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What energy milestones can we expect to see in 2018?

Written by Michael Zdanowski, Head of Energy

I ask this pertinent question as 2017 saw a host of milestones in the energy space. Low-carbon sources generated more UK electricity than fossil fuels last year for the first time. 

2017 was a breakthrough year for wind, which made a greater contribution to UK electricity needs than coal in every month except January. The cost of subsidies for wind has halved since 2015 with two firms willing to build offshore wind farms for a guaranteed price of £57.50 per megawatt hour for 2022-23.

Though gas use remains high providing 40% of the UK’s power, the country’s rapid progress in decarbonisation has been seen in the decrease in coal’s share in the electricity mix to less than 7%. Symbolically, in 2017 the UK marked its first coal-free day since the Industrial Revolution and on 7 June 2017, for the first time in the UK, wind, nuclear and solar all generated more energy than both gas and coal combined. Consequently, Christmas Day was the “greenest ever” in the UK.

Interestingly, the UK made progress in low-carbon electric vehicle infrastructure too by installing 2,833 public EV charging points. This is nowhere near the number of EV charging points that were installed in France or Germany but at least suggests progress in a key area.

With the costs of renewable energy falling rapidly and the need to accelerate decarbonisation accepted by Government and the wider population, 2017 will surely become remembered as the year when decarbonisation became a “given” and no longer part of an energy “trilemma” or “dilemma”. 

This point, brilliantly articulated by Laura Sandys, Dr Jeff Hardy and Professor Richard Green in their seminal report Reshaping Regulation: Powering from the Future, frees policy-makers from the intellectual straightjacket of the “energy trilemma” and provides fresh impetus for policy makers to change the various levers relied upon for the past decade.

What of 2018? What will be the key milestones this year?

First, we can expect the UK to break many of the milestones around renewable penetration that are listed above. Is it possible for the UK to go 48 or even 72 hours without coal at some point in summer 2018? I’d certainly like to think so given the rapid integration of renewables and storage. 

Yet, the march of renewables is likely to “stress-test” a grid that was designed for a point-to-point system. Will the UK approach the tipping point encountered in recent years by South Australia? Hopefully not. 

The low carbon revolution will continue in transport. Alongside 18,000 electric charge points in the UK, and many more charge points in the capital, we can reasonably expect on current trends that UK electric vehicles’ share of new registrations will cross the landmark figure of 5% in 2018. 

Last year, not only did the UK Government promise to phase out combustion engine cars by 2040 but demand for electrified cars reached a record high in 2017 with almost 120,000 alternatively fuelled vehicles (AFVs) hitting UK roads – a 34.8% uplift.  Look out in 2018 for a significant expansion in workplace charging.

The spectre of the UK’s departure from the EU looms over energy policy in 2018. We should gain clarity on the UK’s future relationship with the EU Internal Energy Market, Euratom and the EU Emissions Trading Scheme. Some form of associated membership of existing European institutions is likely but not guaranteed. 

Domestically, it’s likely that we’ll see an absolute price cap on energy to assuage consumer complaints about high energy costs though many experts say that market intervention is unlikely to deliver the benefits envisaged by the policy. This issue will rumble on. Despite the political turbulence, the UK’s consumer retail energy market remains attractive hence Shell’s acquisition of First Utility late last year.

We might see a boost for carbon capture and storage (CCS) in 2018 with renewed Government interest shown in the Clean Growth Strategy that could result in significant funding for one of the UK’s many CCS projects. Shale gas looks as though it might gain momentum in 2018 in the UK.

In the oil and gas industry, the global hunt for new sources of oil is forecast to slow by around £3bn in 2018 despite rising oil prices. This has been interpreted as a harbinger towards a concerted shift away from exploration into low cost and lower risk exploration opportunities but it reflects the abundant opportunities provided by shale oil in the U.S. 

The oil and gas major look set to continue to diversify rapidly in 2018. BP’s $200m investment in solar firm Lightsource, Europe’s largest solar development company, testifies to the industry's new commitment to renewables.

It is obvious that 2018 will see remarkable activity and change in the energy market. Disruption in the energy market will accelerate with alacrity, and the quest for decarbonisation is now almost universally accepted. Therefore, beyond some broad trends identified above, profound market disruption means that many of this year’s milestones might be ones that are simply too left-field to predict.

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