Page 5 - EurOil Week 40 2021

EurOil COMMENTARY EurOil

situation is particularly acute in the UK. of next year. This coincides with a tightening of
“The sharp spike in UK electricity prices fiscal policy via reduced welfare benefits and a
through September owes a fair amount to bad forthcoming rise in taxes,” ING said. “The hit
luck. That was epitomised by a recent fire at the to the cost of living is one of the factors why we
point where a key power cable enters England think the Bank of England will leave it until later
from France. The UK’s exit from the EU, and in 2022 before hiking interest rates. Consumer
with it the internal energy market, has possibly confidence has already fallen fairly sharply in
also contributed at the margin,” ING said. “But September.”
the UK is also a victim of its own progress on In the longer term, ING points to hydrogen as
lowering emissions, and it’s revealed two key the solution for the UK’s energy supply vulnera-
vulnerabilities as the country transitions to net bility, as it can essentially store renewable energy
zero.” for periods when wind and solar generation are
Besides the country’s overreliance on gas, low. But there are challenges with hydrogen as
ING also points to the UK’s dependence on well.
variable renewables – both wind and solar. The The government published a long-awaited
latter is a major focus in the country’s efforts to hydrogen strategy in August, but fiscal terms,
decarbonise. Wind accounted for 7.5% of energy including a contract for difference (CfD) sys-
consumption in 2019, and the government is tem, still need to be determined. The strategy
planning to add 40 GW of extra capacity by the favours the development of both green hydro-
end of the decade. gen, derived from water using renewable ener-
The government has had some difficulty get- gy-powered electrolysis, and blue hydrogen,
ting new wind projects through various approval which comes from gas.
stages. “In other words, hydrogen may actually
“But the more immediate hurdle is the vola- increase the UK’s dependency on gas in the short
tility in how much renewable electricity is gener- term, even if in the long term it offers a way of
ated. Recent shortages in natural gas, [owing to] smoothing the UK’s volatility in renewables pro-
a colder April/May, a redirection of LNG sup- duction and thus acts as a key component in the
plies to Asia, and less supply from Norway and net-zero journey,” ING said. “The blue hydrogen
Russia – have coincided with a particularly poor approach also relies on further technological
few months for UK wind, ING said. “The latest advances in storing emissions, though the UK
data covering July shows comfortably the lowest is arguably at a more advanced stage than most
wind speed for that month this century,” in preparations for the first carbon capture and
Analysts believe that current high prices storage [CCS] clusters.”
are unsustainable, as they will lead to demand “The final piece of the jigsaw is the electric-
destruction that help ease supply shortages. ity network itself,” ING said. “While the cost
Suppliers will also have an incentive to increase of wind and solar electricity has fallen dra-
flow. But they could remain at least uncomfort- matically, it’s been replaced by other costs to
ably high for the rest of the year, especially in the account for the increased volatility that renew-
event of a cold winter. ables bring.”
“Further power price pressure may well The solutions include adding more inter-
require the UK government to repeatedly step in connectors to enable more power flow across
to support heavy industry, as it has done recently the country, though ING noted that this would
with CO2 production,” ING said. “The UK will be costly. Spreading wind and solar generation
be under pressure to directly support consum- more evenly around the country would also
ers. The cap on household energy costs is already help, as would local power pricing. As the num-
set to rise by 12% in October, and a further dou- ber of electric vehicles (EVs) on the UK’s roads
ble-digit rise next April seems increasingly likely, increase, ING said, this will provide the country
too.” with a network of batteries it can tap. Consumers
“We expect this to contribute over one per- should be incentivised to charge their cars when
centage point to inflation by the second quarter it’s windy or sunny, it said. ™

Week 40 07•October•2021 www. NEWSBASE .com P5