Electric Insights – A coal-free Britain, transmission issues, and balancing costs

Britain leads the world in phasing out coal power

Britain is the world’s first major economy to completely phase out coal power. As of 2023, we’d reduced coal-fired generation by 98% from its peak, compared to a 63% average across the G7 group of rich nations.

However, ending the UK’s reliance upon coal for power generation isn’t the end of the story. It’s still a staple source of electricity generation globally and increasing in China, India, Indonesia, Russia, Turkey and Vietnam. It allows these countries, and others, to produce the goods that Britain wants to buy.

So, while Britain’s progress is good news, there’s a still a long way to go in reducing – and ultimately eliminating – coal consumption worldwide.

After kicking out coal, what comes next will be harder

Despite the UK’s success in eliminating coal-fired power generation, our economy still uses the fossil fuel. In 2023, UK industry consumed three million tonnes – twice the amount used in power stations – with around half used within steel production. As the steel industry moves towards a greener future, reducing the other 50% of usage remains a challenge – although the government’s promotion of electrification and hydrogen usage should help.

The UK also continues to rely on another high-carbon fossil fuel – natural gas. This challenges the energy sector, because the National Energy System Operator (NESO) uses gas flexibly in response to changes in demand. The system’s increasing reliance upon wind and solar – in the absence of grid-scale, long-duration energy storage – makes balancing even harder. This means bulk energy generation must rapidly wind down, but provides some leeway for gas to provide essential balancing services via flexible gas turbines.

One solution is to connect the often remote locations where renewable generation takes place to the areas that need electricity the most. However, this requires massive investment in upgrading the grid and attracts its own issues – as we’ll see next.

Britain to get new transmission, but bottlenecks remain

The electricity transmission grid has failed to keep pace with the deployment of wind-based generation. As a result, so-called ‘wind congestion events’ – where NESO curtails wind generation in favour of gas-fired power generation – occur.

These bottlenecks waste energy (up to 5TWh in 2024 potentially), at a cost of almost £1bn per year. With figures set to triple until 2030, National Grid Electricity Transmission (NGET) will try to tackle the issue by investing £30bn in grid infrastructure. This includes EGL2, a national interconnector stretching over 505km between Peterhead in Aberdeenshire and Drax Power Station in North Yorkshire.

At an expected cost of £4.3b, the single largest transmission investment ever, EGL2 will carry 2GW of high voltage direct current (HVDC) – enough power for two million homes.

Forecasts and rule changes drive higher balancing costs

While the cost of generating electricity has fallen by two-thirds over the past two years, grid stability costs haven’t followed suit: balancing costs rose 30% over the same period. But why?

Wind congestion events (see above) have contributed to a gradual rise over time, since they involve ‘constraint payments’ encouraging wind farms to reduce their output. However, the more dramatic increases seen recently arise from Ofgem’s two reforms (in April 2023) that changed the structure of balancing charges.

In a change designed to reduce bill volatility for consumers, they now pay 100% of all balancing costs (not 50%, alongside producers, as before). With charges calculated nine months in advance, and prices calculated 18 months ahead, it’s perhaps not surprising there have been issues.

During 2023 for example, prices fell sharply and NESO over-charged for balancing services, accruing an estimated £800m in excess payments. It aims to return this money to consumers over the coming years.

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