RCEM: Views on Energy News

Although carbon emissions factors from electricity generation vary according to their net calorific values and efficiencies, natural gas with about 400 gCO2 per kWh is clearly the lowest of the fossil fuels. For those concerned with the need to move to a low carbon future, and quickly - especially those who have negative views about nuclear power - natural gas would appear to be the obvious bridge to that low carbon future as far as electricity generation is concerned, with a reliance on renewable energy, and avoidance of the potentially catastrophic consequences of human-induced climatic change. However, it scarcely touches the transportation sector. In this short Note I suggest, without going into the challenges of a renewable energy future or the uncertainties and complexities surrounding the subject of climatic change (topics I intend to cover in a talk at the ESCP Europe Paris Campus on May 31st), that the natural gas sector faces its own severe challenges. These challenges largely come about due to the internal contradictions and unforeseen consequences of energy policies in all too many countries.

Natural gas supply security is one area of concern, not least in many EU Member countries. Natural gas imports have been growing and LNG imports have also risen sharply. Disruption or delays in supplies could have a major impact, especially on those countries with modest gas storage capacity and stocks. This would of itself make natural gas a somewhat insecure bridge to a renewable energy future. A former Minister of Energy has stated that the UK, for example, "cannot build an energy policy on luck, when cold weather pushed the country to within hours of running out of gas."

The current UK Secretary of State at the Department of Energy & Climate Change announced in November, 2015, that "gas is central to our energy-secure future." But here comes the most worrying feature of all. As in Germany, an increasing number of gas-fired power stations are being mothballed; others are struggling to survive because they are expected to come in at short notice to supply only when intermittent sources of energy (mainly wind-powered) cannot satisfy demand. Under these conditions few new gas-fired plant proposals are coming forward - and most of these have recently been withdrawn.  Perhaps as damning evidence as any is the fact that load factors for UK gas-fired power stations have almost halved from their earlier average of just over 60%. Centrica announced on April 21, 2016, that it would buy a green energy trading firm (Neas) for £170 million in line with the company's recognition "that the energy landscape is rapidly changing, with a trend away from large centralised power generation - much of it to intermittent renewable generation." Centrica, owner of British Gas (and being taken over by Shell), only two years ago was demanding an end to offshore wind and solar farm deployment in favour of more large gas-fired plants.

In Germany the story is not dissimilar. About 50 of Germany's power plants are expected to apply for decommissioning in 2016, with even relatively new gas-fired plant closures announced. Load factors achieved by gas-fired plants have fallen dramatically. E.ON and RWE have suffered disastrous losses due to the favouring of renewable energy with subsidies - even though both companies have been heavily involved in such schemes (especially wind power) themselves. In several other EU countries there is evidence that renewable energy (mainly wind power, but also solar PV in some more southerly countries) has cut deeply into the market share of natural gas.

The question therefore arises, are the subsidies and other support provided for renewable energy schemes curbing gas-fired generation, causing closures of existing gas-fired plants, and blocking new gas-fired plants? Is there a real fear that load factors achievable by gas-fired plants will continue to fall and remain low because of the need to step in at short notice to meet demand which intermittent renewable developments - though growing in number and declining in direct cost - cannot meet, and for which the needed storage schemes are not being brought forward (or not quickly enough)? Is there a deepening concern in the industry of a growing risk of stranded assets?

We may agree that sound precautionary measures are needed in case a warming climate induced by human activities and the burning of fossil fuels requires a transition to a low carbon future. It is less than clear whether natural gas will be permitted to act: "As a Bridge to a Renewable Energy Future". And that is before we address the demands of the transportation sector and how those are to be met in a low carbon, yet environmentally sustainable manner.

Michael Jefferson

Member of the International Advisory Board, Editor of the journal Energy Policy
Affiliate Professor, ESCP Europe Business School


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