ID Big Picture Summer 2012
The cheapest ways t cut carbn SNAPSHOT By 2050, the ttal cst f the UK s energy system is prjected t be 294bn a year in tday s prices. Whichever path we chse, ur energy system is ging t be expensive. The cheapest ways t cut carbn If dne in the right way, the cst f cutting carbn emissins by 80% culd be as lw as 26bn a year by 2050 in tday s prices less than 10% f the ttal energy system cst. Dr. David Clarke, Chief Executive f the Energy Technlgies Institute, and Crin Taylr, Senir Ecnmic Adviser at the ID, utline hw the UK can prvide affrdable, secure and sustainable energy in the future, reducing emissins in the cheapest way. Five steps will need t be taken t keep the csts f carbn reductins manageable: imprving energy efficiency; replacing ageing nuclear reactrs; develping carbn capture and strage (CCS); using sustainable bimass; and reducing the csts f ffshre renewables. Technlgy develpment is abslutely crucial. We simply can t meet ur 2050 emissins reductin targets ecnmically using tday s technlgy. The Energy Technlgies Institute (ETI) a partnership between glbal industries and the UK Gvernment has invested 136m in 35 prjects, helping t get new technlgies such as CCS ff the grund and reduce the cst f ffshre wind. The UK needs a revlutin in its energy system. Getting by with tday s technlgy isn t a viable ptin. While fssil fuels are currently the cheapest slutin, n their wn they will nt be able t prvide ur future energy needs in a sustainable way. As a cuntry, it s vital that we think abut the lnger term, nt just hw we can scrape by ver the next few years. This means designing ur 2050 energy system nw. It als means understanding the rigid cnstraints in that design alng with the areas where we need flexibility t cpe with uncertainty, new demands and glbal changes in ecnmics, plitics and technlgy. At a time when cnsumers are spending 124bn a year n energy, we ve gt t get it right. If we d, nt nly will we have a reliable and sustainable energy supply, the UK will als win a big ecnmic prize in terms f greater emplyment, new exprt markets and increased inward investment. There are als tremendus reputatinal gains t be wn in psitining the UK as a technlgical leader and innvatr. FOSSIL FUELS: CHEAP BUT DIRTY Cal and gas pwer statins, dmestic gas bilers and vehicles that run n petrl and diesel are currently the cheapest slutins t meet ur energy needs. Gas is crucial fr meeting the highly variable demand fr space heating. The demand fr energy at peak times in winter is many times greater than the lwest summer demand, which is a critical challenge fr future energy system designs. As Chart 1 shws, this seasnal heat variability is far, far higher than the intra-day peaks and trughs in electricity demand, althugh it is far less cmmented upn.
ID Big Picture Summer 2012 CHART 1 Seasnal heat demand fluctuatins dwarf daily electricity demand mvements Heat/Electricity (GW) 250 200 150 100 Heat demand Electricity demand Design pint fr a GB heat delivery system 50 0 Jan 2010 Apr 2010 July 2010 Oct 2010 Design pint fr a GB electricity delivery system GB 2010 heat and electricity hurly demand variability cmmercial & dmestic buildings. Data surce: UKERC (2011) The UK energy system will grw t rely n significant imprts f fssil fuels, raising cncerns ver security f supply. Hwever, supply is likely t be mre diverse in bth fuel type and gegraphical surce than at present, ptentially making the UK mre resilient t supply disruptin and glbal price changes than in recent years. Our current technlgies have all seen imprvements in efficiency but further significant imprvements can and must be delivered. Lw-cst and lw-risk technlgy initiatives such as imprving insulatin in buildings, replacing ld gas bilers, installing waste heat recvery units and cntinuing t imprve the fuel efficiency f vehicles, will all help t reduce ur energy cnsumptin significantly, even as the number f cars n the rads increases. There are n silver bullets. T meet future energy demands, fundamental shifts in the energy mix will be needed. Fuel switching increasing the use f gas and sustainable bimass in place f cal in energy intensive industries can als deliver significant reductins in emissins whilst sustaining ecnmic prductin. There are, hwever, n silver bullets. Efficiency and fuel-switching are imprtant measures, but will nt be sufficient n their wn t meet ur future energy demands sustainably. Mre fundamental shifts in the energy mix will be needed.
The cheapest ways t cut carbn BOX 1 Mdelling energy system csts Like mst businesses, the Energy Technlgies Institute (ETI) perates n the principle that we need sund evidence n which t base ur decisins bjective facts, backed by expertise, which prvide the best guidance there is fr develping ur future energy base. T help achieve just that, the ETI has ESME its internatinally peer-reviewed Energy System Mdelling Envirnment. ESME analyses 128 different technlgies, assessing the impact they might have n the UK s energy system and finding the lwest-cst rute t meeting future energy demands. As a natinal energy system design tl, ESME has a unique cmbinatin f features: It fcuses n a whle system analysis lking at all aspects f the energy system including interactins between pwer, heat, transprt and infrastructure. It establishes the lwest-cst slutin based n engineering design cnsideratins and using backcasting that is, it assesses what the UK will need t deliver starting with the 2050 end-date fr carbn emissins targets and wrks back t tday. It allws fr uncertainty in technlgy perfrmance and glbal resurce prices. It includes factrs such as peak heat demand and seasnal capacity. Finally, it cnsiders the effect f gegraphy n energy supply and use. There are a number f questins that are crucial t the design f the UK s future energy system, which ESME helps us t answer, such as: What might the n regret technlgies be thse which culd be used in all reasnable future energy scenaris in rder t meet 2050 climate change targets affrdably? Hw might accelerating the develpment f particular technlgies impact n the slutin? What is the ttal system cst f meeting thse energy targets? ESME helps us understand the effect f different technlgies at the energy system, sectr and individual technlgy levels. Technlgy csts including investment, perating, fuel and resurce csts are incrprated int the mdel. Uncertainty in future demand and supply, technlgy csts and glbal resurce are als cnsidered. ESME prvides insights n the reginal variatin in energy system designs. It has the ability t define demands and natural resurces at a UK reginal level and shw the gegraphical lcatin f pssible new energy infrastructure. Ecnmic grwth is als factred in and a particularly imprtant and unique feature f ESME is its detailed representatin f peak energy demands and system flexibility requirements. THE FIVE STEPS TO LOWEST-COST DECARBONISATION It s crucial t understand that, whichever path we chse, ur energy system is ging t be expensive. By 2050, the ETI prjects that the ttal cst f the UK s energy system including capital csts, perating csts and fuel csts fr all energy technlgies, frm pwer statins t vehicles t infrastructure (e.g. transmissin and strage) will be 294bn a year in tday s prices. The UK can t meet its 2050 emissins reductin targets using tday s energy system the cst wuld be t high and the technlgy we currently have in place wn t d the jb. But if dne in the right way,
ID Big Picture Summer 2012 the cst f cutting carbn emissins by 80% culd be as lw as 26bn a year in tday s prices by 2050 less than 10% f the ttal energy system cst and just 0.7% f GDP. Five steps will need t be taken t keep the cst f carbn reductins manageable: Efficiency demand reductin and smarter use f energy in ur businesses and hmes. Nuclear while it is pssible t create a future energy system capable f meeting ur 2050 emissins reductin targets withut nuclear energy, it will cme with t high a price tag t be realistic. Supply chain develpment and early deplyment is critical in realising the ptimal 2050 UK energy system design. CCS particularly useful when cmbined with bienergy, but it has a lng develpment time and requires an early start. Bienergy culd prvide a significant prprtin f the UK s energy needs but requires sustainable supplies whether grwn in the UK r imprted. Offshre renewables prvide an imprtant hedging ptin but cst reductin is critical. It is nt a case f chsing ne ver anther. As Table 1 shws, we will need a cmbinatin f them all. Fr instance: If we dn t use bimass, we prject that the ttal system csts wuld be 44bn a year higher by 2050. If there are n meaningful technlgical develpments that imprve perfrmance and reduce csts, the ttal energy system cst wuld be 106bn higher. Withut using ne r mre f bimass, CCS and nuclear, there is n rute t the UK delivering an energy system that meets ur climate change targets. TABLE 1 Prjected energy system csts in 2050 billin per annum, 2010 prices Ttal system cst Of which CO 2 abatement cst N bimass N CCS N nuclear N technlgical develpment 294 26 +44 +42 +4 +106
The cheapest ways t cut carbn Chart 2 illustrates the imprtance f imprving n the technlgy we currently have. At tday s technlgical levels, reducing CO 2 emissins by 80% by 2050 wuld be prhibitively expensive. But these csts becme far mre manageable with expected imprvements in technlgy. ETI prjects are fcused n reducing the cst f new technlgies still further. CHART 2 Technlgy develpment is needed t keep decarbnisatin csts manageable 2050 marginal UK system cst 2010 /Tnne equivalent CO 2 500 450 400 350 300 250 200 150 100 50 Current technlgy capability Expected imprvement in technlgy capability Successful technlgy selectin, innvatin and develpment ETI prjects fcus n reducing these levels further 0 0% 20% 40% 60% 80% 100% UK energy greenhuse gas reductin UK Cmmittee n (including aviatin and shipping) Climate Change target Surce: Energy Technlgies Institute. THE VITAL ROLE OF CCS While new green technlgies will make up an increasing prprtin f the UK s energy mix, we will still be burning fssil fuels fr decades t cme. CCS technlgy captures carbn dixide frm fssil fuel pwer statins. The CO 2 is then transprted using pipelines and stred ffshre in deep undergrund structures such as depleted il and gas reservirs and saline aquifers. CCS technlgy will affect the whle range f CO 2 emitting fuels, including cal, gas and bimass. While new green technlgies will make up an increasing prprtin f the UK s energy mix, we will still be burning fssil fuels fr decades. Pwer generatin accunts fr apprximately a third f the UK s CO 2 emissins and CCS is a critical develpment. It means that fssil fuels can cntinue t be used in pwer generatin whilst dramatically reducing emissins frm the pwer sectr by up t 95%. And, by applying CCS t bimass we can effectively remve CO 2 frm the atmsphere, creating negative emissins. These can ffset ur cntinued use f gas and liquid fuels in specific parts f the dmestic heating and transprt sectrs where their replacement is likely t be particularly difficult and hence very expensive. Althugh CCS appears an expensive additin t pwer generatin, it
ID Big Picture Summer 2012 is ne f the mst imprtant strategic levers we can use. The pprtunity csts assciated with delivering a sustainable future energy system with CCS, ranged against the cst f ding s withut it, far utweigh the abslute cst f CCS. ETI mdelling shws that the ttal mean cst f the energy system design including CCS is reduced by 42bn per annum (r arund 1.2% f GDP) cmpared with the cst withut this technlgy. T put it anther way, a successful CCS sectr culd reduce the cst f all frms f energy in 2050 by tw pence per kwh. As well as pwer generatin, CCS can als be cnverted t hydrgen, ffering strage pprtunities in the future energy system as well as a ptential fuel surce fr use in vehicles. There is an urgent need t demnstrate the technlgies required fr CCS and appraise ptential ffshre strage sites in rder t design the ptimal CCS system. The ETI has launched r is cmmissining prjects cncerned with carbn strage, capture fr cal and gas plants, pipeline netwrk design, and CCS with bimass t pwer. Shwing that CCS is practical will build public and cmmercial cnfidence in the technlgy. In the ETI s view, UK plicy supprt fr wind energy lks right. But we als need t intrduce the right levels and structures f supprt fr the equally rapid intrductin f CCS, as well as nuclear. Time is f the essence. If we delay, the UK will be unable t meet its 2030 and 2050 emissins targets withut mre aggressively deplying mre expensive renewable energy surces. These will still require fssil fuel back-up t deal with intermittent supply shrtages. OFFSHORE RENEWABLES AS A HEDGING OPTION The UK is blessed with significant natural, renewable resurces such as ffshre wind and marine, the ptential f which far exceed the natin s energy demands. Unfrtunately, the technlgies needed t explit these resurces require significant develpment and cst reductin befre they can cmpete with fssil fuel technlgies. The prblem f supply shrtages and pwer blackuts must als be vercme. ETI mdelling assumes that the first cal and gas plants fitted with CCS will be deplyed by 2020, in line with the Gvernment s plans. If we delay by five years, the cst f meeting ur emissins targets will rise, with ffshre wind becming mre imprtant. This wuld add apprximately 1% t the ttal energy system csts ut t 2050. Offshre wind prvides a vital hedging ptin in case any f the ther technlgies, including CCS and bienergy, which currently lk t be mre valuable, fail t deliver. The ETI believes that the csts f ffshre wind can be reduced
The cheapest ways t cut carbn significantly, which is why it is investing heavily in the demnstratin f technlgies such as flating ffshre wind platfrms, very lng blades, cnditin mnitring systems and test rigs that culd significantly lwer the lifecycle csts and lead t far higher levels f deplyment. CHART 3 UK ffshre wind develpment ptential The UK has high winds in 50-100m water. Average wind speeds ver UK waters that are 50-100m deep range frm 9m/s (light range) t 12m/s (bright red). 8.5p/KWh target cst flating 10.1p/KWh reference cst flating 12.5p/KWh Current cst fixed structure Target cst 9.1p/KWh 9.1p/KWh target cst flating Surce: Energy Technlgies Institute.
ID Big Picture Summer 2012 SMART SYSTEMS AND ENERGY STORAGE As the energy supplied frm renewables increases, the system must be sufficiently flexible t cpe with variatins in demand (fr heat and, ptentially, electric vehicles) and supply frm surces such as wind and wave pwer. That is why the ETI launched a Smart Systems and Heat Prgramme this year, alng with a new prject in energy strage. The tw will see ETI invest heavily in smart systems that integrate bth supply and demand-side factrs, allwing us t take a hlistic view f hw ur pwer and energy systems are likely t develp. The ETI is als explring the rle that gas, heat, electricity and hydrgen strage may play in balancing supply and demand t avid excessive investment in peak lad plant which is nly used n a few days a year as well as prviding security against disruptins in supply. It is essential that we guard against pwer black-uts if ur ecnmy is t thrive. Intrducing a strage mechanism t seasnally stre heat frm pwer statins will prvide the ptential t balance the seasnal mismatch. THE REGIONAL ANGLE Nt surprisingly, Sctland is likely t supply a very significant prprtin f the UK s renewable pwer by 2050 in the frm f nshre and ffshre wind, marine energy and bimass. This will have lng-term implicatins fr the UK s transmissin netwrk, which is capital intensive and has lng develpment lead times. Infrastructure installed in the next five t 10 years is likely still t be in use in 2050, s a credible investment plan needs an understanding f an apprpriate energy system design. CCS can be expected t be mainly lcated arund majr industrial areas in the Midlands, Nrth East England, the Suth East and Sctland, but will require the develpment f CO 2 netwrks t gather and transprt CO 2 t ffshre strage sites. KEEPING ENERGY COSTS DOWN T keep future energy system csts dwn, it is essential that the UK priritises nuclear, CCS and sustainable bimass. T keep future energy system csts dwn, it is essential that the UK priritises: nuclear, t prvide clean and reliable baselad supply; CCS, which will allw us t cntinue burning fssil fuels; and sustainable bimass, which cmbined with CCS will actually take carbn ut f the atmsphere. Imprving the efficiency f energy use and reducing the cst f ffshre renewables are als vital. The UK faces enrmus challenges in prviding an affrdable, clean and secure supply f energy in the future. Whichever path we chse, ur future energy system is likely t be expensive. But if decarbnisatin is apprached in the right way, the additinal csts f an 80% reductin in CO 2 emissins needn t be prhibitive.
The cheapest ways t cut carbn BOX 2 What is the ETI and why des it matter t business? The Energy Technlgies Institute is a public-private partnership between glbal industries and the UK Gvernment that is helping t make a difference fr the UK s future energy mix and ecnmy. Its aim is t accelerate the develpment, demnstratin and eventual cmmercial deplyment f a fcused prtfli f affrdable energy technlgies, which will increase energy efficiency, reduce greenhuse gas emissins and help achieve energy and climate change gals. Fundamentally, it is seeking t address the energy trilemma delivering a future energy system that is affrdable, sustainable and secure whilst driving green grwth and helping t make the UK a wrld leader in energy technlgies. Since it was established in 2008 it has invested arund 136m in 35 prjects cvering ffshre wind, marine, distributed energy, buildings, energy strage and distributin, carbn capture and strage, transprt, bi energy, and smart systems and heat. It uses the cmbinatin f its members expertise and experience at cmpanies such as BP, Caterpillar, EDF, E.ON, Rlls-Ryce and Shell, tgether with gvernment departments, including the Department fr Business, Innvatin and Skills and the Department f Energy and Climate Change, t deliver targeted investments in energy technlgy. Each prject, which is delivered thrugh cnsrtia f large cmpanies, SMEs and leading academic institutins, will help make a big difference t realising the UK s target t reduce carbn emissins by 80% by 2050. The UK s energy envirnment is a cmplex set f needs, technlgies and chices. Given the challenges, hw d we prepare fr the future? The develpment f highly cmplex energy systems requires a sphisticated apprach the ETI understands the imprtance f analysing energy hlistically, planning ahead and targeting investment in pririty technlgies.