Commodities 2022: New investment projects set to start as UK aims for higher energy stability

Looking at 2022, multiple investment projects are set to begin in the UK as higher capacity has proven to be required given an increase in power demand, while supply from non-renewable sources are set to remain tight.

UK regulator Ofgem has encouraged investments in new electricity interconnectors to help boost energy security beyond the current seven interconnectors that total 7.4 GW of capacity.

The Sept. 13 IFA1 outage impacted the UK market prices considerably, with baseload power prices spiking to a multi-year high at GBP540/MWh. This reinforced the need for additional interconnectors to avoid market volatility in times of distress.

The France-UK IFA1 interconnector has been set to come back online by Q4 2022 after losing 1 GW transmission capacity.

Multiple French nuclear outages and delays at times of peak demand minimized net flows to UK via IFA1 and IFA2 interconnectors, which averaged around 0.5 GW from September to December, below available capacity. UK exports to France were also proven opportunistic as the arbitrage between the two markets opened during French peak demand and tight supply.

France-UK ElecLink 1 GW interconnector is set to come online during mid 2022, and UK-Denmark Viking Link 1.4 GW is set to come online by the end of 2022.

A new CCGTs project, Keadby 2, is set to start in Q2 2022. This will bring an additional 840 MW capacity online as few nuclear and coal closures are expected during the year.

The 1,000-MW Hunterston B and 1,250-MW Hinkley Point B nuclear reactors are planned to close during 2022. The Weston Burton A 600 MW coal plant is set to be phased out by September 2022.

The UK's fourth allocation round for low-carbon power projects, under contracts for difference mechanism, is aimed at securing 12 GW capacity and has a deadline of January 14. Results are expected by late April, with an available funding of GBP285.00 million/year.

A number of key projects are expected to start during 2022-2023. The 850-MW Triton Knoll project is expected to begin in early 2022, while the 1,300-MW Honsea Two, and 950-MW Moray East is expected later in the year. The 1,100-MW Seagreen is to start at the end of 2022 or early 2023, and the 1,200-MW Dogger Bank A is to start from 2023.

Great Britain is to account for half of the 29 GW projects set to start in Europe by 2025, with a target of 40 GW by 2030, while Continental North Sea markets are to implement measures to achieve the EU's new 60 GW target by 2030 as well as energy islands for the next decade.

S&P Global Platts Analytics expects offshore wind capture prices to remain elevated for the next couple of years after setting at a record high in 2021. It is expected that Germany will see the highest prices, while GB offshore capture prices are expected to average slightly lower with more downside risk toward the end of the decade due to the large wind power build up.