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Carbon in UK Power – Part 1: Lower Costs or Least Carbon?

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Carbon in UK Power – Part 1: Lower Costs or Least Carbon?

Date
December 8, 2020
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“The easy work is behind us; the hard work is yet to come”

The UK has made great strides in decarbonising its power generation with emissions at the end of 2020 forecast1 to fall 55% compared with five years ago. That’s almost four times better than the 14% reduction forecast1 in non-power8 emissions over the same period. However, the real challenge lies ahead if the country is to achieve its ambition of being net-zero by 2050. The carbon emissions from the power industry are set to decline just 7% over the next three years1.

In 2019, total UK greenhouse gas emissions were 45% per cent lower than in 1990. Achieving the newly announced target, a 68% cut by 2030, will require the UK to work 50% harder than it currently is.

The bulk of the reductions in the energy sector have come from the successful transition away from coal generation in favour of gas, thanks to a combination of the carbon price floor2 and the EU ETS3.  Simultaneously, government subsidy schemes have supported renewable generation resulting in large increases in both wind and solar capacity both in the UK and Europe.

Hartree analysis of generation by fuel type driven by the UK’s carbon policies

With coal soon to be entirely removed from the UK’s generation network, attention switches to how the remaining emissions will be removed and how a net-zero carbon energy supply system will look. The outlook is further clouded by the huge growth in electricity demand that is anticipated over the next few decades as the UK accelerates its transition to a fully electric vehicle fleet with Prime Minister Boris Johnson recently announcing the ban on new sales of petrol and diesel-powered cars from 20307.

National Grid’s Future Energy Scenarios 20204 peak demand forecast

As the National Grid recently said in its Future Energy Scenarios 20204 report: “Reaching net-zero carbon emissions by 2050 is achievable, however, it requires immediate action across all key technologies and policy areas, and full engagement across society and end consumers,” adding that significant investment will be required in low carbon generation.

Globally there needs to be swift and coordinated action too with the COP26 Energy Transition Council stating9 earlier this week that the global transition to clean electricity generation needs to at least quadruple by 2030.

Using our proprietary model at Hartree Solutions, when we look forward over the next five years the pace of emission reductions dramatically slows. This is despite our view that subsidy-free renewables will see significant growth. The easy switches have been done and any further reductions will face a headwind of sharply rising demand.

Hartree emissions forecast for the UK Power sector taking our in-house modelled dispatch profile for each power station and its applicable emissions generated hourly

At Hartree Solutions, we believe it is essential to consider the lifetime emissions of each solution. All electricity generation has some form of carbon footprint and so far, this has typically been measured by the direct emissions. It doesn’t for example factor in the huge costs, in both financial and emission terms, of decommissioning a nuclear plant.

As the industry awaits the government’s long-delayed energy white paper for further details on how the UK reaches net-zero, it’s worth noting the World Nuclear Association’s “lifetime emissions analysis”5.  Nuclear generation has a much larger upfront negative carbon impact than wind and solar due to the vast amounts of energy and materials used in its construction. Also, when the carbon intensity of decommissioning plants is taken into consideration, it shows that the lifetime emissions from stations such as Hinkley C and the proposed Sizewell C are worse than wind, as well as the cost of this nuclear generation being 2.3 times greater than its renewable alternative6.

The World Nuclear Association’s “lifetime emissions analysis”5

“Our actions today affect our carbon emissions tomorrow”

The reality of a net-zero electricity grid is still some decades away (see Market Insight) and while we must be drawing up long-term plans to meet this goal, we should not lose sight of the impact of carbon emissions in today’s power generation and the importance of our transitional steps towards this decarbonisation goal over the upcoming decades. Our actions today affect our carbon emissions tomorrow.

Currently, the UK power network is designed around cost, using the lowest marginal cost of generation, but if we want to reach net-zero, is this still the correct approach? And when should our focus shift towards solving for the lowest carbon solution?

For example, does it make sense to have regulatory policies that incentivise reduced production from UK gas generators with much lower carbon emissions and substitute that with cheaper continental lignite generation that produces nearly twice as much carbon to produce the same amount of electricity? Whilst consideration of this in the current UK regulatory system is questionable, we can take our own actions to prioritise mitigating carbon emissions above the cost of the power itself.

Low-carbon energy freedom for your business, with zero capital investment

Hartree’s in-house modelling allows us to predict current and future power prices with a high degree of accuracy and we can use this data to predict both the average and marginal plant’s carbon intensity of the UK power generation network today and into the future. We can extract historic carbon emissions and forecast future carbon emissions from our hourly modelling and use this to question carbon policies in this seemingly sedentary period until technology allows for the next wave of dramatic reductions. More on this in Part 2.

Hartree analysis showing the hourly emissions of carbon in the power sector both on an average basis but also a marginal basis alongside power price

Three major considerations that are often overlooked, or frankly may be just too difficult to answer when we consider our own carbon goals are:

  1. How can we measure the impact of our carbon-reducing actions?
  2. What granularity should we measure our actions and emissions in?
  3. What should we do about emissions that can’t be economically reduced at source?

Over the remainder of this series of Market Insights, we look to answer these questions.

Hartree’s market-leading in-house team of experts are here to offer transparent advice and solutions for you when planning for your business over the next decade and beyond. We offer low-carbon solutions for your business, with zero capital investment to support you in the journey to net-zero.

We are consistently hearing from businesses such as industrials, data centres and universities that consumers are no longer willing to deal with companies that are not at the forefront of ‘the road to net-zero’. Don’t let your business get left behind.

Coming up in the next article in this series, we look at what it really means to be 100% renewable and whether, as an industry, we need to be more transparent over our claims. We also analyse the correlation between power prices and the grid’s average and the marginal plant’s carbon dioxide emissions and delve further into what actions we should really be taking to reduce carbon impacts in the near term.

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Footnotes  
Hartree Forecast
Carbon Price Floor
3 EU ETS
4 National Grid Future Energy Scenarios 2020
5 World Nuclear Association’s “lifetime emissions analysis”
Calculated using the Hinkley Point C CfD Strike Price of £92.50/MWh (2012 prices) and the UK’s Third Contracts for Difference (CfD) auction where wind cleared at £39.650/MWh (2012 real).
7 The Ban on new sales of petrol and diesel-powered cars from 2030
Non-power industries include cement/lime, ceramics/glass, chemicals, metals, oil/gas and pulp/paper
9 COP26 Energy Transition statement

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written by
Adam Lewis

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Japan, 14th December 2023: Japanese power company, Kansai Electric Power Group (Kansai Group), has signed…

Japan, 14th December 2023: Japanese power company, Kansai Electric Power Group (Kansai Group), has signed a binding term agreement with Hartree Partners for the supply of LNG alongside investment in a nature-based carbon project in Australia, the first deal of its kind in Japan. The deal represents Kansai Group’s long-term commitments to decarbonisation and the provision of low-carbon energy for its customers. 

This LNG supply agreement enables KE Fuel Trading Singapore Pte. Ltd (KEFTS) to grow its LNG portfolio which will support Kansai Group’s LNG supply-demand situation and customers around the globe.  

Also, through its expertise in global carbon markets and its project portfolio in Australia, specifically focused on nature restoration, Vertree Partners, Hartree’s global carbon market arm, will support The Kansai Electric Power Co., Inc. (Kansai Electric) to access future supply of high-integrity carbon credits to support its Zero Carbon Vision.  

Both companies will explore potential opportunities to support Japan’s national net zero targets in areas such as LNG, renewable energy, environmental products and carbon capture and storage (CCS). 

Hartree Partners is a well-established global energy and commodities firm with decades of experience in the physical and financial energy and commodities market. Its wholly-owned subsidiary, Vertree Partners, is focused on decarbonisation and environmental markets.  

“Carbon credits have an important role to play in realising a zero-carbon society,” said Hideaki Ikai, Executive Officer, Operation and Trading Division in Kansai Electric. “Kansai, as a leading company of zero-carbon energy, is proactively studying ways to create a carbon neutral society, and I believe that this collaboration with Hartree Partners will accelerate our activities to achieve the goal of carbon net zero by 2050.” 

Shinichi Kudo, Chief Executive Officer, KEFTS, added “The combination of LNG and carbon credits will give us a promising option to attain our mission to provide our customers with stable energy supply and decarbonization solutions.” 

Ahmed S Al-Awa, Managing Director of Hartree Partners Singapore Pte. Limited and a Partner of Hartree Partners, said “this forward-looking move by Kansai Electric Power Group sends an important signal that carbon markets are likely to become a key component of the natural gas/LNG value chain as the sector moves to decarbonise.” 

Ariel Perez, Managing Partner of Vertree Partners added “We are committed to supporting Kansai Electric Power Group to make credible investment in the carbon market. The market is evolving rapidly, and companies may be increasingly exposed. Investments such as these support future preparedness whilst also directing finance to nature-based solutions, without which we face continued environmental degradation and eco-system loss and increase the risk of missing our global climate goals.” 

 

About The Kansai Electric Power Co., Inc. 

Kansai Electric Power Group, as a Japan’s leading electric power company, is aiming for carbon neutrality throughout the entirety of its business activities by 2050 to limit global warming, while increasing energy independence to secure energy supply for its customers, Kansai Group can be found at https://www.kepco.co.jp/english/ 

About KE Fuel Trading Singapore Pte. Ltd 

KEFTS, a 100% subsidiary of Kansai Electric, was established as an LNG trading arm of Kansai Group in April 2017. KEFTS has been supporting Kasai Electric’s LNG supply-demand balance and providing LNG portfolio for customers around the globe, and now enhances its activity to support Kansai Group’s carbon neutrality at its base in Singapore.

About Hartree Partners  

Hartree Partners, LP is a leading global energy and commodities firm with an international reputation for integrity developed over decades. Our expertise enables us to capitalise on the transition from fossil fuels to a low carbon economy. Hartree’s global breadth and reach provide a competitive presence in a comprehensive range of commodity markets, enriched by the firm’s employees who add deep insight, expertise and innovative thinking. More information concerning Hartree can be found at www.hartreepartners.com 

 

About Vertree Partners 

Vertree Partners enables leading companies and institutions to invest in both nature and innovative climate technologies to assist them in reaching their decarbonisation goals. Founded in 2020, Vertree is focused on driving positive environmental and social impact, and providing its customers access to existing and future supply of high-integrity environmental commodities. It does this through directly financing quality emissions reductions and removals projects; partnering with renowned project developers; investing in innovative organisations and technology-based solutions; and providing its expertise in voluntary and compliance markets, trading, market analytics and risk management. Vertree is wholly owned by Hartree Partners. 

www.vertree.earth 

 

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AGP Sustainable Real Assets and Hartree Partners Announce US Expansion of Global Solar Partnership

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AMPYR Energy USA will be headquartered in New York and is targeting to build a 5GW utility-scale solar PV platform across multiple US markets. With experienced renewables development professionals on the ground, the newly-created company will continue to leverage AGP’s experience in developing large-scale renewable power projects globally, and Hartree’s cutting-edge power trading analytics and zero-carbon solutions.

“With the Federal and State goals for accelerating the energy transition, the US will be one of the fastest growing solar markets in the world and a core strategic priority in realizing AMPYR’s ambition of becoming one of the largest independent renewables developer and operator globally,” said Saurabh Beniwal, Partner at AGP and Board Chair for AMPYR USA.

Since its inception in February 2021, Hartree and AGP’s European solar venture, AMPYR Solar Europe (ASE), is making swift progress towards its goal of rolling out 5GW of large-scale solar projects to establish itself as one of the largest utility scale solar platforms in Europe. ASE also recently closed a €400 million facility to support this plan.

Following in the footsteps of ASE, expectations are equally high for AMPYR USA.

“We are excited to take another step forward with AGP into the US market,” said Stephen Semlitz, Managing Director of Hartree. “This new venture allows us to further demonstrate our decades of experience in finding investment solutions, consulting, and generating sustainable and commercially viable strategies for energy renewal and regeneration.”

To learn more about the new US venture visit: www.ampyrenergyusa.com

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