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UK Energy and the EU: integration or isolation

By Dave Elliott

The UK may be island based but, as renewables expand, it will need more grid links to the continent for balancing and trade. It may have a net surplus and so could do very well selling it over supergrid interconnector links to EU countries less well endowed with renewables. The UK’s National Infrastructure Commission (NIC), which seems to be taking a leading role in energy system planning, said in its recent report ‘Smart Power’, that interconnection, along with storage and demand flexibility ‘could save consumers up to £8 billion a year by 2030, help the UK meet its 2050 carbon targets, and secure the UK’s energy supply for generations’.         

The NIC saw interconnectors as offering a number of benefits to the UK and as a key source of flexibility to the electricity system. ‘They are one of the few existing technologies that can shift large volumes of electricity from where it isn’t needed to where it is. By doing this they have the potential to lower prices for consumers, improve the investment case for power stations, help us meet our carbon targets at a lower cost and improve security of supply. Interconnectors can be thought of as both additional generation capacity and power exporters. This is because they allow electricity to be imported at times of peak demand but are also able to sell electricity abroad when we have more than we need’. So it wanted more than the 4GW we have, and possibly more than the extra 7GW (11GW total) that was planned: www.gov.uk/government/uploads/system/uploads/attachment_data/file/505218/IC_Energy_Report_web.pdf

Subsequently, in the Budget announcement, backing the smart power options that the NIC had highlighted, the government upped its interconnector target, and said it would support market delivery of ‘at least 9GW’ of extra links: www.gov.uk/government/uploads/system/uploads/attachment_data/file/508193/HMT_Budget_2016_Web_Accessible.pdf

Consultant group Poyry has looked at the costs and benefits of new interconnector links and says they are ‘overwhelmingly positive’ and that may hold for the UK up to 9-11GW, although it adds that beyond that it is less clear. While an EU-wide system would have overall socio-economic benefits for the EU, the benefits from more cross-channel links might be marginal and even negative for the UK, depending on the market situation. It’s the Brexit issue distilled in a specific technical context! https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/505222/080_Poyry_CostsAndBenefitsOfGBInterconnection_v500.pdf

If the UK exits the EU, it may still be able to trade power via interconnectors, but it would not be able to shape the design or rules of the proposed European Energy Union and the emerging EU-wide single energy market. That might mean the terms of trade would not be so attractive to the UK. Some of the institutional issues are explored in a timely book ‘The European Energy Union’  by Prof. Rafael Leal-Arcas from Queen Mary College London:  http://www.claeys-casteels.com/eu_energy_studies_8.php But until we know whether we are in or out, it may all be a bit academic.

If the UK votes to leave, it will be free of the EU Renewables Directive. Some see the target agreed with the EU of getting 15% of UK energy from renewables by 2020 as the main reason why the UK has accelerated its programme – otherwise it may have not bothered. Equally some others think that this green energy expansion has all been disastrous – another reason for exiting the EU. But since the UK agrees with the EU’s climate targets, leaving the EU might seem a bit excessive as a response to the renewables issue: the UK government has already ensured that no more mandatory EU renewables targets will be imposed, post 2020, so it will then be free to choose how to meet the climate targets. That may of course include an emphasis on nuclear and fossil CCS, perhaps more than on renewables.

It is conceivable that the UK could ‘go it alone’ like this, but it’s perhaps a little odd since, for example, it is having to buy in nuclear technology from France. Depending on your viewpoint, the prospect of a reduction in emphasis on renewables might also be worrying, but as indicated above, this might happen whether the UK remains in or leaves the EU.

From the EU energy perspective, some EU countries might be glad to see the UK leave. It’s making amongst the lowest renewable contributions in the EU: it might be seen as a drag on the rest. Others however might regret the loss of a (currently) strongly pro-nuclear country, the Scottish bit apart. So in energy terms, reactions may be a matter of technology preferences!

Indeed, it could be argued that technological preferences in the UK and EU may have more significance in terms of energy than the in/out decision – although there is clearly an interaction. For example, if the UK (and EDF) manages to get the huge Hinkley EPR plant built, sometime after 2025, then it will be less in need of interconnector links for top-ups. And so, arguably, it would have less need for ongoing EU involvement. However, if the Hinkley project collapses, as seems possible given the increasing economic uncertainties, then the UK will have to develop a ‘Plan B’, which presumably would involve a large renewables capacity that would have to be balanced in part by more integration with the EU system.

In addition to many scenarios aiming to obtain near 100% of UK electricity from renewables by 2050, most of them using supergrid links for backup and balancing, there are also several focusing on the nearer term, which might be seen as ‘Plan B’ candidates, i.e. high renewables 2030 scenarios. For example CAT’s Zero Carbon Britain: www.zerocarbonbritain.org  And from Greenpeace : www.demandenergyequality.org/2030-energy-scenario.html  and  www.greenpeace-energy.de/fileadmin/docs/pressematerial/Hinkley_Point/20160121_Study_Windgas_HPC_English.pdf And from Friends of the Earth: https://www.foe.co.uk/sites/default/files/downloads/plan_cbe_report.pdf  Also, for the South West: http://mollymep.org.uk/wp-content/uploads/The-power-to-transform-the-South-West_FINAL1.pdf

However, if the Hinkley project collapses, there are also those who say we should look to other nuclear options to replace it, including perhaps Small Modular Reactors.  That seems a bit of a long shot. SMRs are in their infancy, as are most of the other Generation 4 reactor ideas and it’s far from clear if they would be any cheaper. By contrast, the UK is in a good position to develop its huge renewable resource rapidly, with already available technology. Costs are falling rapidly: onshore wind and PV projects are already going ahead with CfD strike prices under £80/MWh, well below the £92.5/MWh offered to Hinkley when and if it starts up, which at best won’t be until after 2025. By then, offshore wind will also be cheaper. Indeed the Budget announcement included a plan to support offshore wind at £85/MWh for projects starting up in 2026. But that set of renewable options would arguably be easier to balance if the UK stayed in the EU!

Adding further to the uncertainty, if the UK leaves the EU, that could precipitate calls for another Scottish independence vote, and if that led Scotland to break away, then, with its huge renewables resource, already supplying 50% of Scotland’s electricity, the energy situation for the residual UK would look very different. It might have to import more from the EU, which might then include Scotland.

As can be seen, the outcome of the EU referendum may have implications for energy policy developments in the UK, and energy issues are amongst those that ought to be considered in making the in/out choice. Certainly there are technical and economic integration v independence issues.  However, much of the UK’s energy future will also depend on the outcome of the Hinkley saga and, although recent weeks have seen much speculation, that may not be resolved until after the EU referendum. Time for some decisions, and not just on the EU!

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