eua policy statement - the role of gas in the future energy mix

EUA Policy Position

Date: October 2012 EUA, Camden House, Warwick Road, Kenilworth, Warwickshire CV8 1TH 01926 513777 www.eua.org.uk

Role of Gas in the Future Energy Mix

Summary Policy Position

Modelling outcomes to 2050 for the future role of gas may cloud the policy interventions required; these should be firmly grounded in the 2020 to 2030 timescale.

EUA supports efforts to engage the EU in more heroic 2020 carbon emissions reductions as a mechanism to demonstrate UK supply chain excellence

Future EU agreements should be emissions-based; too great a focus on renewable contributions can detract from energy efficiency efforts and competing low carbon technologies.

A secure natural-gas based power generation future to 2030 and beyond is essential in light of ageing coal and nuclear plant retirements, intermittent renewable generation, and more stringent environmental requirements.

A post-combustion CO2 capture project is an essential part of the UK’s CCS demonstration portfolio.

Green Deal should in due course include entire heating systems as an integrated solution to residential heat emissions

Government policy support mechanisms for heat pumps should focus on off-grid and new build installations.

The gas and waste management industries should continue to seek lower cost integrated solutions for grid-connected biomethane supplies.

EUA Policy Position


Background

Natural gas is today an essential fuel for powering and heating UK homes and offices, and

for providing a unique source of high temperature energy for industrial processes. However,

as a fossil fuel, combustion of natural gas (largely methane) produces carbon dioxide, albeit

the lowest of any hydrocarbon fuel. It is right therefore that the future contribution of natural

gas in satisfying UK energy demand comes under scrutiny as the nation heads towards a

low carbon, secure and affordable energy future. It is our view however that natural gas has

‘had a rough ride’ in the last 2 years, with some critics questioning the role of the gas

distribution network beyond 2030, although more recent statements issued by DECC

indicate that natural gas is not only a transition fuel, but may also be a destination fuel in the

low carbon world. Discovery of new ‘tight gas’ reserves globally is changing the

supply/demand balance, notably shale gas extraction in the US which has reduced

dramatically wholesale natural gas prices and affected supply/demand balances in other

countries through export of surplus LNG supplies.

We focus in this policy paper on three key issues:

(i) The focus timescales and boundaries for credible policy making

(ii) The role of Gas in power generation and the requirements for Carbon Capture

and Storage (CCS)

(iii) The role of Gas in providing space and water heating to the nations’ 27m

residential and other commercial buildings

Focus for Timescales and Boundaries of Policy Statement

The Climate Change Act has established a legally binding framework to reduce the UK’s

greenhouse gas emissions by 34% by 2020 and by at least 80% by 2050. This embodies a

system of 5-year carbon budgets starting in 2008; the first 4 carbon budgets are now cast in

law and set reductions (relative to 1990 levels) of 23%, 29%, 35% and 50% respectively for

the 4 budget periods. An initial policy focus on the 2050 end game has led to some unhelpful

and potentially time-wasting activities; for example the need for full decarbonisation of

electricity and heat supply by 2050 has led some to question the continued investment in the

EUA Policy Position


gas supply infrastructure beyond 2030. Such conclusions have been drawn through

simulation programmes such as that produced by DECC (cost-optimising model, MARKAL).

EUA is supportive of a focus on the short to medium term objectives that the current 4

carbon budgets deliver out to 2027 as a platform for rationale policy making, and a

retargeting of the trajectory as 2030 approaches. Indeed the 4th carbon budget is itself very

stretching with significant changes required to the traded emissions sector if the UK is to

meet its obligations.

No EU-wide agreement for emissions reductions exists beyond 2020. The UK has

committed to 15% of primary energy consumption from renewable sources by 2020 (3.3%

currently) as part of the EU’s 20/20/20 target framework, and this is in our view a stretching

target, detracting in part from shorter-term energy efficiency improvements . At the current

rate of progress the UK will out-perform its emissions reduction targets by 2022 (3rd carbon

budget) and Government is continuing to lobby Europe to be more ambitious in this measure

by 2020 (in turn to deliver a more stringent EU ETS cap). EUA is broadly supportive of this

as it may better-showcase the technical and commercial capabilities of the UK’s supply

chain in delivering climate change solutions.

Of course there is no crystal ball involved in predicting energy futures and the industry has

now adopted a scenario-based approach to stimulate and polarise debate. EUA welcomes

the studies conducted by National Grid as system operator for both electricity and

transmission in publication of their ‘Gone Green’ and ‘Slow Progression’ energy scenarios.

These demonstrate two boundaries defining, up to 2030, an area between ‘business as

usual’ and a ‘balanced sector approach’ in deployment of renewable and low carbon

technologies. The Gone Green Scenario meets the UK’s carbon emission reduction and

renewable energy trajectory targets in 2020, 2030 and 2050. EUA views the extremes of

National Grid’s modelling studies to represent pragmatic boundaries within which to frame

short to medium term policy. A number of detailed challenges within these boundaries are

presented below.

EUA Policy Position


Power Generation and CCS

The policy debate in this area distils down to three big questions: (i) how much renewable

capacity, (ii) when will new nuclear emerge (if at all), and (iii) when will CCS be deployed on

fossil-fuelled combustion plant? These are key issues in determining the role of natural gas

in the sector.

Meeting the renewable energy target in 2020 will require a contribution from the power

generation sector of some 30% of the total; to meet the 2030 targets will require in addition

life extension of some nuclear plant in preference to gas CCGT plant, and grid connection of

new nuclear before 2020. We view this as a difficult position to adopt on both cost and

safety grounds. The Gone Green scenario has some 36 GW of operational renewable

capacity by 2020 compared with just 9.2 GW today.

Against a backdrop of unchanged peak electricity demand to 2030 (of around 60 GW) the

UK has 90.2 GW of installed capacity with 19.1 GW forecast for closure by 2020, and further

possible closures by 2023 under European Industrial Emissions Directive (IED). Projects

currently under construction and with consents to build include 13 GW of new gas plant and

7.3 GW of renewable (mostly wind) projects. According to National Grid a further 5.7GW of

renewable capacity is in the planning process. Assuming the latter is all constructed there is

still a renewable capacity gap of some 14GW to the Gone Green scenario.

Our view is therefore that the electricity generation sector is unlikely to deliver its contribution

to the 15% primary renewable energy consumption obligation and that unabated gas fired

CCGT plant will continue to 2025 to underwrite coal and nuclear plant closures on economic,

safety and environmental grounds. We would urge a detailed study of existing CCGT plant,

its potential for life-extension, and its robustness to new environmental challenges imposed

by IED so that a detailed capacity profile for the population may be generated to 2030.

Beyond 2030 CCS becomes an important factor for gas-fired combustion plant. EUA

welcomes the inclusion of gas-fired CCGT projects within the scope of the government’s

second round of CCS demonstration projects. Indeed it would seem imperative that the

SSE/Shell/CO2DeepStore consortium’s current project bid should be successful as the only

EUA Policy Position


UK-based project to demonstrate CO2 capture on gas- rather than coal-fired combustion or

gasification plant.

Heat

The area of domestic space and water heating is perhaps the biggest area of contention in

delivering emissions reduction, affected as it is by the vagaries of consumer choice and

spending patterns. With homes accounting for 25% of UK’s emissions and 40% of its final

energy use, there is huge potential in tackling emissions through the provision of renewable

heating technologies, but at a price to the consumer.

Our starting point in this key policy area is to question whether there is sufficient focus on

energy reduction (efficiency) measures. Green Deal will deliver some progress in this area in

improving the thermal performance of buildings, but insulating a home with inefficient heating

systems is only part of the answer. Some 81% of the 450 TWh/y of residential heat is

delivered through the gas boiler (about 33 bcm/year of natural gas). With 14m of 22m UK

gas boilers still in non-condensing mode (and a further 12 years to replace them at current

rates), a shift in average system efficiency from 72 to 83% (as projected by National Grid)

would deliver around 9 MTCO2 reductions per year, contributing some 45 MTCO2 savings

over a carbon budget period, and delivering 15% energy savings to the consumer on an

ongoing basis. We would support therefore a ‘Green Deal+’ scheme which extends the

scope of energy efficiency products in a way that the supply chain can deliver in a robust

and sustainable way. We very much support the ongoing consumer engagement focus

around smart meters to ensure consumers realise the gas benefits of smart deployment.

Much has been reported about the potential of heat pumps to deliver renewable heating to

home and commerce – indeed the Gone Green scenario will require 7m residential

installations by 2030; a tall order indeed from the current installed base of 28,000. Further,

heat pumps face some real challenges: (i) their efficiency drops at high heating load (coldest

60 days), reducing their coefficient of performance (COP) towards that of a simple electrical

resistive heater, (ii) they have demanding installation requirements, (iii) high capital cost

compared with gas boilers, and (iv) in retrofit mode they may require modification to heat

emitters in the home adding further expense. Early markets are seen as the 7m off-gas grid

EUA Policy Position


homes (where some economies over oil can be realised) and in new build where buildings

tend to be more thermally efficient. In summary we do not see heat pumps displacing

significant gas heating load in existing on-grid properties before 2030 and our position is one

of supporting their further development and deployment in new build and off-grid applications

so as to drive down capital cost and improve operating performance for wider-scale

deployment beyond 2030.

Finally, returning to existing dwellings, we are supportive of the industry’s efforts in

demonstrating at small scale the injection of biomethane into the gas grid and support efforts

by the supply chain to productise and standardise the gas injection and monitoring parts of

the process. As a solution to reducing heat-based emissions the technology makes good

sense: diverting waste away from landfill (and potential fugitive methane emissions) and

delivering renewable heat to the >80% of homes and businesses already connected to the

distribution grid. Despite RHI support we see major cost reductions required (and potentially

gas quality requirements) before the technology can become widely deployed but support

ongoing efforts and policy instruments to deliver 15-20% renewable heating load through

grid-connected biomethane by 2030.

EUA Policy Position


Data Table

Sources

1. HM Government, The Carbon Plan: Delivering our low carbon future, Dec 2011 (Carbon Plan)

2. National Grid, UK Future Energy Scenarios, Nov 2011, (NG Futures) 3. Dukes Energy Statistics 2011 (2010 Data) (DUKES 2011) 4. DECC Energy Trends June 2011 (2010 Data) (Energy Trends) 5. DECC, The Future of Heating: A strategic framework for low carbon heat in the

UK (Heat)

Note: ‘Gone Green’ Scenario hits Govt CO2 targets in 2020, 2030 and 2050; ‘Slow Progression’ doesn’t.

Data Item Today (3,4)

Slow Progression

(2)

Gone Green (2)

2010 2020 2030 2020 2030 Gas Supply/Demand Total Primary Energy Demand (TWh) 2300 2000 1900 GAS - Annual Gas Demand (TWh) 1100 1020 900 950 700GAS -% of Total Primary Energy 48% 48% 37% GAS – Average Daily Demand (GWh) 3014 2795 2466 2603 1918GAS - Peak Day Demand (GWh) 5200 5100 5000 4500 3600GAS - Ratio of Peak/Average (-) 1.73 unchanged GAS - Dom + small I&C Annual Gas Demand (TWh)

470 450 450 390 300

GAS - Peak Day Dom+ small I&C Demand (GWh)

3750 3500 3600 3000 2300

GAS – Ratio of Peak/Annual (-) 8.0 7.8 8 7.79 7.7 GAS – Import Dependency (%) 55 73 87 69 82 Renewable Energy End Use (TWh) 70 232 474 Carbon Emissions and Targets Carbon Emissions (MtCO2e)/% reduction to 1990

492 -40% -62%

Govt Target (MtCO2e/%reduction) -37% -60%EU Renewable Energy Directive: target (% 20% Not 20% Not set

EUA Policy Position



Slow Progression

(2)

Gone Green (2)

2010 2020 2030 2020 2030 renewable primary energy) set UK target for above (% final energy consumed)

3.3% 15% Not set

15% Not set

EU-15 Kyoto (% reduction n GHG) 8% by 2012

10.7%

4th Carbon budget 2023-2027 (% CO2e reduction)

-50%

Power Generation First Nuclear Plant >202

0 2019

Nuclear Generating Capacity (GW) 10.8 4 10 12 17Renewable (%) 7.4 23 33 31 48Renewable Capacity (GW) 9.2 26 41 36 64Solar PV Capacity (GW) 0.077 0.4 0.6 1 6Offshore Wind Capacity (GW) 1.3 10 17 17 38Onshore Wind Capacity (GW) 4.0 11 12 11 13Gas Fired Capacity (GW) 36 45 58 38 38Gas CCS capacity (GW) - - 5 - 7 Gas consumed in Power Gen (TWh) (NTS loads)

310 320 215 273 102

Coal CCS capacity (GW) - 0.6 6 0.6 6Carbon Intensity (gCO2/MWh) 500 222 48 Electricity Demand (TWh) 381 392 446 Heat Number of households (m) 26.9 29 31 29 31 Average UK boiler efficiency (%) 72 83 Heat Demand (TWh) 7125 605 571HEAT PUMPS – # domestic units (m ) 0.028 0.4 0.4 1.2 7.7HEAT PUMPS – domestic (TWh) 6 60HEAT PUMPS – non-domestic (TWh) 15 55 GAS - Dom + small I&C Annual Heat Demand (TWh)

470 450 450 390 300

EUA Policy Position



Slow Progression

(2)

Gone Green (2)

2010 2020 2030 2020 2030 Biogas (TWh) ~0 20 50 Transport Number of electric vehicles (m) ~0.15 0.7 4.5 1.5 12.8New sales as electric vehicles 42% 75%Gas in Freight Vehicles none limited

eua policy statement - the role of gas in the future energy mix

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