UK Gas Generation Strategy fails to reassure investors, part two

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1 March 2013, Gas

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The carbon capture and storage (CCS) issue was discussed, with the word "perplexing" used more than once; the technology is not old and is judged to be sound, yet not even a GBP1bn incentive is sufficient to realize a full-scale demonstration plant. This is unfortunate, as the evidence panel agreed that CCS was essential if the UK's 80% carbon reduction target by 2050 is to be met.

Combined heat and power (CHP) was also a "perplexing" issue; recognized by stakeholders and politicians alike as a great idea, and one that is financially viable for small site developments, it remains largely absent from the strategy. In this respect, that strategy was described as having a "silo-centric view," as gas is currently the dominant source of heating in the UK. Datamonitor notes that the government does address the market barriers to CHP in the strategy, such as high investment hurdle rates, but fails to provide concrete details on how it will encourage CHP investment.

Lastly, gas storage featured as an element largely missing from the strategy. Nine proposed new facilities have consent but no planned construction date as yet. The government will publish its findings on how to encourage gas storage in spring 2013, which will include plans to run storage capacity auctions for 2015-16 and onward.

Nor did biogas feature strongly in the strategy. Charlotte Morton, CEO of the Anaerobic Digestion and Biogas Association, said biogas has the potential to meet 10% of the UK's gas needs. Morton stated that as a low carbon source of generation (11g CO2/kWh), biogas can also be stored and can be domestically produced.

Further details on these elements of the gas strategy are evidently eagerly awaited by industry, and Datamonitor expects the Energy and Climate Change Committee's feedback to the government to highlight the need to drive CCS and CHP. / / @DatamonitorEN

Source: MarketLine

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