A scenario based study by Jacoby et al., (2012) warned that a shale gas “revolution” could temporarily reduce interest in low-carbon emission technologies such as CCS. In retrospect, Broderick et al., (2011) envisaged that a £32 billion investment in shale gas development has the potential to displace 12 GW and 21 GW of offshore and onshore wind capacity, respectively. In contrast, the Task Force on Shale Gas (2015) maintains
that with proper policy safeguards in place, the emergence of the shale gas industry would not restrict or prohibit the ongoing development of low-carbon and renewable energy industry to meet the UK long-term energy needs. The economics of the ‘path to 50, 100 and 200’ decarbonisation frameworks by 2030 are illustrated in Figures 5.10 where the level of investment for low-carbon and renewable energy technologies deployed from 2015 to 2030 is outlined In order to achieve the 50 gCO2/kWh by 2030, a £200 billion
capital investment in low-carbon generation is required for the electricity sector (CCC, 2013c; Ofgem, 2010).
Figure 5.10. The 2015 - 2030 low-carbon and renewable energy technology investment for the decarbonisation pathways.
Large scale investment in wind and nuclear energy is respectively dominant in all scenarios with N/Gas50 and S/Gas50 recording £93.7.3 and £92.6 billion in offshore wind compared to £81.9, £78.4, £70.2 and £65.5 billion in the ‘paths to 100 and 200 g’ as highlighted in Figure 5.10. The large investment outlay for offshore wind is reflective of the levelised technology costs that have failed to reduce to a level below the £100/kWh threshold anticipated by the UK government by 2020, which is required to maximise its deployment in the period between 2020 and 2030 (The Crown Estate, 2012). However, there are indications that the offshore wind LCOE could come down well below the £100/MWh threshold by 2020 as demonstrated by the £114.39 clearing price achieved during the CFD Allocation Round One for the 2018/19 period (DECC, 2015b).
The investment outlay for the new nuclear power plants in the ‘path to 50 and 100 g’ scenarios is £44.7 billion compared to £15.8 billion for N/Gas200 and S/Gas200 due the differences in the estimated deployment capacities required to achieve the emissions targets set as illustrated in Figure 5.6. It is important to note that this investment outlay for nuclear power deployment depicted in the energy pathways (see Figure 5.10) is based on the capital investment for the FOAK price range. As more nuclear power plants are built, there is a potential that the investment outlay projected in the decarbonisation scenarios could come down. Onshore wind investment is high in N/Gas50 and S/Gas50, with a total of £26.9 and £25.9 billion estimated to achieve the deployment portfolio indicated in Figure 5.6. The investment in onshore wind decreases commensurate with the deployment ambitions achieved in the ‘path to 100 and 200 g’ scenarios as shown in Figures 5.10 and 5.6, respectively.
The deployment ambition for coal, gas and biomass generation fitted with CCS portrayed in Figure 5.6, could cost £3.1, £7.4 and £6.4 billion in the ‘path to 50 g’ scenarios. As the level of CCS penetration reduces with the increase in the level of emission target set, particularly in the ‘paths to 100 and 200g’, the cost requirements to deploy CCS technology are reduced as demonstrated in Figure 5.10. However, it is important to note that CCS is yet unproven at a large scale, and thus the level of deployment to 2030 is still uncertain. The investment proportion for the other technologies in all the other scenarios is shown in Figure 5.10, where the technology costs are high in scenarios seeking to achieve radical emission reduction by 2030.
The investment challenge for decarbonising the electricity supply was estimated to be £110 billion in the period to 2020 (DEEC, 2011b). The UK government envisages that between 2014 to 2020, an investment input in the order of £100 billion could be required to finance the electricity supply sector alone (DECC, 2014b). The Committee on Climate Change estimated that the low-carbon and renewable energy technology deployment for scenarios reaching 50 gCO2/kWh by 2030 could reach up to £200 billion between 2014
and 2030 (CCC, 2013a). While there is uncertainty as to the level of renewable and low- carbon energy technology that could be deployment to achieve the decarbonisation targets set, the total investment outlay between 2015 and 2030 for the scenarios considered in this thesis is illustrated in Figure 5.11.
Figure 5.11. Total capital expenditure on low-carbon and renewable energy technologies in scenarios reaching 50, 100 and 200 gCO2/kWh, both with or without
conventional and unconventional gas.
The N/Gas and S/Gas50 scenarios indicate that an increased penetration in low-carbon and renewable energy technologies could respectively require an estimated investment outlay in the order of £252.1 and £246.4 billion to achieve a 50 gCO2/kWh emission target
by 2030. A policy alternative that opts for a 100 gCO2/kWh by 2030, with or without
shale gas could achieve this target with an estimated investment portfolio of £206 and £218 billion, respectively, as shown in Figure 5.11. The ‘path to 200 g’ has the lowest low-carbon and renewable energy resource deployment in the three decarbonisation pathways, and thus its investment outlay is £155.3 and £135.5 billion for N/Gas200 and S/Gas200, respectively. Despite the increase in the utilisation of unabated conventional and unconventional gas in ‘path to 200 g’ scenarios, significant contributions from wind, solar and nuclear (see Figure 5.10), assist in driving the investment portfolio to the level depicted in Figure 5.11.
The investment projection outlined in Figure 5.11 is extraordinarily high to be achieved within the fifteen year deployment timeframe. In any case, the low-carbon and renewable energy technology portfolio projected in these scenarios provide an optimised emission abatement generation mix that could assist in achieving the decarbonisation aspirations for the electricity generation sector by 2030. Therefore, it is up to the UK government,
depending on the decarbonisation target they adopt for the UK electricity supply sector by 2030, to create a favourable investment climate that could trigger the flow of this enormous investment outlay required to finance the transformation of the power sector. The 2013 Energy Act introduced the EMR, a framework which is driven by the FiT CfD and the capacity market designed to deliver investment in low-carbon electricity infrastructure. These finance mechanisms, particularly the FiT CfD is designed to provide certainty to industry and investors by providing long-term price stabilisation to low- carbon electricity generation in the form of strike prices (DEECC, 2012a). Before being superseded by the FiT CfD in 2017, the Renewable Obligation (RO) (DECC, 2014b) will continue to drive investment in the development of new renewable energy generation resources. The proposed CfD strike prices for renewable energy technologies outlined in chapter 2 (see Table 2.1) provide a package of incentives designed to incentivise investment in low-carbon energy technologies required to decarbonise the electricity infrastructure as well as to guarantee security of electricity in the midst of plant closures. The arrangement for the allocation of CfD on CCS and nuclear power plants, as demonstrated by the £92.50/MWh strike price awarded to Hinkley Point C plant, over a 35 year period (DECC, 2014e) is based on bilateral negotiations between government and utility operators.
The delivery of the investment expenditure outlined in Figure 5.11 hinges not only on the enabling investment climate promoted by the EMR, but also on a concise and consistent policy delivery system which appeals to industry and the investor community. The current clamp down on green energy subsidies targeting onshore wind, and solar PV (DECC, 2015c; DECC, 2015b) could further increase the level of uncertainty over the direction and future of the energy policy, and thus undermining confidence among potential investors on the UK government’s commitment to developing a low-carbon electricity sector. The new energy policy shift which seeks to build more unabated gas plants and the UK government’s decision to cancel the £1 billion ring-fenced budget for CCS competition (DECC, 2015a; DECC, 2015c) could risk sending wrong signals to potential investors as to whether the government is still committed to building a low-carbon or a gas-based energy system. The decision to cancel the CCS funding could affect the future of the demonstration programmes currently running (White Rose CCS Project and Shell Peterhead Project), and thus, further increasing the uncertainty over the future inclusion
of CCS technology in the UK electricity generation mix. The apparent stop-start approach which appears to characterise some aspect of the energy policy could have irreparable implications on cases for low-carbon business development, capital allocation, innovation and supply chain investment, and thus undermining the prospects for low-carbon investments (CCC, 2012) commensurate with the levels set in Figure 5.11 for the alternative decarbonisation ambitions.
5.2.5 Sensitivity analysis on low-carbon and renewable technology penetration in