Spain/Portugal Power Outage – are there lessons for the UK:
On 28th April Spain & Portugal suffered a widespread loss of power which affected millions of consumers. In some cases, this outage continued for almost 24 hours. Whilst investigations into the root causes continue, there is speculation that the high level of renewable generation supporting the grid at the time may have been a contributing factor.
Transmission grids underpinned by large-scale baseload generation benefit from a phenomenon called ‘inertia’. These supplies generally involve a large rotating mass of some type which provides a ‘stabilizing’ effect. Renewable plant, whilst being far more agile, would appear to make grids more susceptible to sudden disturbances.
Taking the UK as a case-in-point, the current Government are committed to becoming Net Zero by 2050, and the connection of further renewable power generation is a significant tool in the toolbox (clean power network by 2030). As reported in last month’s Industry News Update, renewables regularly account for more than 40% of our overall generation mix – up from just 15% a decade ago.
As reliance on renewable generation assets increase, there would appear to be a requirement for research and development in the field of ‘grid-forming controls’, which mimic the stabilizing nature of more traditional generation technologies – namely fossil-fuel and nuclear plant.
There are clearly questions regarding the resilience of our emerging smart-grids, and the limits of these networks need to be better understood in order for appropriate technologies to be developed to ensure future large-scale blackouts such as that witnessed on the Iberian Peninsula can be avoided.
Lifting of Russian Sanctions & the possible supply of gas into Europe:
Whilst President Trump’s commitment to resolving the Russia/Ukraine conflict within 24hrs of taking office was clearly exuberant wishful thinking, it has to be acknowledged that the US, Europe, and Ukraine (but crucially Russia less so) are increasingly talking ceasefires and peace-deals. The Trump administration have already floated the possibility of removing sanctions on Russian gas if there is significant progress towards peace.
Whilst this would, on the face of it, appear to be a monumental shift in the West’s approach to the Russian state, we should consider 2 points. Firstly, the US have now agreed their ‘rare earth elements’ deal with Ukraine. The Trump administration will be very keen to start benefiting from this arrangement, which is difficult when the Country is still at war. Secondly, as President Putin’s invasion enters its 4th year, many economists are predicting that 2025 will be the turning-point where his ‘war-footing’ economy starts to present real issues. The bottom line is that Russia needs hydrocarbon revenues, and their President is very aware of this.
Any lifting of sanctions on energy exports will have a significant deflationary effect on European wholesale electricity and gas pricing. Whilst it is unlikely that a new gas transit deal could see Russian pipeline flows of gas via Ukraine itself, there are 2 other potential supply routes – the Nord Stream 2 pipeline directly into Germany and Arctic 2 LNG production.
Back in March there were rumours that the US were negotiating a stake in the Nord Stream 2 operating company. Whilst this has gone quiet, it is not beyond the realms of possibility. More likely however, is that Russia’s Arctic 2 LNG facility would be allowed to ship gas to Europe. Arctic 2 has an operational capacity of 19.8 million metric tons per year, and recent satellite images show that it has resumed low-level production.
The question remains whether Europe would again be a willing consumer of Russian energy? However, given the repeated concerns regarding the current low level of Europe’s natural gas storage, and the fact that this position stems from a Winter which was only ‘moderately’ cold, it is not unreasonable to believe the Continent would happily procure these volumes.
Some participants believe, the reintroduction of Russian gas into Europe may be closer than we all initially anticipated. However significant uncertainty remains, given the EU’s commitment to remove Russian oil, gas and nuclear energy from the EU Markets. EU to fully end its dependency on Russian energy.
UK Government Commits to Offshore Wind:
The UK Government has pledged a £300 million investment in additional offshore wind generation ahead of its Future of Energy security summit. This will be delivered via the publicly owned Great British Energy entity and supplements the £43 billion of private investment that has been committed to renewable energy projects over the past 6 months.
In addition to contributing towards the UK’s energy security, the Prime Minister is expecting a boost in the jobs market resulting from potential domestic manufacture and supply chains.
Meanwhile, Orsted Pulls the Plug:
Orsted have shelved their plans to construct what would have been the World’s largest offshore wind farm off the coast of East Yorkshire. The Hornsea 4 array, which ultimately would have provided a capacity of 2.4 GW, has been axed as it no longer made economic sense due to rising costs.
The project has succumbed to increasing supply chain costs, higher interest rates, and the growing unlikelihood that the array could be constructed on time. This leaves the Government and industry leaders trying to reassure investors that the UK remains an attractive market for renewable generation.
OFGEM looks to 2028 Distribution Network Price Control:
The connection of ever-greater levels of intermittent renewable power generation is requiring a fundamental change in how the UK networks are structured and operated. OFGEM – the UK energy regulator – has set out a ‘blueprint’ for Distribution price control from April 2028, which it sees as the pivotal period for the delivery of the UK Government’s ‘clean energy network’ (by 2030).
This strategy reviews the commitments the regional Distribution Network Operators (DNOs) have in delivering net zero energy, reducing their environmental impact, delivering excellent customer service, enhancing data processing capabilities and improving network resilience from issues such as cyber-attacks or extreme weather.
This price control study will ultimately determine the funding that will be available to the DNOs to expanding networks that already consist of some 800,000 km of cabling.
National Energy Systems Operator (NESO) seeks Significant Price Increase from April 26:
The Transmission Network operator has submitted a draft business plan to OFGEM suggesting that it requires a circa 26% increase in TUoS charges from April 26 (the next 5-year price control period). Whilst OFGEM may not necessarily approve this level of increase, consumers should expect to see a significant uplift when compared with current year pricing.
TUoS charges are primarily collected via a £/site/day standing charge, having moved away from the traditional Winter Demand-based rates (Triads) as from April 23. Some consumers, mainly in the South of England, still receive a low-level Demand-based charge in addition to the ‘main’ standing charges.
Possible Linking of the UK and EU Emissions Trading Schemes:
Following Brexit, the UK launched the UK ETS to ensure that large-scale power generators continued to pay for their CO2 emissions. These emissions costs are factored into wholesale power pricing i.e. the end consumer effectively pays this ‘environmental tax.’ Since the start of the UK scheme, there has been a consistent price differential between the cost of UK allowances, and that of the EU equivalent. At the time of writing, a UKA is priced at £52.71 per tonne of CO2, whilst an EUA is €73.41 (an equivalent of £61.87). The gap between the two has narrowed significantly over the past months – a year ago the rates were £44.32/tCO2 and €71.32/tCO2, respectively.
Industry executives in both the UK and continental Europe are now calling for the 2 schemes to be linked in order to “cut electricity costs and tackle trade barriers”. Figures being promoted by organisations such as Energy UK, Renewable UK and Scottish Renewables suggest that potential savings could be up to €44 billion per year by 2040 in terms of wholesale electricity costs, and an emissions reduction of circa 24%.
Proponents of the proposal state that linking the schemes will avoid competitive distortions which could result in ‘carbon leakage’ i.e. relocating operations to a different country to take advantage of lower environmental costs/taxation. The current upset to global trade policies is also adding weight to the suggestion.
That concludes this issue of the UK Energy Industry News Update, highlighting key developments shaping the energy sector. For further details or to discuss how these changes may impact you, please contact us.