2035: A date with destiny?

The target of making the energy system emissions free by 2035 is now official government policy, but how realistic is it? And what needs to be done to achieve it? David Blackman asks the questions.

For energy policy watchers, there was a mystery hanging over the Conservative party conference earlier this month.

It had been widely reported that Boris Johnson would use his leader’s speech, which rounds off the annual shindig, to announce an acceleration of the government’s timetable to decarbonise the grid. But when the prime minster delivered his keynote speech, there was no mention of the pledge to cut emissions from electricity generation to zero by 2035, leaving many industry figures scratching their heads.

By the end of the week, after the conference had finished, the Department for Business, Energy & Industrial Strategy (BEIS) finally cleared up the confusion by making a formal announcement that the government is committed to the 2035 target, first called for by the Climate Change Committee (CCC) last year in its Sixth Carbon Budget.

So whether Johnson chose to own the issue or not, it is official government policy now – and it is bold.

Big on ambition

Guy Newey, strategy and performance director at the Energy Systems Catapult (ESC), says: “The 2035 target is extremely ambitious; it’s right at the edge of what’s deliverable from an engineering point of view.

“This is going to become an enormous delivery challenge for the government, the system operator and Ofgem.”

It is a view echoed by BEIS’s former head of energy strategy Adam Bell, who has recently become head of policy at consultancy Stonehaven. “Getting to 2035 means dramatic increases in the capacity of all low-carbon technologies,” he says.

The 2035 target will mean having to “double down” on deployment of renewables, which will replace gas as the “backbone” of the generation system, says Josh Buckland, a former No 10 adviser on energy policy.

The UK’s existing mechanisms for planning and procuring wind and solar power will have to become slicker, he adds.

The UK will also require at least one more big nuclear plant alongside Hinkley Point, says Buckland: “At the moment, nuclear is the most significant gap to fully decarbonise the power system.”

According to Tim Lord, formerly BEIS director of clean growth and now a senior fellow at the Tony Blair Institute for Global Change: “You don’t need tens of gigawatts [of nuclear] but it is a low regrets [option] to build at least one more plant. But if you are going to do it by 2035, you have to get on with it.”

Bringing forward the decarbonisation of the grid to 2035 has the most immediate implications for the UK’s fleet of gas-fired power stations, which remain the country’s biggest single source of generation.

“The government commitment to 40GW [of offshore wind] by 2030 will move us a long way but still needs to deal with the intermittency of those renewables,” says Owen Bellamy, lead power sector analyst at the CCC.

Getting rid of unabated gas, which will be the only major source of emissions on the grid after the 2025 coal phase-out, will be “more challenging”, he says. “You could switch from coal to renewables and gas. Moving away from unabated gas means having to develop low-carbon alternatives for the role that gas plays on the system.”

The need for back-up generation

The most challenging phase of this switchover will be at the latter end of this decade when the retirement of the existing nuclear fleet will create a requirement for gas backup plant, says Buckland, who is now a partner at public affairs company Flint Global.

The working assumption of policymakers has been that a number of unabated gas power stations will be retained, even if they are idle most of the time, to deal with the intermittent nature of wind and solar power. Buckland says: “There will have to be residual gas power on the system to manage through those periods.”

There may even need to be some new unabated gas to meet short-term pressures, Buckland adds. “It would be bold to ban gas and I would expect in the near term some gas to come forward in the capacity market. It’s not realistic that there will be no new gas plant but the closer you get to 2035, the harder that investment case gets.”

But any new gas plants from 2025 onwards will need to be carbon capture and storage (CCS) or hydrogen compatible so they can be retrofitted in time for 2035, says Bellamy.

The tougher new target brings into much sharper and more immediate focus the need to deal with these final residual emissions on the systems from gas-fired generation.

This switchover is technically feasible, says Bell: “It doesn’t need lot of hydrogen to achieve the same efficiencies but it needs a lot of capacity standing idle: a lot of plant but not a lot of fuel.”

A recent report by the ESC, which explored the implications of maximising renewables deployment, said it could be achieved with relatively little additional nuclear power and even limited interseasonal storage of hydrogen.

Newey says: “If you push that to the limits, the system can work, but you would have to have a lot of low-carbon hydrogen gas turbines that only get turned once every few years.”

However, bringing forward that kind of low-carbon but dispatchable capacity will require a different set of incentives than the Contracts for Difference (CfDs), which have proved so spectacularly successful at spurring the deployment of offshore wind. He says: “This underlines that if you want the system to work, you have got to have pretty meaty market reform to unlock the demand side, because at the moment we are pushing more and more renewables through CfDs.

“The market design has got to match the physics. This is the key thing that the government and Ofgem need to get to grips with because market reform is a long old process.”

Lord agrees. “The electricity market is designed for low capital cost, high running cost, dispatchable generation and the vast majority of what you will have in 2035 is high capital cost, low running cost, non-dispatchable generation. A market designed for the first is not going to deliver the second in the most effective way, so we have to accept the need to change.”

“We don’t have the market arrangements in place to deliver that [2035] target. The CfD incentivises lots of renewable generation, which is good in itself, but renewables are not going to get you to that target on their own.

“The CfD is a hugely effective instrument for the market we have now but it is not the right instrument for the market we are going to have in 2035, so you are going to have to change that instrument.

“The CfD incentive is to generate energy all of the time and that is not the right incentive.”

Bell agrees that current market incentives are not fit for purpose but that reforming the CfD will be difficult, given the government’s continuing reliance on the mechanism for delivering the vast new volumes of renewable power that will also be required to meet the 2035 target.

Government intervention

The Capacity Market could be used to bring forward hydrogen plants, provided that it is reformed to omit all emitting technologies, he says: “That would be logical thing to do: the Capacity Market for all its faults is still an overtly market mechanism.”

However, a combination of CfDs would result in a very different structure of generation system than has been the case for the past 30 years.

Bell estimates that around a third of the market is currently driven by contracts such as CfDs and Renewable Obligations.

However, in a world of capacity markets and CfDs, nearly all of the generation coming on stream would be via contracts of some sort, he says: “It is difficult to see any plant running on the system on a merchant basis.

You will still have a wholesale market sending dispatch signals, but it won’t be the primary source of revenue.

“Nominally, you will have a wholesale market but with very unpredictable and spiky pricing.

“The government will be procuring almost all of our generating capacity.

“This will be interesting challenge for the [Conservative] party when they realise they are presiding over the end of a very large change on the 90s privatisation settlement when there was open market for generation.”

The scale of the challenge that the 2035 target presents means that an even more ambitious reform of the electricity market is required than the early noughties exercise, which he participated in, says Lord: “There’s a crying need for government and Ofgem to grasp the nettle and undertake a much more substantial market reform process. The slower you go, the more stuff you have coming onto the system on CfD. The longer you wait, bigger the problem becomes.

“If you let problems stack up they will end you biting you in the backside. There’s no good reasons not to start that process of change now.”

What emission-free generation will mean for the networks

The pledge to bring forward the government’s grid decarbonisation target to 2035 means the upgrade of the UK’s transmission and distribution network must be accelerated, says Flint’s Josh Buckland: “The pressure was already there, this just gives it steroids.

“It means there is a much greater push round the speed of network deployment, reinforcement and extension. It is going to have to be across the board. It is clear the scale of deployment is going to increase and strategic challenges around grid deployment become more urgent.”

In addition, the likely switchover of much heating and road transport to electricity means that there will be a 50% increase in demand on the grid by 2035, the CCC has estimated.

The 2035 pledge increases the case for upfront investment on the grid, says the CCC’s Owen Bellamy: “If we are seriously planning to decarbonise the economy and move to a more electrified economy, we know there is going to be more demand for electricity in the future.”

To avoid costly multiple digs over the course of a decade, so-called anticipatory investment will be justified where it is known that additional network capacity will be needed, he says: “It’s better to future proof that and not to have to expend extra costs having to reinforce it later on.”

Improved flexibility will be required to ensure that the grid doesn’t have to treble in size to meet increased long-term demand, says Buckland: “It becomes even more important if we are trying to rapidly decarbonise the system while electrifying the economy.”

However, the existing market framework for network projects must be reformed to facilitate the increased grid capacity that an increasingly electrified system will require, he adds.

Dr Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit, says upfront investment in large projects doesn’t always fit well with Ofgem. “Ofgem faces a difficult balancing act. Its primary objective is to protect the interests of consumers,” he says. “We are in a different situation but it becomes chicken and egg with generation investment held up until there is certainty about network investment. One way of resolving that tension would be Ofgem being more relaxed about anticipatory investment and taking a ‘build it and they will come’ approach.”

Stonehaven’s Adam Bell suspects Ofgem will find ways of making its network price control regime “significantly” more flexible.