The Energy Challenge

Energy transition - A case for change

1.0     Introduction

Energy transition and net zero is something that has not just happened over the last couple of years. Visibility of energy transition due to more extreme weather, people like Greta Thunberg, Extinction Rebellion and the Paris Accord has sparked the media to covering this in more detail and in so doing so, creating more public perceptions, both good and bad

The Kyoto Protocol on Green House Gas emissions was back in 1997, OSPAR agreement in 2005 and the Paris Accord which included requirements to restrict increase in global temperatures to a maximum of 1.5 deg C was in 2015 (over 5 years ago). However, the first wind turbine was tested in 1857 by a Scottish academic James Blyth and the first grid connected wind turbine was installed in 1951 in Orkney. By 2008, the UK had circa 3 Gigawatts of wind turbine capacity connected to the grid and in 2020 this has increased to nearly 24 Gigawatts of electrical generation from wind power.

The question is where do we go from here?

·      The government has a clear goal on reaching net zero emissions by 2050.

·      New Diesel and Petrol cars will be banned from 2030.

·      Phasing out new conventional domestic gas boilers by mid-2030.

·      Gas power plants will need emissions capture plant and equipment.

·      New carbon taxes will come into force.

·      Developing alternative energies such as hydrogen etc

·      Investment in green energies. (otherwise, we could hit 3 deg C rise above the industrial age which may be catastrophic)

We hear the conversations and media coverage on climate change, net zero, green and blue hydrogen, energy transition, Paris Accord, weather patterns, record temperatures etc, but it is difficult to find these integrated coherently together to give readers a clearer picture of what this could mean in the future. After all, to really communicate effectively and gain understanding we need the five ‘P’s’

·      Purpose - what are we really trying to achieve?

·      Picture – what does the overall picture really look like and what are the challenges?

·      Plan – Is there an integrated plan that we really understand?

·      Part – What should we individually be doing?

·      Progression – how do we move this forward?

This leads to the energy transition debate, as the first focus is massive electrification of our grids with green / sustainable energy sources that have far less impact on our environment when compared with hydrocarbon sources. (Coal, Oil, Gas, Biomass etc).

The key question is, do the sums add up within the timeframe that we have set ourselves? Let us have a look at where we are today and where we could be tomorrow from a UK perspective.

2.0     Current Energy Demand

The estimated total installed electricity capacity in the UK today is circa 108 Gigawatts. However, it is not all useable power as there needs to be a buffer for capacities in transmission systems, spikes, harmonics, plant operational efficiency, plant availability plant offline and security of supply. This means we can use about 65 to 70% of gross capacity. This limits available capacity to around 70 gigawatts. The base load is nuclear, but additional load is mainly from renewal power (45 gigawatts installed capacity) and gas / Combine Cycle Gas Turbines (37 gigawatts installed capacity). Other sources still exist such as coal, oil, biomass, interconnectors, and storage, but are less significant.

The UK today has been good at reducing electrical consumption, but many of those quick wins have now been taken such as

·      High efficiency electrical devices in homes and businesses

·      High efficiency lighting systems

·      High thermal installation in buildings

·      New technologies to support energy reduction and energy efficiency in equipment.

·      Development and installation of smart meters

For example, even though we have been building more homes, domestic energy use has gone down by over 10% over the last 10 years. 

However, there is still a large demand in the UK and currently, the UK average demand is around 44 gigawatts of electrical power per day with peaks around 52 - 54 gigawatts. That leaves 16 – 18 gigawatts spare capacity within the system.

The key question is what we must do if……

·      All new cars after 2030 are electric vehicles but we continue with the average mileage that we drive now.

·      All trains and major transport systems move to electrical / hydrogen source.

·      All new heating systems for homes will not have gas boilers from early 2030. Currently around 1.7mm gas boilers are installed each year with roughly 12,000 kwh/unit/year usage.

·      We continue building new homes requiring more power consumption.

·      We develop hydrogen as a green energy source for storage, generation, transportation, and manufacturing.

·      We ramped up manufacturing and products for ensure GDP meets both balance of payments to run the country and provide security, sustainability, and affordability for the nation.

Today the mix of the UK’s electricity demand is 40% on transport, 30% on domestic, 15% on Industry and 15% on commercial, so any major shift in transport and domestic positions will have a major impact on electrical generation capacity and future strategy.

If we look at the following table for electrical generation in 2020 verses projection for 2035, we can then make a few assumptions and predictions about the future.

Source                           2021 GW              2035GW

Coal                                9                           0

Interconnectors               5                           19

Gas                                 36                         22

Nuclear                           9                           13

Oil                                   1                           6

Renewables                    45                         70

Storage                            3                           10

Total                               108 GW                 140 GW       

Useable capacity           70 GW                   95 GW

Demand                         54 GW                   ? GW To be determined.

This can lead us to several of conclusions.

·      We will lose 9 GW of capacity from Coal production over the next 15 years.

·      Nuclear based load will stay consistent but new power stations are on a very long lead time and stakeholder management is complex.

·      The UK will increase its reliance on interconnector power with an additional 14 GW coming from Europe.

·      The UK gas supplies from our current fields will be depleted, therefore any gas-powered generation will be via gas imports adding additional risk. Thermal plant will be subject to even tighter emissions legislation along with carbon tax. Electrical generation costs for gas could be as high or even higher than nuclear.

·      The biggest increase will be in renewable power and green energy sources where the government has already committed to have over 40 gigawatts of offshore wind power by 2030.

·      For hydrocarbon plants left more facilities such an exhaust scrubbing units, re-purpose of gases along with carbon capture and sequestration all add additional energy requirements and costs.

·      All electricity generating units normally only have a life of circa 25 years, so there will be a consistent need for replacement as well as the growth in demand.

·      There is a massive growth / infrastructure requirement for electricity power generation moving forward, especially over the next 30 to 50 years, if we are to meet the governments requirements to meet the Paris Accord / Climate change / Energy transition / Net Zero targets and contribute globally to sustainability.

Back to the question then – Do the sums add up and what do we really need in the future? Of course, we can develop the key scenarios and risk profiles, but this post generates just one scenario with some high-level assumptions to help stimulation thinking and future study and recommendations into the energy road map moving forward.

3.0    Impact on current Government strategy on net zero

What impact would each of the key areas have on electric demand moving forward.

Move to electric Vehicles.

In the UK, there are circa 36mm petrol and diesel vehicles. With an average mileage of 7,800 miles/year with an average consumption of 40 mpg, that is circa 6.2 billion gallons of petrol /diesel per year use in the UK alone. An electric car can travel approximately 3 miles on 1 KwH and takes a charge up to 10 Kw from a domestic supply. Higher rates than this is not possible, as most homes have either a 60-amp or 100-amp supply and additional energy is required for other appliances in the home.

As we move to 30% of cars on the road being electric from 2030 onwards, then the power requirements would fall into the ranges below.

11,666,000 vehicles at 7.5kw charging per vehicle = 87 GW capacity peak capacity If all at the same time. However, if we assume 30% would be charging at any one time it would still be an additional 29 GW of power.

We could look at it another way which is what is the energy to drive 11.6mm vehicles 7,000 miles per year and this would be circa 27,217 GW / annum or an average daily rate of 3.1 GW of additional capacity if you could smooth every car charging over a 24-hour period and 365 days per year, however this is not realistic.

If smoothed capacity is 3GW and all cars charging at the same time is 87GW then we could assume a capacity requirement of at least 27 GW for just 30% of all vehicles being electric by 2040.

Move to eradiate gas boilers with all new heating systems being gas / oil free from 2035.

Today roughly 1.7mm gas boilers are installed each year and there are roughly 28 million homes within the UK. Most boilers must be replaced after a 15-to-20-year life span either for safety or obsolescence. The average energy use for each domestic boiler today is around 12,000 KWh /year which equates to an energy capacity of circa 4 kw. The average electrical usage in domestic homes is about 1.2KW so the gas boiler energy consumption is currently 4 times that of electrical consumption and domestic user represents about 30% of the electrical demand in the UK.

In 2040, we could expect at least 8 million heating systems being installed replacing gas boilers to another medium with along with installations in new homes. That would give an instantaneous demand of around 80 GW. Therefore, other sources such as solar, heat pumps, ground source, geothermal are required to ensure the required energy is available. Even if only 30% of homes were converted to non-gas boiler heating and of these homes only 30% were full electric heating for the grid then the power requirements would be circa 5 GW of electrical power. Although this would not get us to the net zero by 2050.

If the minimum requirements are only 10% of homes were converted to full electric heating the power load would be circa 4GW but if 30% of homes were converted to full electric heating this would be circa 38 GW. This would still leave 70% of homes with gas boilers which would be reliant in imports via the interconnector pipelines. Therefore for 2040, it would be safe to suggest at least 25 GW of electric power for domestic heating is required.

Developing Hydrogen and a green energy / energy storage

The current market for Hydrogen is more than just green energy, it covers Ammonia production, synthetic fuels, industry requirements, buildings, transportation, power, and refineries. The current market is approximately 70 million tonnes per year, but this is due to increase to 87 million tonnes by 2030 and then 140 million tonnes by 2050 with current predictions.

If the UK developed Hydrogen generation for 5% of the global economy, then the production circa 2035 to 2040 would be approximately 5 million tonnes/year. Hydrogen is challenging, as 1 kg of hydrogen has 143 MJ of energy, but to generate hydrogen, the input energy for 1 kg hydrogen is anywhere from 250 MJ to 440 MJ depending on the process and the process efficiency. To put it another way, 1 kg of hydrogen requires circa 50 Kwh of energy.

Therefore, to continuously produce hydrogen in the UK with 5% of global demand the power requirement (if driven by electric power) would be circa 20 GW to 30 GW of electrical demand, unless we find much more efficient ways to produce hydrogen including thermal recovery from process and power plants. However, the sting is that with new zero and energy efficiency the thermal capacity across the UK should dramatically reduce.

Increases in New homes

Currently, there are circa 28 million domestic homes in the UK today using on average 4 to 6 kw of energy through electric and gas supplies. With a population of 68 million people (excluding visitors) that is average of 2.42 people per home. If we assume a net increase in number of homes, population, and electric appliances within those homes over the next 15 to 20 years, then we could assume an increase in domestic electricity demand of circa 2 to 3GW additional requirements.

Increased demand from industry (manufacturing) commercial (Offices, hotels entertainment etc)

Industry and commercial users represent 30% of the overall electrical demand, but if this is developed inline is UK GDP / growth aspirations, it also has an impact on transportation energy demand as well.

Currently, from 2018 to 2060 the UK ambitions is to double output in financial terms. Some of this will come from inflationary cost increases and some will come from increased manufacturing and services, all requiring additional energy requirements. Over a 15-to-20-year period this would increase power demand by circa 4 GW of electrical demand.

What would be the future requirement in 2040?

Current peak demand is circa                                   54 GW

30% of vehicles being fully electric                           27 GW

Removal of domestic gas boilers                                25 GW

Hydrogen generation                                                  20 GW

New homes and domestic appliances                         3 GW

Increase UK output                                                   4 GW

Installed capacity availability                                       65%

Total required installed capacity                             204 GW

Planned installed capacity by 2035                         140 GW

If we were extrapolated this to 2050 and assuming all vehicles are electric / hybrid units, no gas boilers in the UK, increased hydrogen manufacturing, increased UK output then we would need circa 380 GW installed capacity. This assumes our current lifestyles and the way we live stays relatively the same. However, will it?

4.0     Cost of developing additional energy supplies.

For all energy sources, the benchmark is the overall cost per MwH based on acquisition, concept, capital development, operations, cessation, decommissioning and ongoing monitoring. Each electrical generating source will vary depending mainly on capital costs, operating costs, and decommissioning costs. For example, Offshore wind is expensive in terms of capital costs, but once running, it has one of the lowest operating and decommissioning costs making it highly competitive.

Looking at the various methods to generate electricity the league table of capital costs are as follows.

·      Combustion Turbine                              ￡550 / Kw

·      Combined Cycle Gas turbines               ￡770 / Kw (without CCS)

·      Solar                                                    ￡870 / Kw

·      Battery Storage                                     ￡1076 / Kw

·      Onshore Wind turbines                          ￡1230 / Kw

·      CCGT with CCS                                    ￡1300 / Kw (running costs high)

·      Hydropower                                         ￡2000 / Kw

·      Geothermal                                          ￡2100 / Kw

·      Coal with Gas scrubbing / CCS             ￡2700 / Kw

·      Nuclear                                                 ￡4600 / Kw

·      Offshore Wind                                       ￡4650 /Kw

·      Hydrogen / Fuel cell technology             ￡5500 / kw

These numbers are approximate, can readily change as the technology take-up, development and implementation improves dramatically over time. For example, solar power costs have reduced by a staggering 97% since the 1980’s.

Firstly, assuming we need an additional 75 GW of power between 2021 and 2040. The capital budget for this would be in the range of ￡230 billion but also during this period many of the existing power plants would require replacement taking the total potential up to ￡0.5 trillion of capital investment. Or in other words ￡25 billion capex per year. The bigger step change would be from 2040 up to 2050 when the Government has set the target of a net zero emissions position for the UK and if things remain the same, another ￡0.5 to ￡0.74 trillion investment would be required. This excludes all the operating costs, decommissioning costs and recycle costs.

So, a huge potential capital market for UK sustainable energy for the foreseeable future.

5.0    Summary

The case of change is clear, with global temperature approaching the post-industrial age target of 1.5 deg C, dramatic changes in weather patterns and the governments goals and ambitions over the next 30 years, the energy transition evolution must continue to aid future security and sustainability of the planet as we know it.

How this will play out is less clear as there are so many moving parts. These include in how we react to the forthcoming challenges and specially how society changes or not. Secondly, how the technology will be used more efficiently. Thirdly, whether the current capital market continues, or we move more to a circular economy. Next, how the energy mix comes together and finally how the cost changes with time as new technology uptake becomes mainstream.

The UK will become slightly more reliant on interconnectors for power and gas from / though Europe which potentially could have an adverse effect on affordability and security of supply, so maintaining the UK electricity power generating capacity is essential.

Unlike Coal, Oil and Gas, the energy transition to green power will remain with us for centuries with a forward capex of cicra ￡25 bn per year on average so for people in other energy sectors, it provides a great transition vehicle.

The key challenge will be how we manage electrical supply in the new age. With thousands of smaller power units and much largest swings in daily demand due to electric heating and charging cars early evenings when people come home from work, it will be very different from today. The infrastructure will need investment, but how we operate and control the electrical supply is a much harder question to answer.

The question is, will our lives be similar in the decades to come or is radical transformation required to allow for a net zero environment with sustainability and security for future generations. If the latter, can we make this change happen?

This was just a snapshot, but a more robust investigation with full scenario planning and risk analysis should be completed and subsequently communicated in the clear fashion to help us understand how to play our part in the future of the earth. Removing the myths, populism, gossip, and opinions is key for us to move forward collectively and successfully.

Quotes of the day

“The question no longer is if, but when alternative engines start to take over and the combustion engine ends up in the museum.”

“The farewell from coal and gas has long begun. The Paris Agreement is just the beginning, not the end.”

“We have to decarbonise everything that cannot be electrified.”

“Climate change is a matter of great peril but also one of great promise. We can pioneer the industries of the future, create millions of good-paying jobs, and build the clean energy economy of the future”.

P3L Fusion – Bringing together People, Policy and Process through effective leadership