Keeping Britain’s lights on: will coal and nuclear closures leave a supply gap?

Fears about Britain’s ability to keep the lights on were fed new fuel this week by Engie’s announcement that it expects to close its Rugeley coal-fired power station in the summer. The week before SSE announced plans to shut down most of the units at its Fiddler’s Ferry plant in April. The week before that a report by the Institute of Mechanical Engineers (IMechE) made national headlines after it predicted a massive shortfall in Britain’s energy supply of up to 55 per cent by 2025.

With energy secretary Amber Rudd pledging to phase out all unabated coal generation within a decade and most of the UK’s nuclear fleet currently scheduled to close by then, Utility Week spoke to experts to find out whether there is any cause for concern, and if so, what needs to be done.

In her report for IMechE, Dr Jennifer Baxter said that the closure of coal and nuclear plants would mean Britain might need to build as many as 30 combined cycle gas turbine (CCGT) plants over the next decade. She said the country had “neither the time, resources, nor the sufficient number of skilled people to build enough CCGTs” adding that “under current policy, it is almost impossible for UK electricity demand to be met by 2025.”

Headline grabbing stuff – but the report’s key figures were widely criticised. Richard Black, director of the Energy and Climate Intelligence Unit, said: “They’ve taken electricity use statistics from a single day. They’ve plugged them into an online calculator with no attempt at proper analysis.”

So are things as bad as the report suggests? True, four of the UK’s coal fired plants – Ferrybridge, Longannet, Fiddler’s Ferry and now Rugeley – are all expected to come offline this year, with Eggborough due to close in 2017. Most of the UK’s five other coal-fired plants will have to carry out expensive upgrades to continue generating much further into the future because of European emissions directives, and market conditions are unlikely to favour the fuel. If they do survive for long the government may well take action to ensure their closure.

The report’s assumptions regarding nuclear power are more questionable. Six of EDF’s eight nuclear plants in Britain are currently scheduled to close over the next decade, but it’s likely that most will receive life extensions. Tom Greatrex, former shadow energy secretary and newly appointed chief executive of the Nuclear Industry Association, tells Utility Week: “Extending the life of the current fleet of nuclear power stations, where it is technically and financially viable to do so, is a key part of EDF Energy’s strategy”.

Dave Jones, policy analyst at campaign group Sandbag, also says the gap left by closures won’t need to be entirely filled by new gas: “You’ve got a whole range of technologies out there than can help you achieve that … You’ve got a whole lot of renewables underneath; you’ve got demand reduction; you’ve got storage that will be built by then.”

Whatever amount of new gas is needed, the tool for getting it built is the capacity market. The question is: will it work?

The results of the first two auctions weren’t promising. Only one new CCGT plant was contracted, after others were undercut by existing capacity and new small scale diesel generators.

But Monne Depraetere, European power analyst at Bloomberg New Energy Finance, tells Utility Week this doesn’t mean it won’t work in the future: “The first two auctions that we’ve had so far didn’t lead to many new CCGTs because the auction was oversupplied with existing capacity. So far there hasn’t been a real need for a lot of new builds to clear.” He says as existing plants exit future auctions the bid price will increase making new capacity financially viable.

He does have concerns about the strength of the contracts. Carlton Power, the company contracted to build the only new CCGT plant, told the Telegraph in October it might not be able deliver the capacity on time for the winter of 2018/19, potentially costing it an £8.3 million deposit. If SSE goes ahead with the closure of three of the four units at Fiddler’s Ferry, it will have to pull out of capacity contracts for the period, incurring penalties of £33 million. Depraetere says these penalties need to be increased to “discourage overly optimistic bidding in the market”.

Regardless of whether companies are provided with the right incentives to provide new capacity, the IMechE report raises concerns about their ability to build CCGT plants quickly enough. That said, the capacity market was designed to give companies enough time to get plants built, with a four year gap between auctions and their initial delivery dates.

David Porter, energy consultant and former chief executive at Energy UK, is optimistic about the market’s ability to deliver. He tells Utility Week: “If a board of directors decided today to build a new CCGT then it would probably be five to six years before it started selling electricity. If they already had planning consent and they had done their environmental work then you might be looking at roughly half that time.”

He adds that whilst there would be a raised risk of skills shortages if multiple plants were built in parallel, the problem shouldn’t be insurmountable: “Skilled labour can usually be found, at a price, even when there are shortages, so long as we can recruit from abroad.”

Whilst the capacity market is not without its faults, it does seem likely that they can be ironed out. The energy secretary, Amber Rudd, has committed to making reforms, and the market is waiting on the results of a consultation which closed in December last year. With Britain’s energy security at stake, not to mention the government’s reputation, it’s in her interests to make sure the capacity market evolves.