Yesterday I reviewed the key market themes in 2023. In this post I take a look at what we can expect in 2024…
The past couple of years have been dominated by concerns over energy prices, particularly gas. However, gas prices have fallen significantly from their highs of summer 2022, and while they are still double the long-term average prior to autumn 2021, they are probably going to remain at broadly this level for some time. Significant further reductions seem unlikely at this time, and while there may be seasonal reductions, the market looks to have found a new level, at least until new LNG supplies come onstream in 2026. The risks are more that the market will tighten in the meantime, pushing prices higher, or that geopolitical risks crystalise, affecting supplies.
This means that absent a new supply pushing prices higher, outright gas and electricity prices are unlikely to have the same high profile that they had over the past two years, although other aspects of energy pricing are likely to be in focus, as I describe below.
Re-assessing energy economics
This has started in 2023. The failure of so many wind tenders and the need to reduce expensive energy subsidies are likely to drive further thinking into energy economics. Whether that is positive or not remains to be seen – policy-makers struggle to let go of favoured narratives (renewables are cheap) and in some EU countries, subsidies are welcomed more warmly than in others. Subsidies are necessary to stimulate immature markets, but should be phased out once those markets reach maturity. That has manifestly not happened in the wind sector – indeed, subsidies are increasing despite a quarter of a century of market stimulation.
Policy-makers are recognising that one way out of this difficulty is to reduce demand, and there continue to be half-hearted attempts to reduce energy waste in the built environment. However, this is a hard-to-solve problem and there’s no real prospect of any country really seizing on the challenge at a time when budgets are constrained.
Governments want to make energy cheaper, but are failing to recognise that their own policies are making energy more expensive. Energy systems built on intermittent renewables are certain to be more expensive than those based on more reliable technologies, for the simple reason that double the amount of capacity will need to be built in order to ensure security of supply. It ought to be self-evident that this is the case, irrespective of the short-run marginal operating costs of wind and solar. In addition to extra capacity, whether that is in the form of generation or storage, additional grid infrastructure is needed to connect all of this capacity, and balancing costs rise when both supply and demand become highly variable. It’s past time that policy-makers recognised these realities, and it is to be hope that the failed wind tenders and turbine-maker losses of 2023 will be a catalyst for this re-evaluation.
The UK Government has said it is updating its LCOE framework – I challenged the Secretary of State at a recent Policy Exchange event to make it fully cost comparative, including de-commissioning costs for all technologies. I sense that there is a growing understanding that current metrics are not working – even Lazard has expanded its LCOE to include some measure of firmness – but whether these will go far enough remains to be seen. I suspect 2024 will be the start but the steps will be small.
Focus on supply chains
In 2023 we started to be aware that the delivery of net zero ambitions would require huge amounts of resources: financial, human and material. And that access to those materials may not be straight-forward. In 2023, the increased costs of materials had a significant impact on the cost of new generation, particularly in the renewables sector, but across the energy value chain there will be a huge increase in the amounts of minerals required.
According to the IEA, an offshore wind turbine requires nine times more minerals than a comparable gas-fired power plant, and an EV uses six times more critical minerals than an ICE vehicle. It’s not just power grids that require large amounts of copper – wind, solar hydro and geothermal generation all rely on copper as well as nickel, silver and rare earths. Nuclear power plants depend on uranium for fuel, while nickel alloys are a key component in their cooling systems as well as being used inside the pressure vessel. EVs rely on a range of critical minerals for battery components, and also require rare earths for motor design and copper for wiring.
Far and away the largest source of new mineral demand will come from grid infrastructure, such as power lines and transformers. Taken together, the need for critical minerals will double between 2020 and 2040 based on the stated policies of governments, and quadruple in the IEA’s Sustainable Development Scenario. In both scenarios, EVs and battery storage account for about half of the mineral demand growth from clean energy technologies over the next two decades – mineral demand from EVs and batteries is predicted to grow tenfold in the Stated Policy Scenario and over 30 times in the Sustainable Development Scenario by 2040. By weight, mineral demand in 2040 is expected to be dominated by graphite, copper and nickel, with lithium experiencing the fastest growth rate – increasing by over 40 times in the Sustainable Development Scenario. The shift towards lower cobalt chemistries for batteries will limit growth in cobalt demand, as it is displaced by nickel.
A lot more mining is going to be needed to deliver these requirements, but with a 20-year lead time for opening a new copper mine, this is a non-trivial challenge. I will be addressing this topic in a series of upcoming posts, highlighting the scale of the issue.
Hydrogen crunch time
The time for making decisions on hydrogen is rapidly approaching. The approach taken varies across different countries, with some countries pursuing a vision of nationwide and even international hydrogen pipelines while others expect local industrial clusters to be more likely. Hydrogen pipelines seem more like a pipe dream once the physics of hydrogen are taken into account, and the huge losses incurred simply moving the gas around in a pipeline system. EU hydrogen targets already look set to be missed, with investment for these projects thin on the ground as the Inflation Reduction Act sucks capital into US projects.
The governments of Germany, France and Denmark have the highest ambitions for 2030, however, as this article states, ambitions and targets do not necessarily translate into meaningful action with very few projects reaching Final Investment Decisions. These will need to come in 2024 if 2030 targets have any hope of being met. As things stand, the business case for clean hydrogen is far from clear, with the economics of fossil fuels remaining better in most if not all cases. Of course this means that subsidies will be necessary, but how much money is available for yet more subsidies in already fiscally constrained countries remains to be seen.
Hydrogen for heat, particularly in the domestic sector, suffered a blow in the UK with both local hydrogen trials having been cancelled due to public opposition to the schemes. Hydrogen for high temperature industrial heating applications probably does make sense, but there are questions about how it can be produced. While the current narrative is all about using surplus renewable generation, this is unlikely to be practical in many cases – the use of small nuclear reactors would make more sense, but those won’t be deployed until well into the 2030s.
All of which makes me believe that the 2030s are the sensible timeframe for the emergence of any kind of hydrogen economy. But 2030 is rapidly approaching, so the plans and investment decisions will need to start being made if these projects are to be realised. The next couple or years will be crucial if hydrogen is to emerge as a real piece of the de-carbonisation solution, or remain a niche application.
Nuclear renaissance continues
The renewed interest in nuclear power is likely to continue into 2024 with more countries announcing more new projects. The main challenges will be delivering both these projects and the uranium to fuel them, with supply chain constraints and lack of skilled workers in various parts of the industry being significant limiting factors. We are also likely to see more countries delaying the closure of legacy reactors, the re-opening of more shuttered reactors in Japan, and, depending on the success of Holtec’s bid to re-open Palisades, attempts to re-open other closed reactors elsewhere (providing that progress on de-commissioning was limited).
However, progress on small modular reactors is unlikely to be significant in 2024. Some projects continue to move forward and perhaps we may see some further design certifications, but nothing in the West is close to being built.
With the first EPRs and AP-1000s now open, there may be pressure to build more, however France is already looking to the next generation EPR2. KEPCO’s APR-1400, with its seventh and eighth reactors soon to open, is far in the lead, and the smart money would be on the Koreans teaming up with other countries for the wider deployment of its technology. Its eight-year build time and established supply chains are also highly attractive, and buyers would do well to contract multiple units with local workforce training by Korean experts being part of the package.
New nuclear projects may also benefit from some revision of energy economics. An all-in technology comparison including de-commissioning costs is likely to favour nuclear above renewable generation. However, onerous regulatory regimes continue to stifle the development of the market. Governments should push for greater trusted country regulatory collaboration in 2024 to facilitate the smoother development of future nuclear pipelines.
Security of supply will remain on the agenda
Concerns over security of supply are here to stay, and have several dimensions. Access to fuel in respect of geo-political risks is now in focus, along with an increased awareness of infrastructure vulnerabilities after an attack this year on the Balticconnector pipe between Finland and Estonia. Countries should develop better infrastructure monitoring and emergency plans in the event of disruption to key infrastructure.
The impact of energy policy on security of supply is also not going away, particularly in the US, where the issues appear to be more acute than in Europe. However, the UK faces similar challenges, and is likely to face a supply crunch as this decade progresses. Indeed, unless something changes, we will face periods with no nuclear power on the GB system by the end of the decade since Hinkley Point C is now unlikely to open before 2030. With all the AGRs due to close by March 2028, only Sizewell B would be left, and it cannot run indefinitely without maintenance and re-fuelling outages.
The increased reliance on intermittent renewables creates real security of supply risks in the absence of long duration storage, and since such storage (with the exception of hydro, which cannot be deployed everywhere) has yet to be invented, many countries face similar threats. The use of interconnectors to mitigate these risks will likely prove of limited benefit since the connected markets are likely to share similar weather and similar energy mixes. The US is building more gas fired generation to deal with this risk – other countries, particularly the UK are likely to have to follow suit.
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We’ll have to see this time next year whether I called any of this right. In the meantime, I would like to extend my best wishes for 2024 to all of my clients, colleagues and readers.
“Governments want to make energy cheaper, but are failing to recognise that their own policies are making energy more expensive.”
I think they do know…they must do because it’s so obvious…but, as for other issues, they’re not telling the electorate their real aims for us….
“The renewed interest in nuclear power is likely to continue into 2024 with more countries announcing more new projects.”
I have read that Spain intends to close down all its nuclear plants by 2035….perhaps this is a good opportunity to entice to the UK highly qualified, experienced Spanish nuclear engineers much needed for our own programs…
Simon Michaux of the Finnish Geological Survey is a good source of information on the availability – or not – of all those critical minerals. (Don’t forget manganese.)
Happy New Year to all your readers.
Lately everything requires more materials……….a Tesla Model 3 weighs about 3800lbs – about 1730kg. The old cars back in the 50s and 60s, e.g. Morris Minor, used to weigh about 1700lbs (770kg). Car weight has been increasing as rapidly as average human body weight.
Many cars could be replaced with personal transport that is 200-300kg weight, possibly up to 500kg for two people, but this will only come as demand increases and materials start to get expensive, else there will be more public transport / shared car ownership / ride sharing used to spread the increasing costs.
If you look at Aixam cars, which weigh 425kg for 2 person car, made in France, you can see the counter-trend.
It’s a time of transition, and increasing demand will increase prices and push more efficient/economical/sparing usage for the poorer countries/people. Resources are never evenly spread/utilised, the rich always get first call as they can afford the higher prices, and as demand increases, with the higher prices, will reduce demand in the general population.
It’s one of the basic economic drivers, where demand will be shifted to cheaper materials, like the shift to LiFePO4, battery chemistry away from the Cobalt/Manganese Lithium based chemistries. Demand for certain materials will increase until cheaper/readily available alternatives are developed. We’re in the expensive development phase for all the technologies, the cheaper mainstream materials are still in development.
The BBC is content to go along with the lie about renewables being cheap. I’m still waiting for a reply to my recent complaint headed – “Labour not challenged about costs of wind power -
Keir Starmer interviewed from COP @ approx 3pm today said that wind power was 3 times cheaper than other fuels. This lie can easily be exposed. Just look at the cost of gas per therm and nuclear power per MWh and compare with the MWh cost of wind. Equate the thermal output and get BBC verify, or better still, an expert body to compare costs by looking at company accounts; Cfd index linked prices; research that shows that electric heating is more expensive than natural gas or oil; the cost of providing back-up, storage and grid stability for weather dependent renewables; the extra grid and grid maintenance required for ‘diffuse’ energy generation technologies, the cost of land and development per MW etc, etc . The BBC obviously prefers to accept Labour’s spin and lies. Even a cursory look at costs explains why Starmer’s lie is so awful and why other nations are not rushing into ditching fossil fuels and nuclear power. The BBC does itself and the viewers a disservice by propagating this lie. ”
Firstly Happy New Year Kathryn and all your readers and commentators who make this such a great blog.
Given Viking i/c is now commissioned c20% of leccy is come through undersea cables so if someone can sabotage a gas pipeline a cable is a much easier proposition albeit probably easier to repair it still leaves us exposed.
The other thing id like to see happen in 2024 is recognition by all politicians that net zero is a long run game and can’t be delivered with arbitrary targets that are built on quicksand ie the 50GW offshore wind target. Oh and that CCGTs are fundamental to security of supply for the foreseeable future so need protecting from demolition unlike our coal stations trashed before the boilers were cold.
It is quite possible that one of the features of the UK energy market in 2024 is that investors may decide that we are rapidly approaching ‘Peak Wind’.
For a period between 9.00 am on 21st December 2023 UK wind turbines were generating a record 21.8 Gigawatts (GW) of electricity. Earlier that same day at 5am total UK electricity demand was just 24.7 GW. Add to the wind a constant contribution from nuclear of about 5GW and it can be seen that there are already times when nuclear and wind alone exceed UK electricity demand in the early hours of a windy morning. This situation arises with wind producing a mere 5% of total UK final energy demand (2022).
Producing excess electricity when there is no effective means of storing it (or even distributing it), may lead to more constraint payments unless the gap between demand and supply does not continue to shrink. This means that, potentially, every new wind turbine added to the system becomes less efficient and the energy more expensive.
When the huge unpredictability of future costs of balancing and back-up requirements and storage and distribution infrastructure are added to the calculation investment in intermittent energy generation without price guarantees from government looks more and more risky.
It is quite possible that one of the features of the UK energy market in 2024 is that investors may decide that we are rapidly approaching ‘Peak Wind’.
For a period around 9.00 am on 21st December 2023 UK wind turbines were generating a record 21.8 Gigawatts (GW) of electricity. Earlier that same day at 5am total UK electricity demand was just 24.7 GW. Add to the wind a constant contribution from nuclear of about 5GW and it can be seen that there are already times when nuclear and wind alone exceed UK electricity demand in the early hours of a windy morning. This situation arises with wind producing a mere 5% of total UK final energy demand (2022).
Producing excess electricity when there is no effective means of storing it (or even distributing it), may lead to more constraint payments unless the gap between demand and supply does not continue to shrink. This means that, potentially, every new wind turbine added to the system becomes less efficient and the energy more expensive.
When the huge unpredictability of future costs of balancing and back-up requirements and storage and distribution infrastructure are added to the calculation investment in intermittent energy generation without price guarantees from government looks more and more risky.
Though announced July 2023 there is (still) no website for The Great British Nuclear (GBN) – but it will eventually “..project Final Investment Decision (FID) by the end of 2029 ” for SMRs.
Given that 7 years ago https://www.theengineer.co.uk/content/news/nuclear-amrc-and-rolls-royce-confirm-modular-reactor-collaboration/#comment-6341500892 “Nuclear AMRC and Rolls-Royce confirm modular reactor collaboration” – it does seem that SMRs are not regarded, in the Civil Service, as urgent or important at all!
Though fair to say that it is unclear how Rolls-Royce have been developing things/ideas in the last seven years.
A general lack of visibility of UK nuclear ideas or thinking – and certainly nothing cheap and radical (it is OK to be risky if low cost – would they re-core an AGR? what about a LWR breeder reactor, as per USA Admiral Rickover, ).
If all GBN is doing is asking for an existing design then they are not being a very smart customer – and will be hobbled by regulations and standards rather than defining the market(and, of course, using advanced manufacturing technologies component designs (eg heat exchangers or heat stores)
Also. Storage.
Siemens-Gamesa had developed a large scale energy storage that was low cost and was able to store energy for a reasonable numbers of days – but struggled to find a commercial business case. I suspect that this is the way the market is structured and costs are accounted; if , for example, wind power was required to give firm commitments for power production (and had to forswear CO2 production) then I suspect the commercial case for storage might be more evident.
[Siemens-Gamesa were looking to replace boilers etc..,. in coal-fired power stations with stored (in volcanic rock) thermal energy. The cost of this energy storage would be lower for higher temperature and could be slotted in to gas fired generators.]
https://www.pv-magazine.com/2023/02/18/weekend-read-a-long-time-coming/ ““lack of a commercial market for large scale storage.””
I agree with Julian Spence’s comment – “it does seem that SMRs are not regarded, in the Civil Service, as urgent or important at all!”
The electricity generation and distribution system in the UK has become an over complicated and over incentivised privatised behemoth. It’s a veritable rent-seeking blackhole for taxpayer’s and bill payer’s money. It rivals the NHS for creating unnecessary administration and civil servants wasting time trying to devise new regulations and schemes to validate their succession of market manipulations and subsidies to weather dependent renewables. National Grid and its shareholders have no incentive to streamline the power system and put a stop to their ever expansionist network plans, so they are unlikely to offer constructive advice about the usefulness of SMR’s. Eco-lobbyists and many politicians are increasingly being funded by subsidy-seeking industry players, so they too have little incentive to consider fixing the dysfunctional system they have created or tell the public the truth about the cost and practicalities of de-carbonisation. Dieter Helm produced a Cost of Energy Review in 2017 which explained why renewables should have to offer ‘firm power’ to the network, but of course that suggestion has never been properly taken on board. So the need created by renewables for a parallel back-up system capable of meeting peak demand 365 days a year; for the grid stabilisation which arises out of renewables’ highly fluctuating output; and for additional energy storage is primarily provided by thermal plants. The considerable extra costs incurred are simply off-loaded onto bill payers. These costs are beginning to spiral out of control. SMRs and AMRs will eventually simplify the electricity system and thereby bring down the costs to consumers. But I despair when I think that the Conservative Government won’t commit to any SMRs before the general election. A Labour Government won’t dismantle a behemoth that favours wind turbines and solar panels as Starmer is forever repeating the lie that renewables are 3 times cheaper than fossil fuels. So the question is will we have lost all our essential energy intensive industries and done untold damage to households, public services and business generally before the UK’s energy system is reformed?
It is interesting that the current way that certain renewables are being introduced does give the problems that mairede has so eloquently stated.
However the solution of Solar PV being installed by end users changes the economics and dynamics. If end users can also install a wind turbine, then, that again isn’t a problem. Why?
If you have end users that install a means of power generation, they effectively become a zero-user for the times when their system meets their demand.
If they use their power generated, for only part of the time, there can be periods of export…….cheap power for everyone else………this should be paying for the fact that yes we need other power to back-up the renewables, but when there is self-generation, there are the fixed (non-fuel) overheads to be paid for.
The centralised power generation therefore becomes the back-up to the end-users self-generated power. This means that there should be no need to expand the centralised power generation, only to adapt it for greater efficiency, as it should be the power needed when the sun doesn’t shine and wind doesn’t blow.
Limiting the maximum power generation that can be installed by the end-user to the maximum demand it may have, removes any need for system upgrades.
We have always had excess capacity in the system, where for most of the summer, when there was always lower demand, even when we were on coal and gas only, many power stations were running on part capacity or were shut down………what’s different?
A centralised model of power generation is the way that increases costs. The decentralisation and installation by the end-user is the critical efficiency benefit, where grid-stabilisation and back-up required is paid for by the low export price that the end-user should receive.
There are two models for getting this to work, one is more expensive than the other, and at the moment we are in a hybrid system, where the rush to decarbonise is creating false (temporary) benefits that will not be sustained in the long-term.
Yes, everyone is right who worries about centralised renewables, but with only 1.3 Million homes out of 29 million with solar panels, we have only 4% with power generation capacity, we have a long way to go.
If there was planning for more CHP systems distributed around population/industrial complexes, where they are over specified to meet local power demands when needed, again no extra grid reinforcement would be needed.
There are many ways to gain efficiencies over the present system, unfortunately there is no central intelligence with a mind for efficiency, just installation wherever another private company thinks they can make money in the current economic structure.
Many thanks for your comment Tim, however I would suggest that the weather is an equally unreliable energy source for small wind and solar installations as it is for large ones. So yes indeed the network would still be the back-up, storage and stabilisation tool for our electricity supply. Large power generation companies may lose business and profits, but the national grid system operator would not. The total amount of back-up, stabilisation and storage required would not significantly decrease. However the cost burden would shift from consumers who were in a position to generate and store some of their own power to those, mostly poorer consumers, who were unable to do that. I don’t find that to be acceptable.
And there are instances of grid failures as a result of instability caused by small scale renewable generators ‘embedded’ in the network, the widespread UK blackout of August 2019 being a prime example. This blog recently referred to a study by the University of Nottingham which “has shown that a wide-scale deployment of small-scale renewables can reduce grid resilience and may lead to failures. They studied smart meter data to track changes in grid composition over time and found resilience varies over the course of a day and that a high uptake of solar PV can increase the vulnerability of the grid. They also found that the addition of domestic batteries, while supporting consumer self-sufficiency, does not significantly reduce these risks.
“The increasing proliferation of small, intermittent renewable power sources is causing a rapid change in the structure and composition of the power grid. Indeed, the grid’s effective structure can change over the course of a day as consumers and small-scale generators come on- and off-line. Using data from smart meters in UK households we tracked how grid composition varies over time. We then used a dynamical model to assess how these changes impact the resilience of power grids to catastrophic failures. We found that resilience varies over the course of a day and that a high uptake of solar panels can leave the grid more susceptible to failure,”
– Oliver Smith, researcher at the University of Nottingham
https://watt-logic.com/2022/04/11/cost-of-renewables/
Hi Mairede . Some interesting comments. I must admit that I had not come across Dieter Helm or his review; my feeling is that it is common sense.
It might be worth considering the value of “micro-Grids” to most consumers and, as they have generation and storage capacity they would be better placed, when there was insufficient generation on the grid, to survive being isolated. But I suspect that they would need to store energy for longer than a battery might be adequate; https://en.wikipedia.org/wiki/Dunkelflaute implies that energy storage might be required to last more than 100 hours.
The storage period is the same for both grid and domestic (micro-grid) storage.
But domestic requirement might have a better business case as it would include both heat and power – so implying that high temperature heat store could be used to drive small gas and steam engines (to increase thermodynamic efficiency) and residual heat used domestically (heating or air-conditioning). Though heat storage (using refractory bricks and vacuum insulation) could be done but I am not sure as to the general availability and cost of micro gas and steam turbines (with , I guess, power ratings around 1kW.)
Hi Julian, An SMR could power an industrial complex, a district heating system or a micro-grid. It will be interesting to see the results of the MOD’s trial of Cylo boilers – a fridge-sized electric boiler that is apparently cheaper to run and more effective than a heat pump. The boiler uses a pressurised water tank as a thermal battery, using off-peak electricity to create a “heat reservoir” that then powers radiators when needed. It’s about 6ft tall and weighs around 250kg when empty so would need to be fitted in a ground floor room or outside the building. It costs around £20,000 per unit, but the manufacturers believe that the cost of the product will reduce over time. It’s not available commercially, but is being sold to large landlords, such as government departments and councils. The MoD has paid about £5,000 for each installation at their MOD trial homes. They’re trialling these boilers because they can easily replace old boilers and be connected to pre-existing electrics, pipework and radiators. Its makers claim it warms water as effectively as a gas boiler; is quiet in operation and should last for 40 years. Being a closed system it doesn’t need to be opened for maintenance and can heat radiators to hot temperatures instead of only lukewarm. We’ll see.
As regards long term storage. A surprise DESNZ have, apparently, a “The publication stated “that developing a cap and floor mechanism similar to that for interconnectors is the most appropriate policy to meet our public commitment to enable investment by the end of 2024”
I am not sure how useful or relevant it is.
I expect that what they mean by long term storage. Up to 200 hours for the flat calm periods (as per the WIKI article for such calms – dunkelflaute wiki)
Thank you Mairede . I did some calculations on the hot water storage system. A guestimate is that it is a pressure cylinder as a sort of immersion heater – with an excess of 1 to 2 bar of atmospheric pressure and storing water at around 130 degC.
And has a volume of approx 0.5 cu m – which should hold about 500 kg of water
Of course this is only an estimate – as detailed information (such as internal volume) I could not find
The 67 kWhr of heat should last a storage for about 2 days; quite respectable.