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Demand reduction strategy can reduce risks of a new dash for gas

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Last week the government unveiled its long-awaited Energy Bill, which will be scrutinised in Parliament during 2013. Funding for renewables via the Levy Control Framework was also confirmed. Today, the government published its Gas Generation Strategy as part of the Chancellor’s Autumn Statement. This has been heavily trailed as proposing a high level of new gas generation capacity, with some briefings suggesting that gas generation could be an alternative to continued investment in renewables.

However, Energy Minister John Hayes yesterday stated to the Energy and Climate Change Committee that “Even if you assume what you read in the papers today, the vast bulk of that is to replace ageing infrastructure”.

This view has been reconfirmed today, with DECC stating that

Up to 26GW of new gas generating capacity could be required by 2030. The bulk of this will be used to replace retiring coal, nuclear and older gas capacity, so it is expected there will be a net increaseof around 5GW.[2]

Responding to the release of the gas generation strategy, Nick Mabey, CEO of E3G said:

Parliament must ensure that the Energy Bill provides a clear requirement for demand reduction measures to be implemented first, and for the prioritisation of demand side response in the proposed capacity mechanism.

These steps would reduce the amount of more expensive subsidies required for new gas plant in the 2020s, protect consumers from the risk of increasing gas prices, and secure best value from the new electricity market arrangements.

Chris Littlecott, Senior Policy Adviser at E3G added:

The inclusion of carbon capture and storage in the gas generation strategy is welcome, but little new has been proposed. While DECC refer to CCS playing a role in the “long-term”, our analysis indicates that CCS on gas could be deployed at scale during the 2020s. That option could become more attractive for investors by offering higher load factors for new gas plants rather than a reduced peaking role.

It would however require accelerated action by government to deliver on the promise of the current CCS commercialisation programme. The government should support all four of the remaining bidding CCS projects in order to catalyse the development of strategic CCS clusters accessible to investors in new gas plant.

Background

Recent analysis by E3G [1] found that a gas-heavy electricity system in the UK could be a more expensive option than a renewables based system. The report used modelling by Redpoint Energy/Baringa Partners to investigate what would happen to electricity costs if energy efficiency savings, CCS deployment or nuclear build did not occur at the scale or speed expected by Government under a gas-heavy electricity system.

The study showed that there were plausible scenarios where power sector costs could increase by up to 98% by 2030. These costs result from companies having to rapidly build zero-carbon power plants in order to keep inside carbon limits. In comparison, an electricity system with continued targeted support for investment in renewables carried the risk of costs increasing at most by up to 8% under the same scenarios.

Even without a sharp rise in gas prices, a gas-heavy electricity system could lead to costs which are far higher than one with a steady deployment of renewables.

E3G recommendations

We therefore recommended that a combination of continued renewables deployment, a proactive strategy to secure large scale CCS and the rapid expansion of electrical efficiency help reduce delivery and cost risks. Delivering electrical efficiency is a key ‘risk reducer’ and can save consumers between £57bn and 166bn between now and 2030.

Notes for Editors:

[1] – The E3G briefing paper, key figures and full details of the modelling analysis are available here.

[2] – DECC press release on gas generation strategy available here.

About E3G
E3G is an independent, non-profit European organisation operating in the public interest to accelerate the global transition to sustainable development.

E3G builds cross-sectoral coalitions to achieve carefully defined outcomes, chosen for their capacity to leverage change.

E3G works closely with like-minded partners in government, politics, business, civil society, science, the media, public interest foundations and elsewhere. More information is available at http://www.e3g.org.

Contact
Chris Littlecott, Senior Policy Advisor, E3G
Email:chris.littlecott@e3g.org
Tel: +447920 461812

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