Informer Issue 496 - 19/01/2021

Increased electrification and expansion of the use of green hydrogen will see global power demand double by 2050, according to a new report.

Although the impact of Covid-19 has seen a “profound” reduction in energy demand, global consultancy McKinsey expects it to rebound within one to four years as economies recover.

While the pandemic has led to behavioural changes which have reduced some areas of demand fall, it points out that they are small compared with fundamental shifts underway such as the electrification of transport.

The research predicts electricity’s share of the energy consumption mix will grow from 19% today to 30% by mid-century.

Renewables will dominate the energy market within the next decade as they become cheaper than fossil fuel plants with an estimated 5TW of new solar and wind capacity expected to be installed by 2035, growth of fivefold from current levels. However, demand for fossil fuels will “never return” to its pre-pandemic growth curve.

The analysis also predicts green hydrogen will become cost-competitive by 2030 and that ‘indirect’ power demand for electrolysis will account for approximately 40% of the electricity demand growth from 2035 to 2050.

McKinsey expects oil demand to peak in 2029 and gas in 2037, but coal will continue to fall with use expected to fall by almost 40% from 2019 to 2050.

Christer Tryggestad, Senior Partner at McKinsey, said: “While the pandemic has certainly provided a substantial shock for the energy sector across all fuel sources, the story of the century is still a rapid and continuous shift to lower-carbon energy systems.”

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Energy firm SSE has appealed to the competition watchdog over proposed changes to transmission charging methodology which it said would undermine low carbon investment.

The regulator last month approved modifications to the Connection and Use of System Code to “implement the correct interpretation of a regulation which limits the average charges that can be paid for use of the transmission network by large generators”. Ofgem said the change would also stop payments which are being given to generators as a result of the incorrect interpretation.

However, SSE said it believes the proposed changes to the transmission charging methodology as applied to generation are based on an “incorrect technical application of the rules” which it said will unfairly burden generators with materially increased costs, undermining low carbon investment and the UK’s net zero ambitions.

“SSE is supportive of a charging regime and infrastructure which will deliver the flexible electricity system for the future and hopes a swift resolution can be achieved to deliver for all stakeholders.”

Ofgem responded by saying its analysis indicates that correcting this error of interpretation will benefit consumers substantially, by reducing the amount consumers pay to large generators through their bills, whilst also creating a more efficient system outcome.

Ofgem said they would "defend our decision, and protect the interests of consumers, at the Competition and Markets Authority."

Ofgem further stressed the appeal has no impact of the other elements of the Targeted Charging Review.

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Plans to develop an offshore wind farm alongside a series of small nuclear reactors and hydrogen production facility at a site in Wales have been unveiled.

Shearwater Energy said it had earmarked a location at Wylfa on Anglesey where it could install 12 small modular reactors (SMR) alongside a 1,000 MW wind farm. It has signed a memorandum of understanding with US power firm NuScale which has developed the modular reactors to look at developments in the UK.

Shearwater Energy's CEO Simon Forster said the plans were hatched after Japanese energy giant Hitachi pulled out of the Wylfa Newydd nuclear power plant project in the area last year.

He described the hybrid model as a "flagship opportunity" for Wylfa and the UK power sector. “Combining low-carbon generating technologies enables us to achieve similar performance characteristics to large thermal plants without the high cost, long construction time and environmental legacy."

“When fully developed, an SMR-wind plant at Wylfa will provide 3 GW of reliable, zero-carbon electricity at a fraction of the cost of a conventional nuclear power station with surplus energy generation focused on the production of hydrogen to support the transport sector’s transition to low-carbon fuels.”

Forster said power generation at Wylfa could begin as early as 2027.

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A robust approach to consumer protection will be needed to enable domestic demand side response (DSR) to achieve its full potential in accelerating decarbonisation and reducing system costs, a new report says.

The report from Energy UK, the Association of Decentralised Energy (ADE) and Citizens Advice, highlights how increased use of electric vehicles, heat pumps and smart domestic appliances will see consumers reap the benefits of DSR in the same way many industrial users already do.

“To enable this market to grow well and reduce the cost of decarbonisation to consumers, people will need to have confidence through strong protections and the transition to new offers will need to be inclusive to all,” said the report.

Caroline Bragg, Head of Policy at the ADE, said: “For households, flexibility offers the opportunity of great customer service and earning money from the energy system, not just paying towards it. For the system, domestic-level flexibility, with broader flexibility from business, offers the only way to reach net zero without breaking the bank."

“Domestic flexibility is still very nascent in the UK but it will, and indeed needs to, take off in the next few years. As the industry grows, it’s crucial that we continue to deliver consistently good customer outcomes.”

The report looks at potential consumer risks, where they are covered by existing legislation and where there is likely to be a protection gap in the future.

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Further progress on enabling the flexibility services which helped keep Britain’s energy flowing during the pandemic are a key priority for the UK’s energy network operators this year.

The Energy Networks Association (ENA) said over 2GW of flexibility was tendered by Distribution Network Operators in 2020 when it said flexibility services proved to be a valuable resource given the challenges posed by Covid-19.

Its workplan for the fifth year of the Open Networks Project, which aims to help deliver net zero, said moves to enable further development of flexibility services are a key objective for the year head.

Priorities include simplifying participation in local flexibility markets through standardisation of approaches across DNOs. Networks will also look to enable new markets outside the direct procurement of services by DSOs to help customers realise more value from flexibility and allow more effective use of network capacity.

Launching the Open Networks workplan for 2021, David Smith, Chief Executive at the ENA, said: “2021 will be a year of action and delivery ahead of COP26 in Glasgow, and the Open Networks Project looks forward to collaborating with the whole industry, from BEIS and Ofgem to community groups all over the country, to deliver the vital changes to deliver net zero emissions.”

The 2021 Work Plan consultation will run until 1 March 2021.

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