ENERGY SUPPLY
ENERGY CRISIS: AN UNINTENTIONAL, YET PERFECT STORM FOR THE UK’S GREEN ENERGY TRANSITION Chris Bowden, Managing Director, Squeaky.
A
fter a period of historically low energy prices, during the Covid induced lock downs, gas and power prices have started their inexorable rise and hit historic highs. In the UK problems have mounted left and right with several energy suppliers going bust and millions of UK households experiencing significant increases in their energy bills. The industrial and commercial (I&C) and public sector has also been directly impacted by the massive rises in wholesale power prices. Of course, the world has faced volatile energy markets and supply squeezes for decades. But the big difference this time is that this is the first major energy crisis of the clean-power transition. And whilst there has, and will continue to be, fallout from the recent wholesale market volatility, the net effect could be beneficial in the movement towards a greener world. Ultimately, this could well be the tipping point that we needed in the nation’s transition to clean energy. In short, paying more for gas and power, could spur on the deployment of a lot more renewable energy. There’s no doubt, some FTSE100 companies will be feeling the strain of the rapid increase in energy cost, particularly those whose budgets are based on the price of the previous year. Some will be seeing energy bills almost double, and when these costs are already in the millions, there may be some who will find themselves in a difficult situation where margins will be squeezed or prices to end customers will have to rise. And it’s not just the private sector that will be feeling the impact, the public sector will be under huge pressure too as it’s much harder to pass on these higher energy costs to customers as some companies can. Buying renewables from projects that need a Corporate Power Purchase Agreement (CPPA) to get funding can
disconnect a corporate from unstable and volatile power prices and provide greater certainty. This is because the power price needed by the developer of the project isn’t linked to fossil fuel prices, instead it is linked to the cost of solar panels or wind turbines and the cost of capital. And whilst the cost of solar panels has risen steeply over the last twelve months the levelized cost of energy for a solar project is still below £50/MWh which compares very favourably to 2022 power prices of over £100/MWh. Organisations who, prior to the energy crisis entered a CPPA, will have successfully insulated themselves against this chaos and will be reaping the rewards of stability. Whilst the cost of renewable energy under a CPPA is below the cost of fossil fuel energy, it’s important for a buyer to also consider the additional costs that often come with a long-term renewable energy transaction, namely the capture risk or the integration of this CPPA into both an organisation’s energy supply and the wider energy system. The integration of renewable sources in the energy system is one of the key components of any energy system decarbonisation strategy. However, this integration raises many challenges in terms of planning, operation, and reliability practice. Renewable technologies are not comparable with fossil-based generation in terms of dispatchability. This translates into high system costs of renewable
generation, as it requires holding significant back-up capacity to ensure a balanced energy supply throughout the day. In fact, these challenges will only further increase as the share of renewable energy generation increases to levels never witnessed before. To date, these aspects have been only marginally considered in economic analyses of renewable energy deployment. In addition, the politicisation of gas and power could also prove to be a challenge in the transition away from fossil fuels. Renewables imply a more flexible and decentralised approach to energy generation and one way to achieve this is interconnection with other markets. Electricity transmission operates under several significant constraints, among which are the interconnections between different regional electricity grids and the capacity constraints of transmission lines that limit movement of energy. No matter how painful and expensive the transition from fossil fuel to clean energy will be, there is no escaping the fact that it is entirely necessary. Overcoming one of the greatest challenges of our time will require a rethink of the entire system; an overhaul of decade-upon-decade of supply chains diseased with fossil fuels; management of competing thoughts and ideas; rapid innovation, a sharp focus on deploying and scaling up existing technologies, and a high degree of global collaboration. https://www.squeaky.energy/
ENERGY MANAGER MAGAZINE • JANUARY/FEBRUARY 2022
15
