Gas crisis could put a rocket under UK push for nuclear, hydrogen

7th October 2021

When the wind was blowing and the gas was flowing, Britain’s energy market looked like an exciting place: a high-functioning, competitive market in which as many as 50 suppliers were jostling for customers, promising households ever-cheaper deals for their gas and electricity (reports The Australian Financial Review).

But when the wind died down a few months ago, and the gas price paid in European markets surged fourfold, suddenly things began to look very different.

Many start-up suppliers had chased growth with recklessly low tariffs, and did not hedge against rising prices. For them, the crunch has been lethal. Ten suppliers have gone to the wall in the past month, leaving the regulator to find new custodians for the energy accounts of almost two million British households.

Consumers are disgruntled but not out of pocket: they are protected by a price cap. However, the regulator will jack up that cap by 12 per cent in October, and probably by at least the same again next April, adding hundreds of pounds to an annual bill.

Britain is suddenly hobbling on pretty much every leg of what Randolph Brazier, director of innovation and electricity systems at the Energy Networks Association, calls “the energy trilemma”: security of supply, affordability and sustainability.

The question – one that Australia will be watching closely – is how politicians and the public will react. Will punishingly high prices spur the government to step up efforts to diversify energy supplies and rev up renewables, as the clean energy lobby hopes and expects?

Or will household bills become a toxic political issue – one that could crimp Prime Minister Boris Johnson’s ability to get the public on board for new green energy levies and for potentially expensive new household tech, such as heat pumps and hydrogen boilers?

The gas price isn’t going to come down any time soon, and household demand is four times as high in winter, which is just around the corner. So the issues of cost and reliability are about to “really come into focus”, Brazier says.

Tom Edwards, a senior modeller at Cornwall Insight, says seismic fuel price spikes can drive tectonic economic shifts; it was the 1970s oil price crunch that got Britain into North Sea gas and France heavily into nuclear.

On the other hand, the shock of the 2008 financial crisis ultimately prompted then Conservative prime minister David Cameron to shed his eco-friendly veneer and reportedly tell ministers to “cut the green crap”.

“The Conservative Party looks likely to go down the ‘build back better’ route, which could accelerate the transition,” Edwards says. “But things can change quickly. I can see it going either way.”

Johnson is hosting the COP26 meeting in Glasgow in barely a month’s time, and has spent the whole year mustering global support for a renewed push towards reaching net zero emissions by 2050. He is talking the talk, but the policies to actually get Britain on the road have been repeatedly delayed.

The gas crisis may finally force his hand. He is fully committed to dotting the coast with offshore turbines, having repeatedly cited an ambition to make Britain “the Saudi Arabia of wind energy”.

But the wind drought, which has come alongside the gas crisis and exacerbated the problem, has sharpened the debate about what else needs to feature in Britain’s energy mix.

“The big question is whether we are going to electrify everything, or whether we are going to do down the hydrogen route,” Brazier says – though he reckons Britain will in effect need to do both.

For electrification, the challenge is to ramp up storage capacity and – in the eyes of some, at least – to get the next generation of nuclear reactors into service.

The mega-reactor projects are barely even plodding along, so the government is poised to put money into Rolls-Royce’s plan to churn out mini-nukes: 470 megawatt small modular reactors (SMRs) that can power a small city.

Rolls-Royce is likely to spin out this project into a separate vehicle, owned in conjunction with the taxpayer and private investors, that will try to rip through the regulation, funding and planning consent processes in a parallel, truncated fashion.

“We can immediately begin to look at sites, at delivery models, at funding models, in order to move quickly and get units onto the grid by the early 2030s,” says Rolls-Royce’s director of corporate and government affairs for SMRs, Alastair Evans. “The trick to getting it done is moving at pace. If we can inject pace into it, we will succeed.”

Once the factories are built, Rolls-Royce might be able to get up a couple of SMRs a year. These would either power the grid, service bespoke users such as data centres, and/or fuel the production of green hydrogen.

Rolls-Royce already has SMR technology in its nuclear submarine program, raising the intriguing possibility that if Australia’s new AUKUS deal leads the country to nuclear subs, then mini-reactors are a logical further step – particularly for a country with ample uranium.

That would require community and political buy-in, which Evans says is readily available for SMRs in Britain – particularly for the secure, skilled jobs they can bring.

“Communities are tremendously supportive. The challenge is they’ve had large-scale nuclear promised and not delivered. Expectation-wise, we’ve got to be straightforward and transparent about timelines.”

The British government is also getting ready to put a heavy bet on hydrogen. The gas pipelines are being upgraded to be hydrogen-ready and Johnson is talking it up. But, as with everything else, he is going to need to pony up some cash.

“It is going to need some sort of government support to get it kick-started, there’s just no doubt about that,” Brazier says. “That’s exactly what happened with onshore and offshore wind, with solar, even batteries. That’s not to say you want eternal subsidies, but you do it to kick-start innovation, drive the market, and get a competitive market that pushes down prices.”

But, like the offshore wind industry, some patience is required. “It will take time to get production in place, it will take time to get the right revenue models and regulation in place,” says Martin Bradley, a senior managing director at Macquarie Asset Management.

“With the right mandate we could introduce hydrogen into the gas supply today. In doing that we would begin to stimulate the demand side. With leadership, government and regulatory support, we can grasp this opportunity.”

The initial use-case will probably be industrial, and in energy storage. But there is a lot of chatter about hydrogen being blended into the household gas supply, and eventually becoming the dominant way Britons heat their homes and water.

Edwards, though, notes that hydrogen is still “much more expensive to make, you lose a lot of energy in the conversion process, and then you’ve got to store it and move it”.

So, it will be some time before hydrogen can supplant natural gas – with or without a price spike. “Gas is the best friend to renewables, which are inherently intermittent,” says Paddy Blewer, public affairs director at the International Gas Union.

“It provides that vital balancing aspect, and is much cleaner than burning oil or coal.”

The problem is that gas demand has moved faster than supply – especially as gas prices were at historic lows until recently – and “you can’t just click your fingers and bring more gas onstream”.

Gas will continue to play a major role in Britain and around the world, he says; but only gas whose carbon emissions are captured or abated.

Even as hydrogen comes onstream, it will likely be blended with gas for many years before the new fuel predominates.

“As a big producer, you won’t put all your eggs in one basket, either hydrogen or decarbonised natural gas. They’ll take a portfolio approach, and [worldwide] it’ll work on a region-by-region approach,” he says.

The wind has picked up again in recent weeks, and that has already eased some of Britain’s cost squeeze. But the global gas price spike looks set to continue – and if that doesn’t put some wind in the sails of the Johnson government’s energy policy, nothing ever will.

 

Subscribe to the RRS Weekly Wrap

© 2021 Resources Rising Stars All Rights Reserved