There has been some evidence that the UK’s energy transition will continue largely unchanged, but – unsurprisingly – there is some uncertainty.
On Wednesday, both energy and climate ministers – Amber Rudd and Andrea Leadsom – made speeches, with varying degrees of passion, to reassure us that life goes on. Both reiterated commitments to the Climate Change Act, coal phase-out, renewables investment, and new nuclear.
Then on Thursday, there was great news as the Government committed to new CO2 limits for 2028-2032 under the Climate Change Act. We analyse the impacts of these targets on the UK's climate leadership in yesterday's blog.
These targets will underpin the need to continue apace with the energy transition.
Sandbag believes the coal phase-out will continue to be implemented into law. There are now stronger pro-gas than pro-coal voices in the Conservative party, and with the UK’s coal plants so old and unreliable, there should be little resistance. The only way the coal phase-out could be diluted, we believe, is through more generous “security of supply” provisions. The release of the coal phase-out consultation is now expected late July.
We also expect (and hope) the carbon price floor will endure – abandoning this would lead to a huge, instant and prolonged switch from gas generation back to coal generation. This is not guaranteed, because of its (falsely) perceived impact on industry. However, its revenue-raising ability for Treasury will most-likely ensure it stays in place.
With a coal phase-out in place, there would be no rationale to make pollution limits for power plants less tight, not least because they significantly benefit the UK population through lower NOX levels. The European pollution limits we have in place are not that testing, and many countries have adopted even stronger national limits.
The biggest question is how much of the coal gap gets filled with renewables and how much with gas?
The first tests for renewables will be the CFD auction and post-2021 levy control framework, which are both expected in autumn. It is clear that ministers want to move away from providing public support in the medium term. Uncertainly is already unnerving investors – Siemens has said it is freezing new investment into UK wind until its relationship with Europe becomes clearer. Investments in Hinkley and new interconnectors may well hit the scrap heap, as the UK looks away from Europe, and scrutiny over their value for money increases. All these capital-intensive projects will become harder to fund because of a weaker pound and higher financing costs.
The two capacity mechanism auctions this autumn are likely unchanged. We continue to believe some new gas plants will be procured in this auction. But how this may be changed in the future is anyone’s guess. In addition, the government needs to act following the demise of the UK CCS competition, and to publish a CCS strategy by year-end.
The future is uncertain. Ultimately, the politics are determined by the strength of voices. And whilst some voices for slowing down the energy transition have got stronger, the voices for speeding up the energy transition have got more passionate.
Brexit newspapers photo thanks to threefishsleeping on Flickr. Used under a Creative Commons licence.