Infrastructure in 2014: Powering up for a new age
Electricity market reform, as detailed in the government’s Energy Bill, is expected to take hold by next summer, putting an end to uncertainty and delays to nuclear and renewable power new-build projects.
The Department of Energy & Climate Change (DECC) estimates that a fifth of the UK’s current electricity generation capacity will cease by 2020, and that electricity demand will double by 2050. The UK has also signed up to the 2009 Renewable Energy Directive, which means it must achieve 15% of its energy consumption from renewable sources by 2020. To meet all these obligations, it predicts that the UK electricity sector will need around £110bn of capital investment in the next decade.
The construction industry has been rubbing its hands together with glee at the thought of 10 years of concerted infrastructure investment, but delays in how this will be implemented has led to anxiety over when this boom period will actually begin and, indeed, if it already has.
“Electricity market reform” (EMR) is what government wants and, through the Energy Bill, it hopes to instill greater confidence in investment for low carbon electricity to counter the shortfall in generating capacity in 2020. “We’re at a really exciting stage at the moment; on the cusp of rebuilding the energy sector,” says URS director of energy development, environment and natural resources, and ICE past President Richard Coackley.
“It’s an opportunity to do it right - to make it fit for purpose; to get the cost of electricity right and be able to compete with the world.”
The Energy Bill that sets out the government’s plans for reforming the electricity market was originally due to receive Royal Assent in spring 2013, but is still making its way through parliament. After a prolonged period of pinponging between the House of Commons and House of Lords, the Queen should formally agree to make the Bill an Act of Parliament before Christmas. Legislation covered by the Bill should come into force before summer 2014.
With the Bill becoming law, there will undoubtedly be a boost to confidence in the energy infrastructure market next year. Confidence in the nuclear new build sector has already been lifted following the announcement in October that energy company EdF and the UK government had finally agreed on the key commercial terms for the new Hinkley Point C nuclear power station in Somerset. Through the “contract for difference”, a stable and predictable electricity pricing scheme has been outlined for the project whereby, if wholesale electricity prices rise above an agreed “strike price”, consumers will not have to pay extra. But if they fall below this price, the electricity generator will receive a top-up payment. In the words of EdF energy chief executive Vincent de Rivaz: “The [Hinkley] project will kick-start the UK nuclear programme and will help rebuild the nation’s industrial stamina.”
Contractors working on Hinkley expect the final deal to be signed in June next year (NCE 23 October). A Bouygues/Laing O’Rourke joint venture is lined up as preferred bidder to do the £2bn-plus main civils work, Costain is preferred bidder for the £250M marine pipeline work, and a Kier/Bam Nuttall JV will carry out earthworks, including excavation of the massive basement in which the nuclear island will sit.
EdF estimates that 57% of the project’s £16bn construction value could be spent in the UK, building skills and expertise that will help the UK win a greater share of nuclear programmes nationally and globally. It also claims the project could create 25,000 jobs during construction.
The power station is due to be operational from 2023.
EdF plans to install two European pressurised water reactors (EPRs) at Hinkley Point C, and is developing proposals for two EPRs at Sizewell C in Suffolk. Being able transfer knowledge of power station building across to a succession of new projects should bring cost benefits. Other new nuclear power stations in the pipeline include NuGen’s Moorside plant in Cumbria, which is currently going through design review and also aims to be operational by 2023.
Next year will also see the first phase of formal consultation of Horizon Nuclear Power’s Wylfa Newydd nuclear power station on the Isle of Anglesey. Work on site is expected to begin in 2015, with major construction starting in 2018 and electricity generation between 2020 and 2025.
Coackley is confident the UK has the expertise to deliver this programme of work and that nuclear energy will continue to be part of the mix of energy sources. But he warns there are still unresolved issues: nuclear power has the problem of radioactive waste disposal, while renewable power, such as wind and solar, has yet to resolve the issue of storing energy.
More positively, according to government figures, renewable energy capacity has increased by almost 40% since 2012, with renewables now supplying over 15% of the UK’s electricity. The UK also has more offshore wind power generation capacity than any other country. DECC also recently announced a £2.5M investment in new technologies to cut the cost of offshore wind energy (NCE 6 November).
Developing new technology has a huge role to play in ensuring that the UK can make the best decisions for a safe, secure and low carbon future – be that in developing more sustainable solutions for extracting shale gas, harnessing the power of wave and tidal power, or extracting energy from waste or biomass.
The nuclear strike price announcement in October 2013, which followed the wind energy strike price announcement in June 2013, has allowed energy companies to analyse in more detail the viability of wind and nuclear projects. But a prolonged period of uncertainty over the past few years in anticipation of these announcements has taken its toll on some projects.
Trade association for wind and marine energy Renewables UK believes a lack of certainty in how the Energy Bill will play out has “held back projects — particularly larger ones — from moving forwards”. However, data held by the association reveals that there are 996 turbines with a combined capacity of 2.8GW currently under construction, while a further 2,752 turbines with a combined capacity of 7.4GW have received planning consent. Its recent state of the industry report predicts a dip in construction of offshore wind until 2015, while onshore wind turbine projects make a stronger contribution.
Last year saw the world’s largest offshore wind farm completed. Located just 80.5km from London, the 175 turbines of the 630MW London Array sit in waters up to 25m deep and cover an area of 10,000ha. The scheme shows that, when the environmental and economic case stacks up, projects will go ahead.
It also follows that where technical challenges cannot be overcome, developers will pull out. Last month RWE Innog pulled out of the 1.2GW Atlantic Array offshore wind farm project and further schemes in the Bristol Channel Zone due to “technical challenges”, which had made the project uneconomical.
Crown Estate head of offshore wind Huub den Rooijen commented at the time: “Now that the industry has been developing projects for a number of years, there is a much deeper understanding of the characteristics of successful projects…”
Refreshingly, for an industry that thrives on ever-improving technology, the same week RWE pulled out of the Atlantic Array, the Crown Estate announced that a key stage in developing the UK’s first floating wind farm with energy company Statoil off the Scottish coast had been reached.
With the Energy Bill becoming law in the coming year, we should see a more confident energy new build market coming out of the ground and water to meet the UK’s low carbon energy needs.