As the energy revolution advances, the UK grid continues to transition towards a more sustainable future. Until the UK is at the point where it can run 100% of the time on 100% renewable energy, it needs some additional support as it moves further and further away from large scale coal-fired plants. During this time of transition, additional resources are needed to support the National Grid to ensure businesses can continue to operate and domestic consumers are not impacted. The need for grid flexibility has increased in importance with so many people working from home during the Covid-19 pandemic.
This week our Peterlee site took delivery of two 2MW units that will be available to support the National Grid. The onsite generation units will provide balancing services and flexibility as the UK grid continues to try and balance the growing renewable assets available. By setting up another site, we ensure we are playing our part in keeping a consistent power supply to the UK. Once fully commissioned this site will be able to provide an additional 4MW of power to the grid when it needs it most.
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The ever-changing landscape of the UK energy market
What started out a couple of months ago as a surge in prices amid low…
What started out a couple of months ago as a surge in prices amid low wind and concerns about storage levels has fast accelerated into a full-blown crisis with new records being set on an almost daily basis, resulting in about 2 million households seeing their energy supplier go bust and the UK government forced to step in and help out energy intensive businesses.
At the start of October, the UK gas price passed 400p per therm during extremely volatile trading, with intraday gains up to 39%. Although prices have dropped since the early October pinnacle, the UK’s fundamental outlook hasn’t changed. The supply/demand balance for this winter is still tight and prices are likely to remain elevated for a number of months yet.
So far, the rise in wholesale prices have forced 15 suppliers of gas and electricity to UK homes go out of business with likely further casualties yet. The more recent rise of storage levels to around 77% full is, however, providing a glimmer of hope to gas balances.
While the energy price cap, which limits the rates a supplier can charge a domestic customer for their default tariffs, is protecting households, there is no such mechanism in place for businesses who have to absorb ever-higher gas and power prices into their production and manufacturing costs. For the most energy-intensive companies, this has forced them to consider whether they can continue operating in the current environment.
A prime example was fertilizer manufacturer CF Fertilisers shutting sites in September before the government agreed an exceptional 3-week arrangement with the company that allowed it to continue operating. With CF Fertilisers also the UK’s largest producer of carbon dioxide, the government went a step further and forced the CO2 industry to agree a price for CF Fertilisers’ supplies while global gas prices remain high.
This government intervention has led to other energy intensive industries, such as steel producers and paper mills, similarly calling for help to see them through this period of elevated prices.
These price surges and extremely volatility in gas and electricity prices highlight the value Hartree Solutions can offer to energy intensive businesses by developing localised generating assets such as solar, combined heat and power (CHP) or battery storage and then optimising the asset to ensure it provides security of supply and protects businesses from these wild price swings.
This gas crisis is set against the backdrop of the UK’s ambitious target to eliminate fossil fuels from electricity generation by 2035, which Prime Minister Boris Johnson announced at the start of October. With gas and coal the source of more than 36% of the UK’s electricity in 2020, the country needs to set clear policy to meet these goals. For example, in just a few months’ time the government-backed Capacity Mechanism, designed to ensure the UK’s security of supply, will likely contract new gas generators that will be providing power well past this 2035 target date.
The National Grid’s recently released Winter Outlook states that “there is sufficient generation availability and interconnector imports to meet demand” while warning the network provider may well have to issue Electricity Margin Notices (EMNs), particularly in December through to mid-January when tight margins are likely. Last winter, the Grid issued six EMNs, the first time it has had to resort to these measures since 2016, further illustrating the challenges the country faces as it transitions towards a renewable future.
One unwitting side effect of the extreme gas prices is that coal generation has become profitable again. With emitters needing to buy more carbon allowances to cover this unexpected coal usage, the cost of these permits has risen sharply too increasing the likelihood of the government being forced to involve itself in this market too.
The UK created its own Emissions Trading Scheme earlier this year, after leaving the EU ETS as a result of Brexit, if the carbon price remains high for another two months the Cost Containment Mechanism (CCM) will be triggered in December. The mechanism enables the UK ETS Authority to intervene if the average allowance price is double the average price for 3 consecutive months. The average carbon price in September was £58.36/ton, more than 10% above the threshold needed to trigger the CCM. If the average price stays above £52.88/metric ton in October and November, then the authority will consider what action to take.
With so many different strands to the energy markets and the potential for government intervention across a broad range of factors, Hartree Solutions’ 20+ years expertise in tracking and understanding energy markets along with advanced asset optimisation can help support businesses through these unprecedented, headline-making times.
Understanding REGOs: Do you know where your renewable energy is coming from?
One of the key drivers for the UK to reach net-zero is the continued development…
One of the key drivers for the UK to reach net-zero is the continued development of renewable energy projects to supply clean power to the grid and reduce carbon intensity. These projects can be powered by different energy solutions, including wind, wave, marine, hydro, biomass, or solar.
The recent report by the Intergovernmental Panel on Climate Change (IPCC) highlighted the urgent need for the world to transition away from fossil fuels to renewable energy. As this focus on reaching net-zero intensifies, particularly in the run-up to the key UN climate conference, COP26, we look at the role of the Renewable Energy Guarantees of Origin scheme (REGOs). This government scheme, which was established to support the energy transition away from fossil fuels, provides transparency about the proportion of electricity suppliers source from renewable generation.
The REGO scheme is part of the EU’s Renewable Energy Directive, which requires all EU Member States to report what proportion of electricity consumption is from renewable sources. Following Brexit, the REGO scheme is under review in the UK. However, it appears it is the Government’s intention for the scheme to continue. The UK is now in a position where it can review this scheme and decide on a future approach that could expedite the journey to net-zero whilst improving transparency.
Currently, the scheme works by granting one REGO certificate to a renewable generator for every megawatt-hour (MWh) of renewable electricity produced. Energy suppliers must purchase and “retire” REGO certificates as part of their Fuel Mix Disclosure Regulatory requirements, therefore evidencing to end consumers the proportion of power produced from various fuels (renewables, coal, gas, nuclear, etc.).
REGOs can be sold separately to the power with which they are associated. Suppliers often purchase these REGOs without the associated power generation to ‘green’ their fossil fuel-based supply. This means the certificates don’t necessarily support or incentivise the development of new renewable projects, or “additional” projects, often referred to as additionality.
Additionality is becoming increasingly important to customers. It enables them to clearly demonstrate that they are actively involved with a new renewable project, rather than just buying REGOs from an existing project. This is often achieved through a Power Purchase Agreement (PPA).
A customer will guarantee to purchase the power at an agreed price for an agreed length of time and receive the REGOs attached to that power through a PPA. This provides a level of certainty to the developer/investor of the renewable project to build it. The customer can claim the REGOs attached to this specific project and state that they are “additional REGOs”. It also has the benefit that a proportion of the customers’ electricity consumption will be fixed for the long term, which is usually more cost-effective than current energy market prices and also protects against rising electricity costs.
If an organisation is making a true commitment to zero carbon emissions like “Microsoft’s 100/100/0 vision and commitment for a decarbonized grid”, then REGOs are likely to play a smaller part. To truly operate with carbon neutrality 24/7, renewable technologies will need to be paired with energy storage and state-of-the-art energy optimisation to match supply and demand in real-time.
At Hartree Solutions, we can guide you through a net-zero strategy, signposting the best technologies to reduce your carbon from day one. We also have several options to help you access “additional” REGOs with both on-site and off-site solar. Additionally, for hard to abate emissions we can provide verified carbon offsets to set you on the right path from day one as part of your journey to net zero.