Weekly News Review - 4th August 2023
Rishi Sunak faces criticism after announcing new oil and gas licenses
Prime Minister Rishi Sunak has been forced to defend his decision to grant 100 new North Sea oil and gas licences after facing criticism from politicians and environmental campaigners. Mr Sunak insisted that granting the new licences was “entirely consistent” with net zero obligations and he still cares about reaching the 2050 target but it needs to be achieved in “a proportionate and pragmatic way”.
He argued it was “sensible” to use “the energy we have here at home”, to improve job security and reduce the UK’s reliance on other countries. During a visit to Aberdeenshire on Monday, the prime minister also announced support for the Acorn carbon capture project in St Fergus. £20bn of funding has been announced which will be shared between four carbon capture projects.
Mr Sunak said the announcement would support thousands of jobs across the UK and that granting the new oil and gas licences was “the right thing to do”. He added: “Even when we reach net zero in 2050, a quarter of our energy needs will still come from oil and gas and domestic gas production has about a quarter or a third of the carbon footprint of imported gas.”
However, the prime minister’s recent decisions have increased the internal division within the Conservative Party over its green policies. Chris Skidmore, the Conservative MP who led a review into net zero, called the new licences “the wrong decision at precisely the wrong time, when the rest of the world is experiencing record heatwaves”. He said: “It is on the wrong side of a future economy that will be founded on renewable and clean industries, and not fossil fuels.”
“It is on the wrong side of modern voters who will vote with their feet at the next general election for parties that protect, and not threaten, our environment. And it is on the wrong side of history that will not look favourably on the decision taken today.”
The decision to grant new oil and gas licenses was also criticised by environmental groups. Oxfam’s climate policy adviser, Lyndsay Walsh, said: “Extracting more fossil fuels from the North Sea will send a wrecking ball through the UK’s climate commitments at a time when we should be investing in a just transition to a low-carbon economy and our own abundant renewables.”
Drax denies use of subsidy loophole to avoid £639m pay-out to households
Energy company Drax has denied claims that it has idled one of its biomass units since the start of the energy crisis to exploit a loophole in the government’s subsidy scheme. An investigation by Bloomberg found that one of the generating units at Drax’s North Yorkshire power plant was offline for much of 2022 which prevented the company paying back £639m in subsidies.
Drax’s Unit 1 biomass generator was awarded a Contract for Difference (CfD) by the government in December 2016. This provides the company with a fixed price of £100 for every megawatt hour (MWh) of electricity generated, which has earned Drax an estimated £1.4bn to date. As part of the CfD scheme, electricity suppliers pay the difference between the strike price and the wholesale price of electricity. These charges are then passed onto customer bills.
Before the energy crisis wholesale electricity prices were below £100/MWh meaning that Drax received the top up payments. However, the rules of the scheme state that if wholesale prices rise above the strike price then any excess money generated should be paid back to suppliers. But these payments can be avoided if the unit is not generating. It is claimed that Drax instead profited from the energy crisis by selling the unused biomass at higher prices.
A Drax spokesperson said: “The allegations made by Bloomberg are false, inaccurate, and misleading. Drax was a net buyer of pellets in this period to enable the plant to generate baseload power to keep Britain’s lights on and was the single largest generator of renewable electricity in the country last year. No serious observer of the energy system would advocate that we ought to have exposed Britain’s power grid and our business to increased risks.”
“The Russian invasion created unprecedented challenges to the electricity market due to constrained fuel supplies, leading to an increase in both the demand for biomass and the price of pellets. Given this, we had to make responsible decisions on our winter hedging to minimise risk to Britain’s energy security and our business.”
“Our RO units were already hedged for the period, so we took the responsible decision to preserve supplies for winter 2022 by not hedging the now uneconomical Contract for Difference (CfD) unit. We kept the CfD unit in reserve, available to either cover an unexpected outage of one of our other units, or to be dispatched in times of system stress. The unit did run in line with its availability when system margins were tight and prompt prices made it economical.”
First turbines being installed at world’s biggest offshore windfarm in North Sea
Energy company SSE expects to install the first turbines at its Dogger Bank windfarm over the next few days. Once completed, the £9bn project will be the largest offshore windfarm in the world with a capacity of 3.6GW – capable of powering up to 6 million UK homes.
The Dogger Bank windfarm will be built in three 1.2GW phases with the first phase expected to be completed in summer 2024. The first of the 277 13MW turbines is set to be installed around 80 miles of the coast of Yorkshire over the weekend. The project has a current completion date of 2026 and is being supported by a 15-year CfD agreement.
SSE chief executive Alistair Phillips-Davies said: “Dogger Bank is one of the biggest and most complex engineering and infrastructure projects anywhere in the world. Our progress here with our joint venture partners Equinor and Vargronn proves offshore wind projects of this size are now mainstream and will help turbocharge the transition to the cheaper, cleaner and more secure energy system we all want to see.”
“It is action, not ambition, that will secure our energy future and this project shows action on a massive scale. But we will need many more Dogger Banks to achieve our goals and we look forward to working with government to bring forward more projects at pace.”
Deputy Prime Minister Oliver Dowden said: “This project will generate cheap, clean energy to power millions of homes and provide the UK with greater energy independence in the face of Putin’s energy ransom. Disruption to global energy supplies is one of the key risks we’ve highlighted in our new National Risk Register and working with SSE and its partners, we are making Britain more secure.”
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