UK’s Dash for Gas: Implications for the role of natural gas in European power generation

By Alexandra-Maria Bocse & Carola Gegenbauer

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Executive Summary

This study aims to isolate the factors that led to the UK’s dash for gas (the transition from traditional coal to modern gas-fired power plants in the UK’s electricity sector), investigate the degree to which similar conditions are currently present in Europe and advance a series of policy recommendations for enhancing the prospects of natural gas as a partner to renewable energy in power generation in Europe, given the EU’s commitment to fighting climate change.

The study investigates in the first part the factors that determined the UK’s dash for gas, which began in the early 1990s. The study argues that the UK’s dash was not a product of a singular factor, but of a combination of factors that generated it: the privatization of the energy sector promoted by successive British conservative governments, regulatory changes at the EU and national levels that facilitated the use of gas in power generation, technological changes that increased the efficiency of combined cycle gas turbines (CCGT), the availability of cheap gas on the British market as a result of the increase in production of British North Sea gas, as well as the reduced amount of carbon dioxide and sulphur dioxide emissions produced in gas-fired power stations by contrast to coal-fired stations.

The second part of the study argues that several recent developments taking place at European level hold a lot of promise for a bright gas future in power generation in Europe. The study points to the low price of gas and its lower environmental footprint (by contrast to coal) that will give gas a competitive advantage especially if the reform of the EU-ETS (EU Emissions Trading System) leads to the effective pricing of carbon. Carbon pricing can increase the competitiveness of gas in power generation in relation to coal. Technological limitations prevent power generation entirely from renewable sources and reduce the attractiveness of coal (given the lack of progress in carbon capture and storage, CCS) and nuclear power (as accidents such as those at Fukushima power plant indicate that technological means to manage the unexpected are limited). However, there are several areas of uncertainty and risk that might compromise the prospects of natural gas. These areas include Brexit, a new presidential administration in the United States, as well as several regulatory debates taking place at the EU level (potential tougher methane emission regulations, disclosure of private natural gas contracts and the strong opposition to Nord Stream 2 and its implications for the broader acceptance of natural gas in Europe).

The last part of the study advances several policy recommendations (directed mainly towards governmental and supranational, European Union, actors) that would enable gas to play a greater role in power generation in Europe. Gas can ensure the stability of the grid in a climate friendly way and cover the capacity needed when power generation from renewable sources is low. The study therefore recommends:

  • Providing financial incentives for power generation to rely more on gas in Europe, in general, and in Germany. in particular;
  • Effectively pricing carbon: by reforming the EU-ETS and complementing it with carbon taxes and carbon floors at both the EU and Member States levels;
  • EU to maintain its climate commitments and maintain relations both with Britain after Brexit and the US after President Trump takes office and engage these countries on climate issues (through diplomacy and issue linkage);
  • Developing technology that allows for a better integration of both gas and renewable generated power in the grid;
  • Reshaping European understandings of energy security so there is an increased acceptance of gas as a reliable power source no matter the origin of the gas molecule.