(Bloomberg) -- In the north of England about 450 engineers are toiling away to build a new large gas plant. It could be one of Britain’s last.
SSE Plc’s 840-megawatt Keadby plant is the latest gas plant under construction in the U.K. At the start of June a gas turbine weighing as much as an Airbus A-380 arrived on-site from Germany, keeping it on track to finish construction by 2022.
The U.K. has at least 10 gigawatts of new large-scale gas plants at various stages of planning, from Czech generator Energeticky a Prumyslovy Holding AS to Drax Plc. But the government has set the path to reducing emissions to net zero by 2050 and that means eliminating polluting fuels almost entirely as well as more than doubling the share of renewables.
Long seen as a crucial bridging fuel in the energy transition, gas can back up intermittent renewable electricity and replace dirtier coal that has all but disappeared from the nation’s power mix. However, as the costs of renewables have plunged, the role of gas in one of Europe’s biggest power markets has come under scrutiny.
Utilities are now looking to burgeoning technologies that cut emissions, like carbon capture and hydrogen production in order to keep building new gas units.
“I don’t think it will be the last traditional gas plant we build but it will be the last one that doesn’t have carbon capture or hydrogen involved with it,” Alistair Phillips-Davies, chief executive officer of SSE, said.
The last large gas station to be built in the country was in 2016 and before that 2013.
In Germany, where coal is still dominant, gas hasn't gained as much ground as a back up for renewables. Still, things are changing. Low prices have meant that gas has become more economic and earlier this month, gas generated more than hard coal for the first time, according to Fraunhofer data. A sign of the transition the nation hopes to make away from coal and lignite.
The picture around the rest of the world is less clear-cut. While gas remains the dominant fuel for power generation in the the U.S., it's coming increasingly under threat as some state officials push to move away from fossil fuels. In New York, regulators blocked a $1 billion pipeline expansion to bring more gas to the region. Massachusetts’s top law-enforcement officer asked regulators last month to investigate whether gas utilities have a future in the state.
Developing nations in Asia are considering a shift to more gas generation as a cleaner alternative to coal. And even in developed nations, like Japan and Australia, gas-fired power projects are being pursued to replace aging facilities.
This year gas’s share of the U.K.’ generation mix has collapsed. Generation fell 36% between early March and the end of May due to lockdown measures to prevent the spread of coronavirus. Although low prices made the fuel economic to burn, high wind and solar output meant that less gas than usual was needed.
Times are tough for existing large gas plants. Calon Energy Ltd. announced it was going into administration June 25, leaving its 2.3-gigawatts gas fleet up for sale. The company had net liabilities of 633 million pounds ($787 million) in March 2019 due to low operating hours of the power stations and the high cost of its debts.
Switching from “coal to gas was a big carbon saving but now if you want to reduce carbon in the power sector you have to reduce gas,” said Rob Lalor, analyst at Enappsys Ltd. “Either you’ve got to make gas greener or replace it with something else.”
The U.K.’s National Grid Plc wants to be able to operate a zero carbon grid by 2025 which means spells without any gas running at all. The scaling back would need to be similar to coal where stations ran for fewer hours, then only in winter and finally not at all. The U.K. recently recorded two months without coal, the longest stretch since before the Industrial Revolution.
For gas to be a part of the U.K.’s power mix into the future, zero emissions technologies including carbon capture and hydrogen need to be deployed at scale and without the costs spiraling.
“We’re saying we could operate the system with zero-carbon,” said John Pettigrew, chief executive of National Grid in an interview. The key issue for gas “is whether carbon capture and storage is going to be an option in the long term.”
Still, smaller capacity gas plants known as “peakers” will continue to provide round-the-clock back-up to renewables as larger plants fade from the energy landscape.
Gas peakers “will continue to be critical and will fulfill the role of backup and grid balancing,” during the 2030s, said Rory McCarthy, analyst at Wood Mackenzie Ltd. Large gas units “that cannot find a way to operate profitably with reduced utilization and increased flexibility, will be forced to close.”
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