Gas: At the centre of a low carbon future

Transcription

1 Gas: At the centre of a low carbon future Oil & Gas UK breakfast briefing Gareth Davies Richard Sarsfield-Hall 22 September 21

2 Moving to a low carbon future will need a fundamental change in the way we produce and use energy 7 Other Industry Electricity Transport Residential Projections 6 5 MtCO Sources: DECC, CCC

3 Government faces a difficult balancing act between conflicting priorities Security Any low carbon future will require high and sustained rates of deployment successful and timely innovation dramatic changes in customer behaviour Climate Change Affordability Different paths affect the risk of meeting other policy targets security of supply affordability (fuel poverty and competitiveness)

4 How is government anticipating we achieve this? Some variation in long-term energy pathways proposed by DECC sensitivities on technologies focus on energy intensity versus carbon intensity On reflection many similarities importance of electrification of heat and transport rapid grid decarbonisation no role for gas in the mix Little flexibility or optionality across pathways TWh TWh , 1,8 1,6 1,4 1,2 1, Total energy consumption Alpha Beta Gamma Delta Epsilon Zeta Reference Total gas consumption Alpha Beta Gamma Delta Epsilon Zeta reference Source: DECC 25 Pathways

5 Electrification is a high risk way to achieve policy targets Deployment issues very large upfront funding supply chain heat pumps offshore wind facilitating infrastructure grid expansion Innovation challenge rapid commercialisation and deployment of CCS (5-6GW by 225) smart grids/metering to provide flexibility electric vehicles Consumer behaviour accepting new technologies altering behaviour patterns to provide flexibility

6 Dash to electrification has implications for security. Security intermittency uncertainty over policy Pöyry model of UK power system in 23 with large wind output Generation (GW) Intermittent generation Generation (GW) Gas need to fill the gap Nuclear Biomass CCSCoal Coal CHP CCGT Other renewables Demand Peaking plants Imports 1-Jan 4-Jan 7-Jan 1-Jan 13-Jan 16-Jan 19-Jan 22-Jan 25-Jan 28-Jan 31-Jan

7 and dash to electrification has implications for affordability Affordability fuel poverty targets rely on success of energy efficiency measures industrial competitiveness Estimated impact on energy - bills Percentage increase in unit price of domestic gas Percentage increase in unit price of domestic electricity Impact of policies on the domestic energy bill Impact of policies on the nondomestic energy bill 4% 1% 18% 14% 26% 33% 4% % 1% 14% 11% 26% Source: DECC

8 Gas has been a major contributor to a greener, more secure and competitive UK in recent decades Gas consumption CO 2 emissions Gas consumption by sector (bcm) 12 1 Agriculture Industry Upstream and non-sector Electricity Residential Services Other Total electricity (RHS) Total electricity consumption (TWh) Carbon dioxide emissions (mtco2) Agriculture Industry Upstream and non-sector Electricity Transport Residential Services GDP index (RHS) GDP Index (199=1) in parallel with both economic and electricity demand growth Sources: IEA for gas consumption, DECC for CO2 emissions

9 There is clear evidence that gas can kick-start the transformation... Significant carbon savings in the short term Facilitating renewable deployment while maintaining security and balancing the intermittent nature of wind Existing infrastructure and supply chains, especially for heat, mitigate deployment risk and postpone funding requirements Pöyry model of Evolution of the power sector gas demand in GB markets Daily gas demand (mcm/day) Oct Dec Feb Apr Jun Aug Oct

10 ...and provide room for manoeuvre in the longer-term Breathing space to prove new technologies coal CCS deployed from 22 in all DECC scenarios gas CCS likely to be cheaper than coal biomethane Time to establish new supply chains gas-based heating options do not lock-in trajectories in the long-term 15 year turnover on boiler stocks heat distribution networks can incorporate lower-carbon sources in the future deployment of renewables supported over a more manageable timeframe Future industrial growth will require gas feedstock in any case DECC 25 Alpha pathway shows industrial gas demand at 4TWh in 25 (27% of 21) can industry make such an adaption without risking competiveness?

11 Why is the playing field biased against gas? All DECC projections show declining gas forecasts no gas CCS options inability to consider collective solutions in modelling framework annual basis only Drive for renewable energy deployment is being made at the expense of overall carbon savings RHI focused on standalone technologies Full value of gas flexibility and reliability is not realised Misplaced perception of rising gas security risk Pöyry model of carbon savings compared to a composite benchmark dwelling Waste heat Large Biomass Steam Turbine CHP EFW Incineration CHP Medium CCGT Natural Gas CHP Small CCGT Natural Gas CHP Medium Biomass Steam turbine CHP Large Engine Natural Gas CHP Anaerobic digestion CHP Community Boiler Biomass Community Boiler Natural Gas Small Engine Natural Gas CHP Small Biomass Air turbine CHP Solar Thermal Air Source Heat Pumps Ground Source Heat Pumps Individual Biomass Boilers -1, 1, 2, 3, 4, 5, 6, kg pa DHN - Large Scale DHN - Medium Scale DHN - Small Scale Stand alone renewable technologies

12 This review s conclusions Too many targets and uncertainty over prioritisation government needs a more considered approach to meeting its long-term goal of 8% lower emissions by 25 Greater risk of lights going out through insufficient power generation than of gas interruptions through a shortage of gas DECC pathways will cost all consumers more unless dramatic energy efficiency improvements happen Highly ambitious deployment targets and massive reliance on new technology happening Don t reinvent the wheel gas infrastructure already there and is best option for providing flexibility

13 Recommendations for Government Keep options open a more realistic alternative plan would introduce the option for more gas in the transition and in the end-game give gas an equal chance of being part of the energy mix in all longer term energy projections e.g. gas CCS. allow more contingency in future pathways so that the market can deliver the emissions targets securely and without costing the earth Review the 22 renewables energy target as it appears to be a distraction from longer term carbon targets Ensure that electricity market reform signals true value of gas as back up to intermittent renewables

14 Richard Sarsfield-Hall Gareth Davies Pöyry Energy Consulting King Charles House Park End Street Oxford, UK OX1 1JD +44 () Pöyry Energy (Oxford) Ltd. Registered in England No King Charles House, Park End Street, Oxford OX1 1JD.