Key messages of the British Energy Security Strategy

Any vision for the low-carbon Hungarian economy of the 21^st century should be tested in a simulated environment where elements of the future system are already in place. This is why the lessons learned from our discussions at the Department for Energy Security and Net Zero at the UK’s Ministry for Energy and Climate, the Royal Institute of International Affairs (Chatham House), the Embassy of Hungary in London and the National Grid Energy System Operator (NationalGrid ESO) were of particular value. Thanks go to the Embassy of the United Kingdom in Hungary for organizing the events. Preparations ahead of the discussions were greatly facilitated by the publication of the British government’s Energy Security Strategy less than a month after the outbreak of the Russia-Ukraine war, which provides an example of what a country that has been able to maintain its independence for the longest uninterrupted period in Europe considers important from the energy crisis and the economic consequences of the war.

The British Energy Security Strategy was made publicly accessible just one month after the outbreak of the Russia-Ukraine war

Irrespective of the war, our approach to the energy issue has changed radically over the last ten to fifteen years. Compared to the numerically inexpressible advantage of having an infinite supply of free wind and solar energy at our disposal, the disadvantages of weather dependence and unpredictability in quantity seem so easy to eliminate. It is therefore worth pondering on the possibility of simply and cost-effectively integrating the intermittent operation of solar and wind plants, since a key feature of these systems is that consumption and production must coincide at all times. As a basic rule, experimenting on populations is out of the question, and security of supply cannot be intermittent of weather-dependent, but neither can consumer prices.

But the tricks can only be learned in places where dealing with such problems is already common practice. Solving them is another matter, but that will come one day too.

Hungary and the UK are two very different countries when it comes to capabilities and opportunities in the field of energy security. However, we were surprised to discover many common traits in both the problems encountered and their possible solutions.

Despite being a maritime nation with diversified supply options, the UK sees the development of domestic energy production and the increase of domestic fuel extraction as a key means of overcoming the energy crisis and decoupling from Russian energy sources. The most important responses to the challenges of the present and the near future were laid out in the new British Energy Security Strategy, published in early April 2022, just a month after the outbreak of the Russia-Ukraine war. These are as follows:

• Increasing the installed capacity of nuclear power plants from the current 8 GW to 24 GW by 2050;
• Increasing oil and gas extraction in the North Sea, searching for new deposits and exploring the possibilities of shale gas extraction;
• Natural gas and remaining coal-fired plants are to be equipped with carbon capture technology and the captured carbon dioxide is to be recycled (CCUS);
• Renewable energy generation in the UK will also increase substantially, with installed offshore wind capacities rising from the current 11 GW to 50 GW and solar capacities from 14 GW to 70 GW by 2030.

Challenges faced by the UK in the field of the global commodity and energy crisis

Britain is much less dependent on Russian energy than Hungary. Hungary imports 80 percent of its natural gas from Russian sources, compared to just 5 percent in the case of Britain pre-war. Hungary imports 90 percent of its oil from abroad, 70 percent of which comes from Russia. In the UK, this figure stands at 9 percent. The only exception, according to UK Energy Statistics, is diesel fuel, where the share of Russian imports was 30 percent before the war. That said, decoupling from Russian energy sources is clearly not primarily a security of supply issue for the UK. Economic and social difficulties are caused by the procurement of high-cost alternatives, ultimately resulting in costly end-consumer energy prices. Analysis by UK Energy Statistics suggests that the implementation of bans on Russian imports could further increase energy poverty due to the fact that UK domestic energy prices (electricity, natural gas and transport fuels) closely follow global and European price trends, almost independently of the availability of energy sources.

The Strategy identifies four energy policy issues that are essential for overcoming the energy crisis:

• Mitigating the impact of global commodity price rises on the UK population and economy;
• Reducing dependence on Russiaan fuel imports while maintaining security of supply;
• Increasing energy independence to mitigate the impact of international energy market trends;
• Maintaining the commitment to reach the net zero emissions target by 2050 while pursuing these objectives.

Tools for implementing the British Energy Security Strategy

• Scaling up low-carbon energy production

Increasing low-carbon electricity generation is central to the Strategy, as it will enable the electrification of sectors such as buildings’ heating and cooling systems and transport. Moreover, it will do so using domestically produced energy to replace significant amounts of imported electricity. The target is to provide 95 percent of electricity in the UK from low-carbon sources by 2030 and to achieve full decarbonization of the energy sector by 2035 under the Net Zero Strategy.

This is to be achieved through the following objectives:

Nuclear energy. Nuclear capacity is set to increase from 8 GW today to 24 GW by 2050. Meeting this target could mean building up to eight new nuclear power plants. In order to accelerate nuclear projects, the so-called “Great British Nuclear” is to be established with the aim of providing a permanent platform for consultation and coordination key stakeholders involved in investments. Experience has shown that it is almost impossible to smoothly manage complex projects such as the design and construction of a nuclear power plant under purely market conditions. This is particularly the case when eight of them are under construction simultaneously.

The Nuclear Energy Financing Act, presented to Parliament last fall, is also aimed at the implementation of nuclear projects. It introduces a regular asset fund model for financing future nuclear projects, which is a kind of guarantee for private investors in an economic environment where the state has almost no role even in such mega-investments.

Offshore wind electricity – The aim is to increase capacity from 11 GW today to 50 GW by 2030, including floating offshore wind farms, which are to account for 5 GW. These will be taller (200 m) and more efficient than those installed so far. The same targets are, of course, also set in the Ten Point Plan for a Green Industrial Revolution and the British Net Zero Strategy. However, the nearly 40 GW expansion target, which is to be achieved relatively quickly, has shed light on the limitations of manufacturing capacity, with investors already expecting rising costs.

Onshore wind energy – Again, the aim is to increase the current 14 GW capacity while engaging on the issue with local communities. In the UK too, there is growing public opposition to the over-expansion of wind farms. The UK government is attempting to encourage support for projects by offering lower electricity prices to people living near future wind farms.

Solar energy (PV) – The aim is to increase installed PV capacity from the current 14 GW to 70 GW by 2030. This is to be achieved through accelerating investment in both solar power plants and into residential PV capacities.

Green hydrogen – More ambitious production, increasing the current 5 GW target to 10 GW by 2030. Green hydrogen production capacity must be raised to at least 5 GW, which will reinforce the hydrogen model. Transport and storage infrastructure is to be developed by 2025.

Interestingly, the central mechanism for increasing investment in renewables will remain a tendering process similar to its Hungarian equivalent (METÁR). However, an auction will henceforth take place every year.

• Reducing imports by boosting domestic energy production

The Strategy aims to increase British oil and gas production, to begin the on-shore exploration of shale gas, and to maintain coal capacities for at lest the upcoming few years.

Oil, gas – In the long term, there is an apparent contradiction between the goal of achieving carbon neutrality by 2050 and the Strategy’s target of increasing the extraction of fossil fuels – natural gas and oil – in the UK in the short and medium term, as well as plans to assess on-shore shale gas reserves. It should also be noted that, as in Hungary, the vast majority of British homes (85 percent) are heated by natural gas. However, things may change substantially between now and 2050. In a high-price environment, CO₂ capture, storage, and recycling technologies (CCUS – Carbon Capture Utilization and/or Storage), as well as the methanol economy described by George Olah, could become profitable. Technology capturing CO₂ directly from the atmosphere (DAC – Direct Air Capture) could become cheaper and more widespread, and robust afforestation schemes could be implemented as a biological solution. On this basis, the Strategy recognizes oil and gas as essential transitional fuels and supports increased domestic extraction. To this end, CCUS and hydrogen transport schedules are planned to be published soon.

Delayed phase-out of coal-fired power plants – Britain’s last coal-fired power plants were scheduled to be shut down in fall 2022 (“coal exit”). However, plans were overturned by the energy crisis and the Russia-Ukraine war. While polluting, coal-based electricity generation is currently far cheaper than natural gas-based generation, even with the payment of CO₂ quotas. Coal-fired power plants are needed not for security of supply reasons but in order to keep prices low. The two large coal-fired plants still in operation have therefore been extended until September 2024.

Innovative improvement of network flexibility is a precondition for implementing decarbonization plans

Surprisingly, there are many similarities between the British and Hungarian situations here too. From a low base level, Hungary has seen highly dynamic, sixteen fold growth in the use of solar energy over a five-year period. In the UK, offshore wind energy in particular tripled over the same timeframe, naturally starting from a higher base. However, the rapid expansion of weather-dependent renewable capacities will require a commensurate increase in balancing capacity, as neither security of supply nor consumer prices can be weather-dependent. This is necessary because the amount of electricity available in a country’s electricity system (including both domestic generation and imports) must match current consumption at any given moment in time. Furthermore, it must ensure that the frequency of this electricity is 50 Hz in each instance of supply time. Were this not the case, our electric appliances would fail. The stability of frequency can be ensured my making sure that all rotary turbine power plants spin at synchronized speeds.

Extreme variations in the amount of electricity generated by weather-dependent solar and wind power plants mean that electricity either needs to be supplemented or removed from the system. For this purpose, the developed world predominantly uses modern combined cycle gas-fired power plants that can be ramped up and down quickly and predictably (from 0 to 100% in 15 minutes), while providing a stable frequency.

In Hungary, the public is aware of the negative effects of weather-dependent power generation because the units of the Paks Nuclear Power Plants are occasionally down-regulated not only for maintenance but also for commercial reasons, due to the mandatory take-up of solar power. This is unfortunate because it means that we are unloading a publicly owned, decarbonized and cheap producer in order to prioritize another decarbonized producer of electricity. This obviously reduces public revenue. We are not yet at the depth of the problem like the UK, where there are periods of having to make up 6 GW (6000 MW – Hungary’s electricity consumption on an average weekend day) of capacity shortfall within half an hour, followed 30 minutes later by 6 GW of forced exports due to overproduction, often at negative prices. So far, there have been no reports in Hungary of instability in the frequency of the electricity supplied due to too many non-synchronized wind farms and solar farms without rotating turbines and therefore without frequency.

In the UK, wind and solar power plants are often suspended not only because of overgeneration, but also because of the 50 Hz frequency becoming instable in the grid. Of course, load shedding creates further problems, as it is more frequent in certain areas and with certain technologies, and so there is no guarantee of competitive and technological neutrality when contracting with contractors. Balancing does not work problem-free despite the fact that 40 percent of electricity generation in the UK is from gas-fired power stations which, as mentioned above, can be operated flexibly. Industrial-scale batteries already exist, but these are not synchronized, are individually small, operate entirely on a market basis and as a result may not necessarily contribute power when it would be most optimal in terms of security of supply.

The same applies to cross-border capacities. The amount of electricity available for import is dependent on so many external factors that it can only be factored in for balancing purposes to a limited extent. In the case of off-shore wind, which has the largest generation potential, the situation is further complicated by the fact that while the largest wind farms are located north of Scotland in the North Sea – where environmental conditions are most favorable –, the greatest consumer demand arises in the industrialized and densely populated areas of central and southern England. A very large number of medium and high-voltage transmission lines would need to be built very rapidly, well before 2030.

At present, it appears that the greatest obstacle to decarbonization is the inability to balance electric systems with decarbonized technologies.

The lesson is that basing electricity systems on weather-dependent generation can only be fully and affordably achieved if this can be balanced with decarbonized technologies on a market basis. Britain, a global leader in technical and technological development, has committed itself to being at the forefront of the strive for carbon neutrality across European, realizing the seemingly utopian but highly appealing dream of future societies being based entirely on renewable energy sources.

We are in the transitional stage of moving from a state of past stability to a future state believed to be stable. In the midst, we are encountering a host of problems and unresolved issues. These need to be addressed to ensure that weather-dependent renewable energy production does not lead to weather-dependent security of supply and weather-dependent consumer prices.

Cover photo: The Independent