The UK's new energy security strategy policy paper released April 7 aims to decarbonize 95% of the countries power by 2030 by targeting accelerated expansion of nuclear, wind, solar, hydrogen, oil and gas.
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"This plan comes in light of rising global energy prices, provoked by surging demand after the pandemic as well as Russia's invasion of Ukraine. This will be central to weaning Britain off expensive fossil fuels, which are subject to volatile gas prices set by international markets we are unable to control," the UK government said on release of the strategy paper.
S&P Global Commodity Insights assesses the scale and impact of the policy on the world's fifth-largest economy:
The government wants nuclear capacity of up to 24 GW to contribute 25% of the UK power mix by 2050. Government projections see power demand reaching 575 TWh by 2050 under a lower demand net zero scenario, and 670 TWh under a high demand scenario.
- UK nuclear output of 46 TWh in 2021 represented just 15% of the UK's 310 TWh generation mix as reactor outages reduced availability.
- Poor nuclear and wind output saw record net electricity imports of 25 TWh in 2021, up 37% year on year.
- All the UK's existing reactors will have closed by 2028 bar Sizewell B, with only the in-construction Hinkley Point C set to enter operation in the meantime.
--The strategy has added 10 GW to the government's 40-GW offshore wind target by 2030, boosting floating wind's contribution from 1 GW to 5 GW.
- Generation from renewable sources dipped to 122 TWh in 2021 (still over 39% of the mix) as a result of less favorable weather conditions, while generation from fossil fuels (overwhelmingly gas) increased to 132 TWh (43% of the mix).
- S&P Global forecasts renewables will meet 77% of UK power demand in 2030, with wind output set to rise from annual generation levels of 10 GW in 2023 to over 25 GW in 2030.
- Booming battery storage installation in the UK is helping to spread intermittent flows of wind and solar into peak demand hours. National Grid ESO's Leading the Way Future Energy Scenario predicts up to 13.1 GW of battery storage capacity by 2030, up from 1.5 GW today.
--The strategy promises a new North Sea licensing round in the autumn following a pause in licensing in 2020, plus a "task force" to support new oil and gas projects following complaints of regulatory delays.
- North Sea investment, drilling and production have hit multi-decade lows since the pandemic, with oil output down 17% on the year in 2021 at under 900,000 b/d, reflecting flagging support for hydrocarbons, a collapse in oil and gas prices and work restrictions during the pandemic.
- The UK has been a net oil importer since 2006, barring a few months during the pandemic. North Sea light sweet crude is internationally traded, with refiners often using cheaper imports. In 2021, domestic output was equivalent to 82% of demand, while prior to the pandemic, in 2018, it was equivalent to 75% of demand.
- Norway was the UK's largest oil import source last year, mainly comprising crude, followed by the US.
- Russia is the UK's largest import source for diesel, the oil product most imported by the UK, accounting for around 18% of diesel consumed in 2020 and 2021.
- The UK is much less dependent than most of Europe on Russian gas supplies. BEIS said in late February that Russian imports made up less than 4% of total UK gas supply in 2021.
- The UK relies on a wide range of gas supply sources to meet demand, including domestic North Sea production, pipeline imports from Norway and the Continent, and LNG deliveries. It has only limited gas storage capacity, however, after the Rough site ceased storage operations in 2017.
A new government body, Great British Nuclear, is to be set up immediately to bring forward up to eight reactors by the end of this decade, while small modular reactors are also to play a role in the UK's atomic renaissance.
- The UK has one nuclear plant in construction, the 3.2-GW Hinkley Point C facility in Somerset. Nominal completion costs are estimated at between GBP26 billion to GBP27 billion, with time/budget overruns possible due to Covid restrictions and sub-contractor issues.
- A new regulated asset base funding model has been proposed for EDF Energy's 3.2-GW Sizewell C project in Suffolk. A final investment decision on the project is due by the end of 2024.
- Bechtel and Westinghouse want to develop two AP1000 reactors at Wylfa Newydd in north Wales, and potentially at Oldbury in the West Midlands.
-- UK offshore wind costs have dropped dramatically in recent years, enabling the government to ramp up target capacities, extend concessions to far offshore sites, and contemplate floating wind technologies.
- The UK's pipeline of offshore wind projects now stands at 86 GW, more than eight times current operational capacity, driven by massive leasing round announcements by The Crown Estate (8 GW) and Crown Estate Scotland (25 GW).
- The results of the UK's fourth contract for differences allocation round are due by July 8. Investors believe it could clear around 9 GW of offshore wind capacity at a strike price below GBP38/MWh versus GBP114/MWh in 2015's first CFD competition.
-- The government aims to double low carbon hydrogen production by 2030 to 10 GW, with at least half coming from renewable hydrogen using excess offshore wind to bring costs down.
- Announced UK low-carbon hydrogen production projects are skewed towards blue hydrogen projects, using natural gas reforming with carbon capture. One of the largest is Equinor's H2H Saltend project, which has agreements to supply hydrogen to six companies from a 600 MW low-carbon hydrogen plant east of Hull, enabling fuel switching away from natural gas.
- S&P Global's Hydrogen Production Asset Database shows 2.7 million mt/year of blue hydrogen production capacity announcements due to start in the UK by 2030, versus just 92,000 mt/year of renewable hydrogen projects. Renewable hydrogen project announcements amount to 550 MW of electrolyzer capacity.
The strategy aims to deliver lower prices in the long term. Nearer term, the government is to provide a GBP200 energy bill reduction in October when capped tariffs are forecast to rise steeply again.
- The UK NBP front-month price hit a record high of 503 p/th (Eur206.54/MWh, $65.85/MMBtu) on March 8, according to Platts assessments by S&P Global, more than 1,125% higher on the year. The NBP front-month was last assessed at 241.8 pth on April 6, up 415% year on year.
- Front-month UK power prices hit GBP397/MWh on March 7, up 649% year on year. The contract was last assessed at 210/MWh on April 6.
- S&P Global forecasts UK offshore wind capture prices will fall to around GBP37/MWh in 2030 from over GBP80/MWh in 2025.
- Dated Brent was assessed at $104.5/b on April 6, having reached a high of just under $140/b on March 8.