import-dependent economies, has access to its own, reliable, independent and, crucially, secure supply. In this context, the apparent ‘nimbyism’ of activists objecting to increased extraction of our own onshore natural gas could be portrayed as being contrary to Britain’s long-term interests.

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The British experience — characterized by conflict and contradictions over energy extraction — serves as a proxy for many jurisdictions.

The timing of DNV GV’s report is surely not just coincidental with the recent rise in gas prices to a 10-year high. Experts argue that the rise in gas prices has made coal more economical as a fuel for power stations. The potential long-term environmental effects of a ‘coal revival’ for reasons of short-term economic gain can only be seen as a large step backwards for Britain.

The impact of a ‘coal revival’ is greater than purely environmental. In 2017, before the rise in gas prices, the U.K. imported 8.5 million tonnes of the 11.52 million tonnes of coal it consumed — over 70 per cent. A ‘coal revival’ would surely see this percentage rise, leading to the conclusion that coal is not a secure source of energy for Britain in the 21st century, let alone a desirable one.

Britain needs a low-carbon, secure and diverse energy mix going forwards. The UK Energy Strategies Weekly Monitoring Service frequently reports the latest successes in the renewables sector and it is clear that renewable energy is already a significant and growing part of Britain’s energy mix. But what about oil and gas?

Britain is in the fortunate position to have a largely untapped supply of oil and gas under sovereign soil. Unfortunately, the nascent industry seeking to take advantage of this opportunity has so far struggled to secure the social licence in support of both the principle and of the necessary extraction techniques, which would then, in effect, enable government to support its activities. Cuadrilla is now just starting to frack its site in Lancashire, and we await the impact of those activities.

Industry must engage with and demonstrate to communities — including the activists — that appropriate measures are in place to make British onshore natural gas exploration and extraction as safe and environmentally friendly as possible. Unless and until they are, we will surely see more companies experiencing the same delaying tactics that Cuadrilla has experienced at Preston, which will not only keep the costs of extraction higher than arguably necessary, but will also potentially create supply issues for Britain in the future.

So, the recent appointment of a commissioner for this emerging industry should be seen as a positive step. Industry should make full and good use of the engagement opportunities this appointment presents, both with communities, and with local and national government.

While UK Energy Strategies has recognized the need for the oil and gas sector to secure its vital social licence, this has not, as yet, seemingly been translated into the necessary program of action by industry. UKES would be delighted to assist industry — across the energy sector — to work with both government and communities to present its case.

Ian Derbyshire is chief executive of UK Energy Strategies.

Originally posted on JWN Energy – https://www.jwnenergy.com/article/2018/10/why-growing-gas-demand-and-coals-revival-raises-vital-questions-over-energy-policy-and-social-licence/

DNV GL’s report can be found here – https://www.dnvgl.com/oilgas/perspectives/gas-capital-expenditure-boost-to-fuel-the-energy-transition.html?utm_campaign=OG_GLOB_18Q4_NEWS_Perspectives_03%7C2018&utm_medium=email&utm_source=Eloqua&elqTrackId=544fd47a31a44c0bad45fecebd754fa4&elq=392dbdafc3c

UK energy and clean growth minister Claire Perry on gas and electricity trade

On Tuesday 23rd October 2018, energy and clean growth minister, Claire Perry, said that EU countries have a “strong commercial reason” to maintain gas and electricity trade across the English Channel.

Read the article published on Climate Home News here – http://www.climatechangenews.com/2018/10/23/eu-strong-interest-safeguarding-post-brexit-energy-supply-uk-minister/

Call for CCUS Innovation

On 31st July 2018, the Department for Business, Energy and Industrial Strategy launched a £15M call for Carbon Capture Utilisation Storage Innovation projects that lead to significant reductions in the cost and deployment of  CCUS in UK & internationally.

Funding of up to £5 million will be considered for feasibility studies, industrial research or experimental development projects; and up to £7 million for research infrastructure that enables the UK to conduct world-leading research and innovation into CCUS. Project funding will be available for up to 24 months, with projects finishing by 31st March 2021.

Applications are due by email to Industry.Innovation@beis.gov.uk by Sunday 11th November 2018.

Further details can be found here – https://www.gov.uk/guidance/funding-for-low-carbon-industry

 

CCUS Cost Challenge Task Force Report, “Delivering Clean Growth”

On 19th July 2018, the Carbon Capture Usage and Storage (CCUS) Taskforce presented its report, “Delivering Clean Growth” to Government. It set recommendations on how the UK can becoming a world leader in CCUS technology.

The Taskforce is chaired by Charlotte Morgan, a Partner in the Global Energy & Infrastructure Group at Linklaters, and is comprised of stakeholders and expertise from industry, academia, NGOs, and international organisations.

A copy of the report can be found here – https://ukccsrc.ac.uk/sites/default/files/documents/news/CCUS_Cost_Challenge_Taskforce_Report.pdf

UK’s growing wind sector sees 47 deals worth $54 billion

The United Kingdom’s wind sector witnessed significant M&A activity over the past 18 months – with 47 deals agreed involving UK wind assets for a combined $54 billion.

The scope of Evaluate Energy’s M&A data has expanded to include global power sector deals, including wind, solar, hydro and biomass. For more information on the new data, please click here.

The data illustrates that since the start of 2017 the UK was easily Europe’s most active market for wind power deals with Germany (24 deals) and France (20) the next most active.

 

 

 

 

 

Source: Evaluate Energy M&A Database – Power deals.

“The UK is adding tremendous capacity offshore, with the number of turbines and their sheer size growing all the time,” said Paul Harris, chairman of UK Energy Strategies Ltd. (link to www.ukenergystrategies.com), a UK consultancy. “Wind, together with solar, are at the forefront of changing attitudes towards energy within the UK.”

Included in the UK’s total count is E.On’s acquisition of Germany’s Innogy SE – a $44.8 billion acquisition that is easily the largest deal including wind power assets worldwide since January 2017.

Innogy, whose current majority shareholder is RWE AG, has assets all over Europe. The vast majority of the company’s power generation capacity is in the wind sector (72% at year-end 2017). Its onshore and offshore farms in the UK and Germany make up the lion’s share of this capacity.

Aside from E.On, other recent UK wind deals with significant purchase prices saw Macquarie Group (via a consortium) acquire the Green Investment Bank Ltd. from the UK Government, while Norway’s Statkraft AS parted with stakes in two wind farms off the coast of Norfolk with a combined capacity of just under 250 MW, net to the stakes being sold.

Just this week, EDF announced the third largest UK wind deal since January 2017, a $942 million (£701 million) sale of a 49% stake in 24 wind farms.

Top 10 deals including UK wind power assets, Jan. 1, 2017 – Jul. 2, 2018

Acquirer Target Company Description Total Acquisition Cost (US$ billion) inc. debt assumption if applicable
E.ON innogy SE E.On acquires a 100% stake in innogy SE 44.80
Macquarie Group UK Green Investment Bank Limited A Macquarie-led consortium comprising Macquarie Group Limited, Macquarie European Infrastructure Fund 5 and Universities Superannuation Scheme acquires UK Green Investment Bank Limited from HM Government 2.98
Dalmore Capital Limited and Pensions Infrastructure Platform EDF EDF sells a 49% stake in 24 UK wind farms 0.94
Equitix Ltd. Statkraft AS Equitix acquires Statkraft’s 40% stake in the Sheringham Shoal offshore wind farm, which is located in the Greater Wash area off the coast of Norfolk, United Kingdom 0.75
China Resources (Holdings) Company Limited Statkraft AS A consortium led by China Resources (Holdings) Company Limited acquires Statkraft’s 30% stake in the Dudgeon offshore wind farm, built off the coast of Norfolk in the UK 0.75
UK Green Investment Bank plc Centrica Centrica sells its 50% interest in the 270 MW Lincolnshire wind farm to the UK Green Investment Bank Financial Services managed entities and the UK Green Investment Bank plc 0.61
PKA Ltd. Ørsted PKA Ltd. acquires a 25% ownership interest in the Walney offshore wind farm from Ørsted 0.44
PFA Ørsted PFA acquires a 25% ownership interest in the Walney offshore wind farm from Ørsted 0.44
UK Green Investment Bank plc Siemens Project Ventures Siemens Project Ventures sells its 25% interest in the 270 MW Lincolnshire wind farm to the UK Green Investment Bank Financial Services managed entities and the UK Green Investment Bank plc 0.31
Tenaga Nasional Berhad GVO Wind Limited and Bluemerang Capital Limited Tenaga Wind Ventures UK Ltd, a subsidiary of Tenaga Nasional Berhad acquires an 80% interest in two renewable energy companies registered in the UK; GVO Wind Limited and Bluemerang Capital Limited 0.24

Source: Evaluate Energy M&A Database – Power deals.

 

Energy Secretary rejects proposed Swansea Bay tidal lagoon project

On 25th June 2018, the Secretary of State for the Department for Business, Energy and Industrial Strategy made a long awaited oral statement on the £1.3bn Swansea Bay Tidal Lagoon project. Mr Clark set out Britain’s energy policy regarding energy generation which is based around meeting three needs: secure and dependable energy supply; minimum cost to consumers and taxpayers; and meeting our greenhouse gas emission reduction obligations.  In addition, through the Industrial Strategy, policy surrounding energy generation must also secure long-term economic benefit, in terms of jobs and prosperity.

In Mr Clark’s Oral Statement, he relayed the analysis his department had conducted on the programme of 6 tidal lagoons proposed by Tidal Lagoon Power Limited, with particular emphasis on the first proposed project at Swansea. The key finding was that, for the quantum of energy generated by the proposed tidal lagoon over 60 years, the cost of £1.3 billion was too high and that an equivalent quantum of energy could be generated by an offshore wind farm for a much lower cost over the same period, in the region of £400 million. The cost to build all 6 of the proposed lagoons is reported to be in excess of £50 billion, which is two and a half times the cost of the Hinkley Point C nuclear power station to generate a similar output of electricity. Moreover, the tidal lagoon would only produce a maximum of 0.15% of the electricity the UK uses each year.

In addition, according to the Hendry Review, the Swansea lagoon would support only 28 jobs directly associated with operating and maintaining the lagoon in the long term. As such, the project did not demonstrate value for money for consumers and public funds, nor did it meet the some of the key aspects to Britain’s energy policy regarding energy generation.

The reaction in the House to Mr Clark’s announcement was one of disappointment by MPs of all parties. Labour MP for Sefton Central, Bill Esterson, responded (on behalf of Dr Alan Whitehead, Shadow Minister for energy and climate change who was unable to attend), “I am afraid that this statement is evidence of yet another failed Government policy; it is a missed opportunity for the domestic economy and for our export potential…Approving the lagoon would have been a positive step, taken by a Government with a clear vision for the future, willing to lead the way in new, innovative technology and strongly supporting British industry”.

A major supporter of the project, Conservative MP for Preseli Pembrokeshire, Stephen Crabb, asked Mr Clark to confirm that the announcement does not mean that Government has closed the door on future investment in wave power. Mr Clark confirmed that the Government is still open to investment in tidal power but the proposals would need to meet the Government’s policy on energy generation activities.

Labour MP and BEIS Committee Chair, Rachel Reeves, asked why it had taken the Government five years to make this decision and what the Government has learnt from this process. Ms Reeves also stated that “Frankly, a lot of effort has been put into this project by business, the Welsh Government and others, and I think that many people have lost confidence in the Government’s programme for renewables because of this”. Mr Clark responded that Government evaluated every aspect of the process and that Government’s decision and process will be found to be exhaustive and rigorous when it is scrutinised by the BEIS Select Committee.

Former Secretary of State for Energy Sir Edward Davey criticised the decision. He said there is evidence that the price of future tidal lagoons would fall dramatically after the Swansea Bay Tidal Lagoon, and asked for all of the evidence and analysis to be published. Mr Clark responded that the technology used for the project is not subject to the same degree of cost reduction as other energy technologies and all analysis will be published.

Following the statement, Welsh Secretary Alun Cairns said: “I realise the disappointment this decision may cause, but ultimately this project did not meet the threshold for taxpayer value.” First Minister Carwyn Jones tweeted that it was a “crushing blow to Wales”.

Overall, a final decision on the project has been welcomed, even though it is not necessarily the desired outcome for the project’s supporters. Such is the popularity of the project in Wales, that the decision itself and the drawn out decision-making process has caused much frustration. Supporters of the project argue that this is a loss for the Welsh people, the UK’s steel industry and UK consumers as a whole. There is now an even greater need for industry to continue to focus on innovation to reduce the costs of construction to make wave and tidal power more competitive.

UKES continues to believe that Wales and the rest of the UK can be established as a world leader in tidal and wave technology, providing a competitive source of low-carbon energy, but any future scheme will need its promoters, industry and Government to work together to make the most compelling and attractive proposition. UKES would be delighted to help similar schemes in the renewable energy sector by supporting their promoters’ Government engagement and strategic communications with industry to put together the attractive proposition to which Government can say ‘yes’. To find out more about how UKES can help you, please email cara.meadows-smith@ukenergystrategies.com.

To watch Mr Clark’s statement on energy policy, please follow this link –

https://www.parliament.uk/business/news/2018/june/statement-on-energy-policy-25-june-2018/

To read the transcript, please follow this link –

https://hansard.parliament.uk/commons/2018-06-25/debates/02B6422D-3556-4219-B419-5D4942F7FC53/EnergyPolicy

BEIS Statement on Nuclear Power

Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, provided an oral statement on nuclear power on Monday 4th June 2018. Mr Clark was joined by Business Minister Richard Harrington who is responsible for nuclear power.

What was said 

Nuclear power has a role to play in the UK’s low carbon future. It currently provides 20% of UK electricity needs. It must continue to provide secure and reliable base-load power at the least cost.

Discussions are on-going regarding a direct investment in the £12bn Wylfa nuclear plant in Wales, which would be made alongside the Japanese Government and Hitachi. Mr Clark reiterated that future nuclear projects would need to be financed by the private sector, while underlining Government support of the sector. Government has engaged with Industry to set out a sector deal for nuclear, which would include proposals to reduce the capital cost of new plants while investing in new forms of technology. The sector deal will be published shortly.

Shadow Secretary of State for BEIS response

Rebecca Long-Bailey, Shadow Secretary of State for Business, Energy and Industrial Strategy, said there is cross-party consensus for the continued role of nuclear within the UK’s energy mix. She questioned the “lack of transparency and Parliamentary scrutiny” of the Government’s deal with Hitachi thus far and called on the Secretary of State to respond to her request for information. She urged Mr Clark to urgently meet with the Welsh Government and develop a deal for the Tidal Lagoon Power project.

Follow-up questions

The debate prompted questions from across the House, most notably from: Conservative MP and former energy secretary Sir Michael Fallon; Chair of the BEIS Select Committee and Labour MP Rachel Reeves; Conservative MP Stephen Crabb; former energy secretary and LibDem MP Sir Edward Davey; Green Party MP Caroline Lucas; Conservative MP John Whittingdale; and Conservative MP and Backbench Business Committee member Nigel Mills. The debate included mention of the following topics:

  • UK electricity needs;
  • Low-carbon economy;
  • Hinkley Point C;
  • Wylfa Newydd power station;
  • Hitachi;
  • Sizewell C;
  • Future nuclear power plants.

Ms Reeves asked what assurances have been provided to Hitachi regarding the UK’s future relationship with Euratom, our nuclear cooperation agreements more generally, and the Office for Nuclear Regulation’s ability to recruit safety inspectors. Mr Clark responded that the desire for the greatest possible continuity of existing arrangements is known to Hitachi and mutually beneficial.

Mr Crabb asked Mr Clark what discussions are taking place with the Welsh Government to ensure that opportunities are maximised for the Welsh business supply chain. Mr Clark responded that BEIS is working closely with the Welsh Government to ensure that the Wylfa nuclear plant benefits people across Wales and the UK.

Sir Edward Davey highlighted recent dramatic investments in large-scale renewable power and advances to storage technology, and how these developments affect the decision on the Wylfa plant. Mr Clark responded that the Government supports a diversified energy supply of which nuclear is a very important part.

Ms Lucas clarified that there is not cross-party support on nuclear power and asked why the Business Secretary does not invest the money instead in renewables, a sector where investment is at an all-time low. Mr Clark responded that the UK is leading the world in offshore wind development. In addition he said that investment in new nuclear is strategic and beneficial to job creation, particular in coastal towns.

What this means

The Government’s decision to directly invest into the Wylfa nuclear plant is strategic and necessary. The nuclear industry will remain a vital UK energy source for the foreseeable future, and remain a significant source of regional job creation. While assuming increased adoption of renewables and advancements in storage technology, the UK’s energy mix needs to remain diversified for at least the next two generations, in order that the UK can manage energy costs (both in terms of deployment and on behalf of consumers), retain its security of supply and meet its climate targets. Government needs to continue investing in new technologies and projects that will economically benefit the country and consumers. Further announcements and policy clarity would be welcome by businesses operating within these sectors.

The full transcript can be found here – https://hansard.parliament.uk/commons.

If you would like further information or want to know more about how you and your firm can engage with Government email cara.meadows-smith@ukenergystrategies.com.

Energy and Clean Growth Minister Announces CCUS Funding

The Rt Hon Claire Perry, energy and clean growth minister, has announced £21.5 million of UK funding for Carbon Capture, Utilisation and Storage Technologies on Wednesday 23rd May 2018.

Ms Perry said that the UK will be leading an international challenge with Saudi Arabia and Mexico to remove carbon from emissions.

She went on to state;

“My ambition is for the UK to become a global technology leader in carbon capture, working with international partners to reduce its costs. As the UK has led the debate globally on tackling climate change and pioneering clean growth, we are leading this global challenge with an initial £21.5 million investment in CCUS innovation – a key part of our modern Industrial Strategy.”

The full announcement can be found here – https://www.gov.uk/government/news/uk-to-lead-global-challenge-to-clean-up-carbon

If you or your firm would like assistance engaging with Government, email UK Energy Strategies at cara.meadows-smith@ukenergystrategies.com.

Draft Clean Air Strategy published and consultation open

Today (22nd May 2018), Secretary of State for the Department for Environment, Food and Rural Affairs, Michael Gove, published the 2018 draft Clean Air Strategy. DEFRA has also opened a consultation into the strategy that will close on 14th August 2018. The strategy follows the UK being referred to the European court of justice for failing to tackle illegal levels of air pollution, which could lead to a multi million euro fine if the UK fails to address the issue.

Ahead of the launch during a visit to meet air quality researchers at Imperial College, Mr Gove said: “Government cannot act alone in tackling air pollution. Our strategy sets out how we will work with businesses, farmers, industry and households to develop innovative new solutions to reduce emissions. It also highlights how we can all take action and play an important role in cleaning up our air.”

The strategy has already seen criticism from Green MP Caroline Lucas; chair of the All-Party Parliamentary Group for Air Pollution, Geraint Davies; representatives of Greenpeace; and members of the Labour Party for allegedly being inadequate and falling short of the Government’s obligation.

The draft strategy and consultation information can be found here – https://consult.defra.gov.uk/environmental-quality/clean-air-strategy-consultation/

If you or your firm would like assistance responding to the consultation, email cara.meadows-smith@ukenergystrategies.com

Energy and Clean Growth Minister Statement on British Natural Gas Industry

Energy and clean growth minister Claire Perry published an article, The future is beneath us, originally in the Sun on Friday 18th May 2018.

In the article, Ms Perry set out the benefits and the role gas will play in the UK’s future and said Government is committed to “support the development of onshore British shale gas and to deliver a clean safe and affordable energy supply for the country”.

The full article can be found – https://www.gov.uk/government/speeches/the-future-is-beneath-us?utm_source=1eafd99e-f777-4d58-9048-473afabe8802&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate