Tag: electricity generation

Updated expectations for full year 2022

RNS Number : 5930R
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

In response to increased pressure on European gas markets and associated concerns about electricity security of supply in the UK this winter, Drax continues to optimise its biomass generation and logistics. To accomplish this Drax is reprofiling biomass generation and supply from the summer to the winter, enabling it to provide high levels of reliable renewable electricity generation in the UK throughout the winter when demand is likely to be higher. 

The Group also expects to provide additional support from pumped storage hydro at Cruachan Power Station, building on a strong year to date performance, which reflects a high level of system support activities.

Separately, at the request of the UK Government, Drax has now entered into an agreement with National Grid – in its capacity as the electricity systems operator – pursuant to which its two coal-fired units at Drax Power Station will remain available to provide a “winter contingency” service to the UK power system from October 2022 until the end of March 2023. The units will not generate commercially for the duration of the agreement and only operate if and when instructed to do so by National Grid.

Under the terms of the agreement, Drax will be paid a fee for the service and compensated for costs incurred, including coal costs, in connection with the operation of the coal units in accordance with the agreement.

Full year expectations

Reflecting these factors, Drax now expects that full year Adjusted EBITDA(1) for 2022 will be slightly above the top of the range of analyst expectations(2), subject to continued good operational performance.

Notes:

(1)   Earnings before interest, tax, depreciation, amortisation, excluding the impact of exceptional items and certain remeasurements.

(2)   As of 5 July 2022, analyst consensus for 2022 Adjusted EBITDA was £613 million, with a range of £584-£635 million. The details of this company collected consensus are displayed on the Group’s website.

https://www.drax.com/investors/announcements-events-reports/presentations/

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.Drax.com

END

Six-month extension of coal operations at request of UK Government

View of Drax Power Station

RNS Number : 5919R
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

In response to increased pressure on European gas markets and associated concerns about electricity security of supply in the UK this winter, the UK Government has asked owners of legacy coal-fired generation assets, including Drax, to work together with National Grid to temporarily extend the life of their coal generation assets to March 2023.

At the request of the UK Government, Drax has now entered into an agreement with National Grid – in its capacity as the electricity systems operator – pursuant to which its two coal-fired units at Drax Power Station will remain available to provide a “winter contingency” service to the UK power system from October 2022 until the end of March 2023. The units will not generate commercially for the duration of the agreement and only operate if and when instructed to do so by National Grid.

Under the terms of the agreement, Drax will be paid a fee for the service and compensated for costs incurred, including coal costs, in connection with the operation of the coal units in accordance with the agreement.

Will Gardiner, Drax’s Group CEO, said:

“At the request of the UK Government, Drax has agreed to delay the planned closure of its two coal-fired units and help bolster the UK’s energy security this winter.

“Drax has played a central role in ensuring Britain’s energy security over several decades and our workforce is proud to be providing this critical support to the UK energy system.

“Drax is the UK’s largest generator of renewable power, producing enough reliable, renewable electricity for 5 million households from our sustainable biomass and hydro operations and we remain committed to delivering a coal-free future.

“The UK’s long-term energy security depends on investment in innovative green technologies like bioenergy with carbon capture and storage (BECCS), which provides reliable, renewable power whilst permanently removing CO2from the atmosphere.

“Drax aims to invest billions of pounds developing BECCS in the UK by 2030, provided that the UK Government has in place policies to support the feasibility and delivery of negative emissions technologies, which it has committed to developing this year.”

Drax ended commercial operations on its two-remaining coal-fired generation units in March 2021, and formal closure was planned for September 2022, following the fulfilment of the Group’s Capacity Market obligations on these units.

A limited six-month extension to March 2023 is not expected to result in a material level of coal generation(1). Throughout 2021, coal-fired generation accounted for 3% of the Group’s generation output and in the first three months of 2022, this was less than 1%, with the balance from renewables – sustainable biomass, pumped storage and hydro.

The decision to end coal generation supports the Group’s purpose of enabling a zero-carbon, lower-cost energy future and the transition to a flexible, renewable generation model. This has led to a more than 95% reduction in the Group’s Scope 1 and Scope 2 carbon emissions since 2012 and enabled Drax to become the UK’s largest source of renewable electricity by output.

Investment in renewables

To date, Drax has invested over £2 billion in renewables and UK security of supply, with options for a further £3 billionto be invested this decade, subject to the right investment environment. These investment options include the development of negative emissions technologies and pumped storage, which the UK Government has said are necessary to decarbonise the electricity generation sector by 2035 and reach net zero by 2050.

No expected impact on BECCS

Drax continues to expect to take a final investment decision on its Drax Power Station BECCS project in 2024, subject to the right investment environment and, in 2022, is investing incrementally in the development of this option. This includes the removal of certain coal infrastructure. A six-month extension of coal is not expected to impact on the timing of a final investment decision or intended commissioning date for the project. Site preparation works for BECCS are ongoing and will accelerate following formal closure of the coal units in March 2023.

The UK Government recognises the important role which BECCS has to play in delivering net zero, requiring at least 5Mt of CO2 per year from BECCS and other engineered Greenhouse Gas Removals (GGR) by 2030. To support this ambition, in July 2022, the UK Government published a consultation on engineered GGR’s. Separately, in order to develop the financial model required to support BECCS – and reflective of its advanced technological readiness and the co-benefits of both power and negative emissions – the UK Government is expected to publish a power BECCS business model consultation during summer 2022.

The Group believes that negative emissions and BECCS represent a trillion-dollar global market opportunity and is separately continuing to develop options to deliver 4Mt of negative CO2 emissions each year from new-build BECCS outside of the UK by 2030.

Notes:

(1)   Drax will work with National Grid to source up to approximately 400,000 tonnes of additional coal (which together with current stocks is enough for c.1TWh of electricity generation) to deliver the service, and will only operate if and when instructed to do so by National Grid.

Enquiries:

Drax Investor Relations: Mark Strafford

+44 (0) 7730 763 949

Media:

Drax External Communications: Ali Lewis

+44 (0) 7712 670 888

Website: www.Drax.com

END

Half year results for the six months ended 30 June 2021

Engineers walking in front of sustainable biomass wood pellet storage dome at Drax Power Station, June 2021

RNS Number: 8333G
Drax Group plc
(“Drax” or the “Group”; Symbol:DRX)

Six months ended 30 JuneH1 2021H1 2020
Key financial performance measures
Adjusted EBITDA (£ million)(1)(2)186179
Continuing operations165160
Discontinued operations – gas generation2119
Net debt (£ million)(3)1,029792
Adjusted basic EPS (pence)(1)14.610.8
Interim dividend (pence per share)7.56.8
Total financial performance measures from continuing operations
Operating profit / (loss) (£ million)84(57)
Profit / (loss) before tax (£ million)52(85)

Will Gardiner, CEO of Drax Group, said:

“We have had a great first half of the year, transforming Drax into the world’s leading sustainable biomass generation and supply company as well as the UK’s largest generator of renewable power.

“The business has performed well, and we have exciting growth opportunities to support the global transition to a low-carbon economy.

Drax Group CEO Will Gardiner in the control room at Drax Power Station

Drax Group CEO Will Gardiner in the control room at Drax Power Station

“Drax has reduced its generation emissions by over 90%, and we are very proud to be one of the lowest carbon intensity power generators in Europe – a huge transformation for a business which less than a decade ago operated the largest coal power station in Western Europe.

“In the past six months we have significantly advanced our plans for Bioenergy with Carbon Capture and Storage (BECCS) in the UK and globally. By 2030 Drax could be delivering millions of tonnes of negative emissions and leading the world in providing a critical technology needed to tackle the climate crisis.

“We are pleased to be announcing a 10% increase in our dividend, and we remain committed to creating long-term value for all our stakeholders.” 

Financial highlights

Pinnacle named ship

  • Adjusted EBITDA from continuing and discontinued operations up £7 million to £186 million (H1 2020: £179 million)
  • Acquisition of Pinnacle Renewable Energy Inc. (Pinnacle) for cash consideration of C$385 million (£222 million) (enterprise value of C$796 million) and sale of gas generation assets for £186 million
  • Strong liquidity and balance sheet
    • £666 million of cash and committed facilities at 30 June 2021
    • Refinancing of Canadian facilities (July 2021) with lower cost ESG facility following Pinnacle acquisition
  •  Sustainable and growing dividend – expected full year dividend up 10% to 18.8 pence per share (2020: 17.1p/share)
    • Interim dividend of 7.5 pence per share (H1 2020: 6.8p/share) – 40% of full year expectation

Strategic highlights

Kentaro Hosomi, Chief Regional Officer EMEA, Mitsubishi Heavy Industries (MHI) at Drax Power Station, North Yorkshire

Kentaro Hosomi, Chief Regional Officer EMEA, Mitsubishi Heavy Industries (MHI) at Drax Power Station, North Yorkshire

  • Developing complementary biomass strategies for supply, negative emissions and renewable power
  • Creation of the world’s leading sustainable biomass generation and supply company
    • Supply – 17 operational plants and developments across three major fibre baskets with production capacity of 4.9Mt pa and $4.3 billion of long-term contracted sales to high-quality customers in Asia and Europe
    • Generation – 2.6GW of biomass generation – UK’s largest source of renewable power by output
  • >90% reduction in generation emissions since 2012
    • Sale of gas generation assets January 2021 and end of commercial coal March 2021
  • Development of BECCS
    • Planning application submitted for Drax Power Station and technology partner (MHI) selected
    • Participation in East Coast Cluster – phase 1 regional clusters and projects to be selected from late 2021
    • Partnerships with Bechtel and Phoenix BioPower evaluating international BECCS and biomass technologies
  • System support – option to develop Cruachan from 400MW to over 1GW – commenced planning approval process

 Outlook

  • Adjusted EBITDA, inclusive of Pinnacle from 13 April 2021, full year expectations unchanged

Operational review

Pellet Production – acquisition of Pinnacle, capacity expansion and biomass cost reduction

close-up of truck raising and lowering

  • Sustainable sourcing
    • Biomass produced using forestry residuals and material otherwise uneconomic to commercial forestry
    • Science-based sustainability policy fully compliant with current UK, EU law on sustainable sourcing aligned with UN guidelines for carbon accounting
    • All woody biomass verified and audited against FSC®(4), PEFC or SBP requirements
  • Adjusted EBITDA (including Pinnacle since 13 April 2021) up 60% to £40 million (H1 2020: £25 million)
    • Pellet production up 70% to 1.3Mt (H1 2020: 0.8Mt)
    • Cost of production down 8% to $141/t(5) (H1 2020: $154/t(5))
  • Near-term developments in US Southeast (2021-22)
    • Commissioning of LaSalle expansion, Demopolis and first satellite plant in H2
  • Other opportunities for growth and cost reduction
    • Increased production capacity, supply of biomass to third parties and expansion of fuel envelope to include lower cost biomass

Generation – flexible and renewable generation

  • 12% of UK’s renewable electricity, strong operational performance and system support services
  • Adjusted EBITDA down 14% to £185 million (H1 2020: £214 million)
    • Biomass – Lower achieved power prices and higher GBP cost of biomass reflecting historical power and FX hedging
    • Strong system support (balancing mechanism, Ancillary Services and optimisation) of £70 million (H1 2020: £66 million) – additional coal operations and continued good hydro and pumped storage performance, in addition to coal operations
    • Coal – utilisation of residual coal stock in Q1 2021 and capture of higher power prices
  • Pumped storage / hydro – good operational and system support performance
    • £34 million of Adjusted EBITDA (Cruachan, Lanark, Galloway schemes and Daldowie) (H1 2020: £35 million)
  • Ongoing cost reductions to support operating model for biomass at Drax Power Station from 2027
    • End of commercial coal operations in March, formal closure September 2022 – reduction in fixed cost base
    • Major planned outage for biomass CfD unit – August to November 2021 – including third turbine upgrade delivering improved thermal efficiency and lower maintenance cost, supporting lower cost biomass operations
    • Trials to expand range of lower cost biomass fuels – up to 35% load achieved in test runs on one unit
  • Strong contracted power position – 29.3TWh sold forward at £52.1/MWh 2021-2023. Opportunities to capture higher power prices in future periods, subject to liquidity
As at 25 July 2021 202120222023
Fixed price power sales (TWh) 15.99.14.3
-      CfD(6)3.80.6-
-      ROC10.88.44.0
-      Other1.30.10.3
At an average achieved price (£ per MWh)51.752.452.7

Customers – renewable electricity and services under long-term contracts to high-quality I&C customer base

 

  • Adjusted EBITDA loss of £5 million inclusive of £10-15 million impact of Covid-19 (H1 2020 £37 million loss inclusive of £44 million impact of Covid-19)
  • Continuing development of Industrial & Commercial (I&C) portfolio
    • Focusing on key sectors to increase sales to high-quality counterparties supporting generation route to market
    • Energy services expand the Group’s system support capability and customer sustainability objectives
  • Closure of Oxford and Cardiff offices as part of SME strategic review and the rebranding of the Haven Power I&C business to Drax
  • Continue to evaluate options for SME portfolio to maximise value and alignment with strategy

Other financial information

  • Total operating profit from continuing operations of £84 million including £20 million mark-to-market gain on derivative contracts and acquisition related costs of £10 million and restructuring costs of £2 million
  • Total loss after tax from continuing operations of £6 million including a £48 million charge from revaluing deferred tax balances following announcement of future UK tax rate changes
  • Total loss after tax from continuing operations of £6 million including a £48 million charge from revaluing deferred tax balances following confirmation of UK corporation tax rate increases from 2023
  • Capital investment of £71 million (H1 2020: £78 million) – continued investment in biomass strategy
    • Full year expectation of £210–230 million, includes pellet plant developments – LaSalle expansion, satellite plants and commissioning of Demopolis
  • Group cost of debt now below 3.5% reflecting refinancing of Canadian facilities in July 2021
  • Net debt of £1,029 million (31 December 2020: £776 million), including cash and cash equivalents of £406 million (31 December 2020: £290 million)
    • 5x net debt to Adjusted EBITDA, with £666 million of total cash and committed facilities (31 December 2020: £682 million)
    • Continue to expect around 2.0x net debt to Adjusted EBITDA by end of 2022
View complete half year report View investor presentation Listen to webcast

What is electricity trading?

What is electricity trading?

Electricity trading is the process of power generators selling the electricity they generate to power suppliers, who can then sell this electricity on to consumers. The system operator – National Grid ESO in Great Britain – oversees the flow of electricity around the country, and ensures the amounts traded will ultimately meet demand and do not overwhelm the power system.

Who is involved in electricity trading?

There are three main parties in a power market: generators (thermal power plants and energy storage sites, sources such as wind turbines and solar panels producing electricity), consumers (hospitals, transport, homes and factories using electricity), and suppliers in the middle from whom you purchase electricity.

Electricity is generated at power stations, then bought by suppliers, who then sell it on to meet the needs of the consumers.

Electricity trading refers to the transaction between power generators, who produce electricity, and power suppliers, who sell it on to consumers.

How are electricity contracts made?

Electricity trading occurs in both long- and short-term time frames, ranging from years in advance to deals covering the same day. Generation and supply must meet exact demand for every minute of the day, which means that traders must always be ready to buy or sell power to fill any sudden gaps that arise.

When trading electricity far in advance, factors such as exchange rates, the cost and availability of fuel, changing regulations and policies all affect the price. Short-term price is more volatile, and factors such as weather, news events and even what’s on television having the biggest impact on price. 

Traders analyse live generation data and news reports, to predict ahead of time how much electricity will be needed during periods of high demand and then determine a price. Traders then make offers and bids to suppliers and strike a deal – these deals then dictate how and when a power station’s generators are run every day.

Why is electricity trading important?

Running a power station is an expensive process and demand for electricity never stops.  The electricity market ensures the country’s power demands are met, while also aiming to keep electricity businesses sustainable, through balancing the price of buying raw materials with the price at which electricity is sold.

To ensure the grid remains balanced and meets demand, the systems operator also makes deals with generators for ancillary services, either far in advance, or last-minute. This ensures elements such as frequency, voltage and reserve power are kept stable across the country and that the grid remains safe and efficient.

Electricity trading ensures there is always a supply of power and that the market for electricity operates in a stable way

Electricity trading fast facts  

Go deeper

Turning waste into watts

Fields being ploughed by tractor

Think of carbon emissions and the image that comes to mind is often of industrial sites or power generation – not of what we eat and what we throw away. But food waste is a major contributor of greenhouse gas emissions.

Globally, food loss and waste from across the food chain generates the equivalent of 4.4 gigatonnes of carbon dioxide (CO2) a year, or about 8% of total greenhouse gas emissions.

But what if there was a way to reduce those emissions and generate power by using discarded food and other organic waste like grass cuttings or nut shells? A technology known as anaerobic digestion is increasingly making this idea a reality.

How anaerobic digestion works

All organic waste products have energy in them, but it’s tied up in the form of calories. When food and vegetation rots, microorganisms break down those calories into gases and other products.

Methane or Ammonium molecules. Science concept. 3D rendered illustration.

Methane or Ammonium molecules.

Exactly what these ‘other products’ are depends on whether there is any oxygen present. With oxygen, the products are water, CO2 and ammonia, but remove oxygen from the equation and a very valuable gas is produced: methane (CH4). The lack of oxygen is also what gives anaerobic digestion its name – when oxygen is present it becomes aerobic digestion.

During the anaerobic digestion process, bacteria and other microorganisms break down organic matter, gradually deteriorating complex polymers like glucose or starch into progressively simpler elements, such as alcohol, ammonia, CO2 and, ultimately, CH4, a biogas with huge potential as a fuel for other processes.

Anaerobic power in practice

The CH4 produced in anaerobic digestion is incredibly useful as a fuel – turn on a gas hob or stovetop and it’s predominantly methane that provides the fuel for the flame. The chemical compound is also the main component in the natural gas that makes up much of Great Britain’s electricity supply.

This means using anaerobic digestion to create CH4 out of waste products turns that waste into a valuable power source. But it’s not as simple as putting a bag over a rubbish tip and hoping for the best.

Instead, anaerobic digestion is carried out in large tanks called digesters. These are filled with feedstocks from biological substances that can include anything from food scraps, to alcohol and distillery waste, to manure. Under the right conditions microorganisms and bacteria begin to digest and breakdown these substances into their basic elements.

The air quantity and temperature of the digesters is carefully regulated to ensure the microorganisms have the best possible environment to carry out the digestion of the feedstock, with different types of feedstock and microorganisms operating best in different conditions.

The biogas created as a result of this digestion is then captured, ready to be turned into something useful.

biogas plant

Making use of biogas

Three different things can happen to the biogas produced during the course of the digestion. Locally, it can be combusted on-site to provide further heat to regulate the temperature of the anaerobic digestion units.

Or, it can be combusted in a combined heat and power (CHP) generator, where it can generate electricity to be used on site — for example to power a farm — or sold through energy suppliers such as Opus Energy onto wider regional or national electricity networks. This biogas electricity is an important element of Great Britain’s energy supply, accounting for 6,600 GWh or 7.3% of all power generated by solid and gaseous fuels in 2017.

Some of the biogas can even be cleaned to remove CO2, leaving behind pure methane that can be pumped onto natural gas grids and used to provide heat and power to households. Government research estimates a fully utilised biogas sector could provide up to 30% of the UK’s household gas demands.

After the digestion process has been completed and the biogas has been removed, what is left behind in the digester is a mass of solid matter called digestate. This is extremely rich in nutrients and mineral, such as potassium and nitrogen, making it an excellent soil enhancer.

Where anaerobic digestion is being used today

Today, much of anaerobic digestion power is generated on farms – unsurprisingly, given the ready access to biological waste material to use as feedstock. As well as a potential source of electricity and heat, it also gives farmers access to a new revenue stream, by selling electricity or biogas, as well as reducing utility and fertiliser costs.

While many of these installations are smaller scale, some can get quite big. Linstock Castle Farm in North Cumbria, for example, has a biogas facility with a 1.1 megawatt(MW) operating capacity, enough to power as many as 2,000 homes at a time. It was originally installed by the farmers as a more cost-effective way of growing their business than buying more dairy cows.

Biogas plant on a farm processing cow dung as a secondary business activity

There is, however, potential for anaerobic digestion to operate on an even larger scale. In the US, the city of Philadelphia is developing a system that will link all newly built households together into a network where food waste is automatically collected and transported to a biogas generating facility.

Closer to home, Northumbrian Water uses 100% of its sludge, the waste produced from purifying water, to produce renewable power via anaerobic digestion. It’s estimated to have reduced the carbon footprint of the facility’s operations by around 20%, and saved millions of pounds in savings on operating costs.

There have also been experiments with using biogas to power vehicles. The ‘Bio-Bus’ was the first bus in the UK to be powered by biomethane made from food, sewage and commercial liquid waste, and ran between Bath and Bristol Airport.

But anaerobic digestion power is not a magic bullet. It will be right in certain situations, but not all. If utilised effectively, anaerobic digestion and biogas could fill a vital role in national electricity and gas networks, while at the same time helping dispose of waste products in an environmentally-friendly and cost-effective way.

How to count carbon emissions

Reduced demand, boosted renewables, and the near-total abandonment of coal pushed last quarter’s carbon emissions from electricity generation below 10 million tonnes.

Emissions are at their lowest in modern times, having fallen by three-quarters compared to the same period ten years ago.  The average carbon emissions fell to a new low of 153 grams per kWh of electricity consumed over the quarter.

The carbon intensity also plummeted to a new low of just 18 g/kWh in the middle of the Spring Bank Holiday.  Clear skies with a strong breeze meant wind and solar power dominated the generation mix.

Together, nuclear and renewables produced 90% of Britain’s electricity, leaving just 2.8 GW to come from fossil fuels.

The generation mix over the Spring Bank Holiday weekend, highlighting the mix on the Sunday afternoon with the lowest carbon intensity on record

National Grid and other grid-monitoring websites reported the carbon intensity as being 46 g/kWh at that time.  That was still a record low, but very different from the Electric Insights numbers.  So why the discrepancy?

These sites report the carbon intensity of electricity generation, as opposed to consumption.  Not all the electricity we consume is generated in Britain, and not all the electricity generated in Britain is consumed here.

Should the emissions from power stations in the Netherlands ‘count’ towards our carbon footprint, if they are generating power consumed in our homes?  Earth’s atmosphere would say yes, as unlike air pollutants which affect our cities, CO2 has the same effect on global warming regardless of where it is produced.

On that Bank Holiday afternoon, Britain was importing 2 GW of electricity from France and Belgium, which are mostly powered by low-carbon nuclear.  We were exporting three-quarters of this (1.5 GW) to the Netherlands and Ireland.  While they do have sizeable shares of renewables, they also rely on coal power.

Britain’s exports prevented more fossil fuels from being burnt, whereas the imports did not as they came predominantly from clean sources.  So, the average unit of electricity we were consuming at that point in time was cleaner than the proportion of it that was generated within our borders.  We estimate that 1190 tonnes of CO2 were produced here, 165 were emitted in producing our imports, and 730 avoided through our exports.

In the long-term it does not particularly matter which of these measures gets used, as the mix of imports and exports gets averaged out.  Over the whole quarter, carbon emissions would be 153g/kWh with our measure, or 151 g/kWh with production-based accounting.  But, it does matter on the hourly timescale, consumption based accounting swings more widely.

Imports and exports helped make the electricity we consume lower carbon on the 24th, but the very next day they increased our carbon intensity from 176 to 196 g/kWh.

When renewable output is high in Britain we typically export the excess to our neighbours as they are willing to pay more for it, and this helps to clean their power systems.  When renewables are low, Britain will import if power from Ireland and the continent is lower cost, but it may well be higher carbon.

Two measures for the carbon intensity of British electricity over the Bank Holiday weekend and surrounding days

This speaks to the wider question of decarbonising the whole economy.

Should we use production or consumption based accounting?  With production (by far the most common measure), the UK is doing very well, and overall emissions are down 32% so far this century.  With consumption-based accounting it’s a very different story, and they’re only down 13%*.

This is because we import more from abroad, everything from manufactured goods to food, to data when streaming music and films online.

Either option would allow us to claim we are zero carbon through accounting conventions.  On the one hand (production-based accounting), Britain could be producing 100% clean power, but relying on dirty imports to meet its entire demand – that should not be classed as zero carbon as it’s pushing the problem elsewhere.  On the other hand (consumption-based accounting), it would be possible to get to zero carbon emissions from electricity consumed even with unabated gas power stations running.  If we got to 96% low carbon (1300 MW of gas running), we would be down at 25 g/kWh.  Then if we imported fully from France and sent it to the Netherlands and Ireland, we’d get down to 0 g/kWh.

Regardless of how you measure carbon intensity, it is important to recognise that Britain’s electricity is cleaner than ever.

The hard task ahead is to make these times the norm rather than the exception, by continuing to expand renewable generation, preparing the grid for their integration, and introducing negative emissions technologies such as BECCS (bioenergy with carbon capture and storage).


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Front cover of Drax Electric Insights Q2 2020 report

Electric Insights Q2 2020 report [click to view/download]

The cost of staying in control

What: Industrial landscape with cables, pylons and train at sunset Where: Somerset, UK When: January 2016

The cost of keeping Britain’s power system stable has soared, and now adds 20% onto the cost of generating electricity.

The actions that National Grid takes to manage the power system have typically amounted to 5% of generation costs over the last decade, but this share has quadrupled over the last two years.  In the first half of 2020, the cost of these actions averaged £100 million per month.

Supplying electricity to our homes and workplaces needs more than just power stations generating electricity.

Supply and demand must be kept perfectly in balance, and flows of electricity around the country must be actively managed to keep all the interconnected components stable and prevent blackouts.  National Grid’s costs for taking these actions have been on the rise, as we reported over the previous two summers; but recently they have skyrocketed.

At the start of the decade, balancing added about £1/MWh to the cost of electricity, but last quarter it surpassed £5/MWh for the first time (see below).

Balancing prices have risen in step with the share of variable renewables.  The dashed line below shows that for every extra percent of electricity supplied by wind and solar adds 10 pence per MWh to the balancing price.  Last quarter really bucks this trend though, and balancing prices have risen 35% above the level expected from this trend.  The UK Energy Research Centre predicted that wind and solar would add up to £5/MWh to the cost of electricity due to their intermittency, and Britain has now reached this point, albeit a few years earlier than expected.

This is partly because keeping the power system stable is requiring more interventions than ever before.  With low demand and high renewable generation, National Grid is having to order more wind farms to reduce their output, at a cost of around £20 million per month.  They even had to take out a £50+ million contract to reduce the output from the Sizewell B nuclear reactor at times of system stress.

Two charts illustrating the costs of balancing Great Britain's power system

[Left] The quarterly-average cost of balancing the power system, expressed as a percentage of the cost of generation. [Right] Balancing price shown against share of variable renewables, with dots showing the average over each quarter

A second reason for the price rise is that National Grid’s costs of balancing are passed on to generators and consumers, who pay per MWh.  As demand has fallen by a sixth since the beginning of the coronavirus pandemic, the increased costs are being shared out among a smaller baseOfgem has stepped in to cap the balancing service charges at a maximum of £10/MWh until late October.  Their COVID support scheme will defer up to £100 million of charges until the following year.

For a quarter of a century, the electricity demand in GB ranged from 19 to 58 GW*.  Historically, demand minus the intermittent output of wind and solar farms never fell below 14 GW.  However, in each month from April to June this year, this ‘net demand’ fell below 7 GW.

Just as a McLaren sports car is happier going at 70 than 20 mph, the national grid is now being forced to operate well outside its comfort zone.

This highlights the importance of the work that National Grid must do towards their ambition to be ready for a zero-carbon system by 2025.  The fact we are hitting these limits now, rather than in a few years’ time is a direct result of COVID.  Running the system right at its limits is having a short-term financial impact, and is teaching us lessons for the long-term about how to run a leaner and highly-renewable power system.

Chart: Minimum net demand (demand minus wind and solar output) in each quarter since 1990

Minimum net demand (demand minus wind and solar output) in each quarter since 1990


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Front cover of Drax Electric Insights Q2 2020 report

Electric Insights Q2 2020 report [click to view/download]

Could hydrogen power stations offer flexible electricity for a net zero future?

Pipework in a chemical factory

We’re familiar with using natural gas every day in heating homes, powering boilers and igniting stove tops. But this same natural gas – predominantly methane – is also one of the most important sources of electricity to the UK. In 2019 gas generation accounted for 39% of Great Britain’s electricity mix. But that could soon be changing.

Hydrogen, the super simple, super light element, can be a zero-carbon emissions source of fuel. While we’re used to seeing it in everyday in water (H2O), as a gas it has been tested as an alternative to methane in homes and as a fuel for vehicles.

Could it also replace natural gas in power stations and help keep the lights on?

The need for a new gas

Car arriving at hydrogen gas station

Hydrogen fuel station

Natural gas has been the largest single source of electricity in Great Britain since around 2000 (aside from the period 2012-14 when coal made a resurgence due to high gas prices). The dominance of gas over coal is in part thanks to the abundant supply of it in the North Sea. Along with carbon pricing, domestic supply makes gas much cheaper than coal, and much cleaner, emitting as much as 60% less CO2 than the solid fossil fuel.

Added to this is the ability of gas power stations to start up, change their output and shut down very quickly to meet sudden shifts in electricity demand. This flexibility is helpful to support the growth of weather-dependant renewable sources of power such as wind or solar. The stability gas brings has helped the country decarbonise its power supply rapidly.

Hydrogen, on the other hand, can be an even cleaner fuel as it only releases water vapour and nitrous oxide when combusted in large gas turbines. This means it could offer a low- or zero-carbon, flexible alternative to natural gas that makes use of Great Britain’s existing gas infrastructure. But it’s not as simple as just switching fuels.

Switching gases

Some thermal power stations work by combusting a fuel, such as biomass or coal, in a boiler to generate intense heat that turns water into high-pressure steam which then spins a turbine. Gas turbines, however, are different.

Engineer works on a turbine at Drax Power Station

Instead of heating water into steam, a simple gas turbine blasts a mix of gas, plus air from the surrounding atmosphere, at high pressure into a combustion chamber, where a chemical reaction takes place – oxygen from the air continuously feeding a gas-powered flame. The high-pressure and hot gasses then spin a turbine. The reaction that takes place inside the combustion chamber is dependent on the chemical mix that enters it.

“Natural gas turbines have been tailored and optimised for their working conditions,” explains Richard Armstrong, Drax Lead Engineer.

“Hydrogen is a gas that burns in the same way as natural gas, but it burns at different temperatures, at different speeds and it requires different ratios of oxygen to get the most efficient combustion.”

Switching a power station from natural gas to hydrogen would take significant testing and refining to optimise every aspect of the process and ensure everything is safe. This would no doubt continue over years, subtly developing the engines over time to improve efficiency in a similar way to how natural gas combustion has evolved. But it’s certainly possible.

What may be trickier though is providing the supply of hydrogen necessary to power and balance the country’s electricity system. 

Making hydrogen

Hydrogen is the most abundant element in the universe. But it’s very rare to find it on its own. Because it’s so atomically simple, it’s highly reactive and almost always found naturally bonded to other elements.

Water is the prime example: it’s made up of two hydrogen atoms and one oxygen atom, making it H2O. Hydrogen’s tendency to bond with everything means a pure stream of it, as would be needed in a power station, has to be produced rather than extracted from underground like natural gas.

Hydrogen as a gas at standard temperature and pressure is known by the symbol H2.

A power station would also need a lot more hydrogen than natural gas. By volume it would take three times as much hydrogen to produce the same amount of energy as would be needed with natural gas. However, because it is so light the hydrogen would still have a lower mass.

“A very large supply of hydrogen would be needed, which doesn’t exist in the UK at the moment,” says Rachel Grima, Research & Innovation Engineer at Drax. “So, at the same time as converting a power plant to hydrogen, you’d need to build a facility to produce it alongside it.”

One of the most established ways to produce hydrogen is through a process known as steam methane reforming. This applies high temperatures and pressure to natural gas to break down the methane (which makes up the majority of natural gas) into hydrogen and carbon dioxide (CO2).

The obvious problem with the process is it still emits CO2, meaning carbon capture and storage (CCS) systems are needed if it is to be carbon neutral.

“It’s almost like capturing the CO2 from natural gas before its combusted, rather than post-combustion,” explains Grima. “One of the advantages of this is that the CO2 is at a much higher concentration, which makes it much easier to capture than in flue gas when it is diluted with a lot of nitrogen.”

Using natural gas in the process produces what’s known as ‘grey hydrogen’, adding carbon capture to make the process carbon neutral is known as ‘blue hydrogen’ – but there are ways to make it with renewable energy sources too.

Electrolysis is already an established technology, where an electrical current is used to break water down into hydrogen and oxygen. This ‘green hydrogen’ cuts out the CO2 emissions that come from using natural gas. However, like charging an electric vehicle, the process is only carbon-neutral if the electricity powering it comes from zero carbon sources, such as nuclear, wind and solar.

It’s also possible to produce hydrogen from biomass. By putting biomass under high temperatures and adding a limited amount of oxygen (to prevent the biomass combusting) the biomass can be gasified, meaning it is turned into a mix of hydrogen and CO2. By using a sustainable biomass supply chain where forests absorb the equivalent of the CO2 emitted but where some fossil fuels are used within the supply chain, the process becomes low carbon.

Carbon capture use and storage (CCUS) Incubation Area, Drax Power Station

Carbon capture use and storage (CCUS) Incubation Area, Drax Power Station

CCS can then be added to make it carbon negative overall, meaning more CO2 is captured and stored at forest level and in below-ground carbon storage than is emitted throughout its lifecycle. This form of ‘green hydrogen’ is known as bioenergy with carbon capture and storage (BECCS) hydrogen or negative emissions hydrogen.

There are plenty of options for making hydrogen, but doing it at the scale needed for power generation and ensuring it’s an affordable fuel is the real challenge. Then there is the issue of transporting and working with hydrogen.

“The difficulty is less in converting the UK’s gas power stations and turbines themselves. That’s a hurdle but most turbine manufacturers already in the process of developing solutions for this,” says Armstrong.

“The challenge is establishing a stable and consistent supply of hydrogen and the transmission network to get it to site.”

Working with the lightest known element

Today hydrogen is mainly transported by truck as either a gas or cooled down to minus-253 degrees Celsius, at which point it becomes a liquid (LH2). However, there is plenty of infrastructure already in place around the UK that could make transporting hydrogen significantly more efficient.

“The UK has a very advanced and comprehensive gas grid. A conversion to hydrogen would be more economic if you could repurpose the existing gas infrastructure,” says Hannah Steedman, Innovation Engineer at Drax.

“The most feasible way to feed a power station is through pipelines and a lot of work is underway to determine if the current natural gas network could be used for hydrogen.”

Gas stove

Hydrogen is different to natural gas in that it is a very small and highly reactive molecule,  therefore it needs to be treated differently. For example, parts of the existing gas network are made of steel, a metal which hydrogen reacts with, causing what’s known as hydrogen embrittlement, which can lead to cracks and failures that could potentially allow gas to escape. There are also factors around safety and efficiency to consider.

Like natural gas, hydrogen is also odourless, meaning it would need to have an odourant added to it. Experimentation is underway to find out if mercaptan, the odourant added to natural gas to give it a sulphuric smell, is also compatible with hydrogen.

But for all the challenges that might come with switching to hydrogen, there are huge advantages.

The UK’s gas network – both power generation and domestic – must move away from fossil fuels if it is to stop emitting CO2 into the atmosphere, and for the country to reach net zero by 2050. While the process will not be as simple as switching gases, it creates an opportunity to upgrade the UK’s gas infrastructure – for power, in homes and even as a vehicle fuel.

It won’t happen overnight, but hydrogen is a proven energy fuel source. While it may take time to ramp up production to a scale which can meet demand, at a reasonable cost, transitioning to hydrogen is a chance to future-proof the gas systems that contributes so heavily to the UK’s stable power system.

What is the national grid?

Electricity grid

What is the grid?

The national grid, or simply the grid, is the network of powerlines, pylons, gas lines and interconnectors that makes up Great Britain’s electricity and gas systems — and the engineers, technology and rules responsible for their seamless operation. It ensures electricity generated anywhere, by any source, can be transmitted to meet the demand for power wherever it’s needed across the country. It heats homes and businesses. It helps us to cook our food.

The national electricity grid consists of a high voltage transmission system, which connects electricity from power stations to substations and smaller local networks – called Distribution Network Operators, or DNOs – which transport electricity into homes and businesses.

Key national grid facts

How does it work?

Transporting electricity around the grid is more complicated than just connecting cables to power generators. In order to move power around the country, things like voltage and frequency of electricity must be balanced and kept uniform at all times. Without this, unstable electricity could damage equipment and ultimately lead to blackouts.

The National Grid Electricity System operator (ESO) is a separate entity from the National Grid company, and is responsible for maintaining the correct voltage, frequency and reserve power levels to ensure electricity is transmitted safely and efficiently at all times.

It does this by working with power generators and energy storage facilities to provide what are known as ‘ancillary services’ – a set of processes that keep the power system in operation, stable and balanced.

The national grid is the network of power stations, powerlines and electricity infrastructure that allows electricity to be generated, transported and used across the country.

Who controls it?

In Great Britain the National Grid company owns and operates the transmission systems which ensure electricity is delivered safely and reliably across the country.

The local distribution system is made up of 14 regional DNO companies, which deliver electricity at a lower voltage from substations to homes and businesses.

Great Britain’s grid incudes England, Scotland, Wales and several surrounding islands. Northern Ireland is part of an island-wide electricity system with the Republic of Ireland.

National grid fast facts

  • Great Britain’s grid is made up of more than 7,000 kilometres of cables, 90,000 pylons, 346 substations, and 1,500 kilometres of underground cables
  • Construction of the grid began on 14 July 1928 and was completed on 5 September 1933
  • It was originally designed to operate as 7 separate, connected grids, before a group of rebellion engineers attempted to run it as one on 29 October 1938. It has run as one grid ever since
  • A decade ago, Britain had 80 individual points of generation to manage. Today there are nearly one million
  • All electricity in Great Britain operates at a frequency of 50Hz. A deviation of just 1% above or below could cause damage

How is the grid changing?

As the sources that generate Great Britain’s electricity change to include more renewables, the grid has also changed.

The grid was built to work with large power stations that operate huge spinning turbines. With decarbonisation it’s evolved to include a greater variety of intermittent weather dependent sources such as wind, solar and decentralised power sources that serve individual buildings or communities.

This makes managing the grid’s stability more complicated, and requires the use of more ancillary services, usually delivered by flexible generators such as thermal power stations.

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