Weak demand takes the bite out of the British capacity crunch

Executive Summary

This latest analysis by Bloomberg New Energy Finance shows that weak power demand, high levels of new build and life extensions for nuclear plants will mean that the UK should be able to keep the lights on the rest of this decade.

● The UK continues to experience feeble demand for electricity since industrial production collapsed following the 2008 recession. Demand will not return to pre-crisis highs any time soon, although we expect an increase by 2015 as industrial production recovers. We see very slow annual growth beyond 2015 as the UK continues to shift to a service-based economy and energy efficiency measures and technological changes take hold.

● We anticipate 20GW of generating capacity in Britain will close by the end of 2016 due to environmental requirements, age and challenging economics for older gas-fired generation. Assuming the carbon price floor is implemented as planned, an additional 4GW of coal plants will retire by 2020 as they are affected by the carbon price floor and impending Industrial Emission Directive.

● However, we expect that the large swath of retirements will be offset by the 30GW of capacity due to come online by 2016 – around two-thirds of which is renewables. Life extensions for most of Britain’s nuclear fleet will further offset plant closures.

● Beyond 2017, we expect new capacity to primarily be low-carbon as large amounts of wind and solar are added each year. We take a conservative view on expensive (nuclear) and immature (CCS and marine) technologies and see limited build levels through 2030.

● Unabated coal faces the most challenging future of existing generation technologies. In particular, the rising carbon price floor will tighten the noose around the neck of coal generators – pushing them to the margin and reducing the profitability they currently enjoy.

● Although we predict the supply and demand balance will tighten following plant retirements mid-decade, capacity margins discounted for the intermittency of renewables should remain at a comfortable level through 2020. This suggests that the planned capacity mechanism could be an unnecessary intervention as the market remains well supplied this decade.

Please download the full report for more detailed analysis.

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