Ben Caldecott is Associate Fellow at Bright Blue and author of ‘Keeping the lights on: security of supply after coal’.
Last year, the Secretary of State for Energy and Climate Change gave a major energy policy ‘reset’ speech, the centrepiece of which was a commitment to close UK coal-fired power stations by 2025 and to restrict their use from 2023.
There is a compelling case to phase out coal given its disproportionate contribution to UK power sector emissions (76 per cent as recently as 2013) and that it generates air pollution estimated to cost the NHS up to £3.1 billion per year. It is also one of the most cost-effective ways of tackling climate change as our remaining coal-fired power stations are well over 40 years old and fully paid off.
Since the Energy Secretary’s announcement, however, exaggerated claims have been made about the impact of coal closures on energy security. Given these concerns, Bright Blue commissioned Aurora Energy Research, who are independent energy modellers, to ‘stress test’ the security of supply in light of coal closure plans. Today, Bright Blue publishes our report that shows unambiguously that phasing out coal will not cause the lights to go out.
Three market scenarios were modelled. The ‘base case’, a ‘low stress’ scenario, and a ‘high stress’ scenario. Even in the high stress scenario – where coal closure happens much more quickly than the government expects, where energy demand grows, where the buildout of renewables and interconnectors is much slower than expected, and where Hinkley Point C nuclear power station is cancelled – security of supply is still ensured. We find that phasing out coal does not actually undermine the security of the UK’s energy supply and there is plenty of time under each scenario to commission any required new gas capacity.
The base case, based on market expectations and current policy, has large new build requirements for gas in the second half of the 2020s, with very little required before 2025. The high stress scenario, where everything seems to go wrong, requires 21GW of new gas between 2020 and 2030, which is significant but manageable given previous UK experience of the ‘dash for gas’ in the 1990s. Even in the high stress scenario, however, no new gas beyond what is already committed is needed until after 2020. In contrast, in the low stress scenario, only 8GW of new gas is needed over the next 15 years.
In terms of carbon emissions, the high stress and base case scenarios both fail to meet the UK’s carbon intensity targets by 2030, with the high stress scenario exceeding this by 50 per cent. In contrast, the low stress scenario meets our 2030 targets with time to spare.
In the base case, the typical annual household bill (excluding taxes and the retail top-up on wholesale prices) is forecasted to average £241 over the next 15 years. The low stress scenario is £2.40 below the base case, whereas the high stress scenario is £1.20 higher. This an impressively small range given the very different outcomes for gas, coal and pollution.
The scenario that is most preferable in terms of security of supply and reduced pollution – the low stress scenario – is also preferable from a cost perspective. So we make a number of policy recommendations to ensure the realisation of this scenario for phasing-out of UK coal.
First, we believe that the 2025 target should be brought forward to at least 2023 to give investors greater certainty, particularly those planning new gas capacity. The Government should implement an emissions performance standard to straightforwardly regulate coal off the system.
Second, the Government must encourage renewables and interconnection, as well as storage, demand side response (DSR) and energy efficiency.
Third, the future of Hinkley Point C nuclear power station appears to be highly uncertain. ‘Plan B’ should be for renewables to fill the capacity gap in the late 2020s. From 2011 to 2015 the share of renewables in total UK electricity generation leaped 9 per cent to 25 per cent. Costs are now even lower and the technologies achieving maturity and cost competitiveness without subsidy. For example, the costs of solar photovoltaic (PV) and onshore wind have fallen by 50 per cent and 44 per cent respectively since 2011. Renewables can, therefore, plug significant gaps in capacity very quickly – much more quickly than long lead time (and significantly delayed) new nuclear.
In addition, the UK should take the lead in promoting coal phase-out internationally. Globally coal needs to be dismantled to tackle climate change and the UK has significant technical and moral leadership it can deploy to encourage other countries to agree to a coordinated phased approach for closing down coal-fired power stations.
Despite what some exaggerated claims suggest, coal phase out even under a high stress scenario, will not result in the lights going out. Committing to the phase out of UK coal-fired power stations is a radical and ambitious conservative approach to dealing with climate change and air pollution.