UK renewable capacity growth has fallen to an average increase of 4.45% in the past three years, compared with an average 9.67% annual increase globally, with investment confidence falling. In a review, the UK Energy Research Centre (UKERC) looks at what the government is doing and says there is a looming investment gap. It says ‘to deliver on 1.5C will need substantial build-out of renewables at pace, scaling green heat (still nascent) and actually addressing energy efficiency, building retrofit and demand side flexibility and at the different scales that make up the energy transition.’ So it says the government must do more, and develop a bold new investment plan.
Whereas power generation has been relatively well addressed, as UKERC says, a key nascent area is heat supply. There’s been a long running green heat debate, which continues, although electric heat pumps seem to have seen off green hydrogen on the basis that they use 3-4 times less energy for home heating. However they do still have issues- they are expensive and may not cut bills much. That may explain why, although the government has set a target to install 600,000 heat pumps a year by 2028 and provided a £5,000 grant, uptake has been very low: consumers still think they are too expensive.
The problem is not just the high cost of heat pump installation but also the cost of electricity to run them. Though if you have cash to spare then getting the power for that from solar PV may help - and uptake on that is booming. On average, over 20,000 households installed solar panels every month this year, while the number of homes installing heat pumps has reached 3,000 a month for the first time. A new European report says the combination of heat pumps and solar may be a winner- saving up to 84% on bills in Spain and Italy last year. But can that be repeated in the not so sunny UK? And for people on a budget?
Meanwhile, the hydrogen option hasn’t being doing too well, with the proposed green hydrogen home heating test scheme in Whitby having been abandoned. However, with other uses of hydrogen also in mind, the government still plans to award operational support for 250MW of green hydrogen projects by end of year. 30 projects entered the negotiations stage of the first allocation round for the HBM (Hydrogen Business Model) subsidy. That provides a top up to cover the difference between a ‘strike price’, reflecting the cost of producing green hydrogen, and a ‘reference price’ for the market value of fossil hydrogen. But three major projects have now withdrawn from the competition - the Commercial Scale Demonstrator led by ERM Dolphyn, Gigastack led by Phillips 66/Ørsted, and Quill 2 led by Inovyn ChlorVinyls, a total of 146 MW. Though that still leaves 262MW in the competition and the government has called for the three projects that dropped out to apply for support in its second HBM allocation round next year.
As Hydrogen Insight reports, Gigastack was set to use a 100MW electrolyser supplied by ITM, with electricity from Hornsea 2 offshore wind farm, in order to supply green hydrogen to the Phillips 66 Humber refinery. Phillips 66/ Ørsted confirmed to Hydrogen Insight that the project has been paused saying ‘further project maturation together with supply chain development is required to unlock the maximum potential of this world-scale electrolytic hydrogen project.’ ERM Dolphyn planned to construct 10MW of electrolysis capacity integrated with a floating offshore wind platform & desalination unit. But it seems that, and the Quill project, was too advanced for now. And, worryingly, Sheffield-based ITM Power has just also announced what has been depicted as a temporary loss, mainly it seems due to its old electrolyser. It says it should better with its new version. Clearly though, there is still a way to go in the green hydrogen field, although SKN’s conversion of a gas pipeline to carry green hydrogen has gone ahead.
Whether it is used directly, or to run heat pumps or to make green hydrogen, the costs of green power will be central and we have now moved from a period when renewable generation costs were falling, to one where they are rising – due to the wider inflationary trend in the economy. That has already led to a major 1.4GW offshore wind project being abandoned, and according to New Civil Engineer (NCE), more may follow. Although the fifth allocation round of the Contract for Difference (CfD) did get an additional £22M of funding, the NCE journal noted that this would ‘not impact the administrative strike price. Instead of increasing the unit price projects can secure for energy, it only increases the number of projects that can secure a low CfD’. And it said that ‘with no significant increase in real term strike prices for offshore wind projects, developers are finding it increasingly difficult to secure a fixed long term revenue stream in the face of rising costs in virtually every area of their projects. As a result, bidding strategies have become more complex and challenging, making it problematic for developers to strike a balance between securing contracts and ensuring profitable operations.’
NCE suggested ‘creating more avenues for flexible pricing, such as re-bidding at higher strike prices’. For example ‘the government might allow developers to renegotiate their contracts, enabling them to achieve a reasonable return on investment despite the evolving circumstances’. But so far that’s not been done. We will have to wait until after the CfD round are out (possibly next month), to see how it goes. And also for the outcome of the first round of the hydrogen competition- a bit later. We are evidently at the mercy of markets…unless the government decides to step in.
For its part, Labour Deputy Leader says that, if elected, Labour aims to have a fund of up to £500 million a year over the first five years of government to provide grants to incentivise companies developing clean technologies like offshore wind, onshore wind, solar, hydrogen & carbon capture. But, like the Tories, she also backed nuclear, which she said ‘will play a key role getting towards net zero’. It’s hard to get away from debatable assertions like that, with, for example, the Financial Times (17.8.23) saying nuclear ‘can provide a “firm” generation bedrock to underpin more intermittent solar and wind’. At least the FT have stopped saying it’s ‘baseload’. And they did also admit that ‘nuclear is much more expensive than renewables’. Small steps!
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