1

4 ENERGY

High level opportunities

In the short term (5 years) the UK faces an immediate need for new generation capacity

(e.g. renewables). The design, build and operation of the renewables projects and power

stations needs to provide resilience to long term climate impacts. Adaptation measures

also need to be factored into storage infrastructure (e.g. oil and gas storage sites at the

coast) and transmission and distribution infrastructure (e.g. electricity sub-stations) so that

the entire energy supply chain has long-term resilience. This will require considerable risk

assessment work and both ‘hard’ infrastructure and ‘soft’ adaptation measures, such as

capacity building.

The trend for new generation capacity will continue into the medium term (+5 years),

including significant expansion of offshore wind. High growth markets like China and India

will provide opportunities to assist in the planning and design of plant with long term

resilience, and potentially retrofit existing assets. The integration of smart technology into

networks, growth in distributed power systems and energy storage systems (to provide

power during peak demand) will broaden the scope of energy sector adaptation and also

require measures that take account of the interdependencies with other sectors (e.g.

electric vehicles being charged from the grid).

Summary

Most activities in the energy sector are affected by climate change. Power generation assets face

risks in terms of decreased efficiency and reduced access to cooling water due to higher

temperatures. Energy distribution infrastructure such as sub-stations, especially in cities, could be

affected by overheating. Altered demand patterns (e.g. increased use of energy intensive cooling

due to higher temperatures) which lead to longer peak loads could also put pressure on previously

robust systems. As the sector prioritises low carbon generation, existing assets are being

upgraded and optimised or else replaced. Consequently, opportunities will be created across the

value chain (in technology/manufacturing, engineering, construction, consulting, etc.) in ensuring

that new energy infrastructure is designed, built and operated in a way that provides resilience to

climate change over its lifetime.

2

Figure 4.1: Impacts and adaptation opportunities in the energy sector

The UK has some strong supply chain capabilities, including equipment supply (e.g. power

generation, transmission and distribution), technical consultancy, and power station operation and

management1 and global market experience. UK consultancies have world class expertise in

providing integrated risk assessments, modelling and asset management services. While there is

growing competition from local providers of technologies and expertise in global markets, UK

power sector equipment exports are worth £4.75bn per annum2 with services contributing further

export sales on top. Coupled with the UK’s strengths in consultancy and financial services, this

means there is a considerable opportunity to develop new infrastructure that factors in adaptation

measures which have been developed and applied in the UK. Sharing of best practice with other

country’s energy sector already coping with more extreme climates will help build capabilities and

possibly lead to joint ventures opening up new business opportunities.

1

www.uktradeinvest.gov.uk/ukti/appmanager/ukti/sectors?_nfls=false&_nfpb=true&_pageLabel=SectorType1&navigationPageId=/power 2 In 2008, the UK exported around £2bn of electricity distribution and control equipment and £2.75bn of electric motors,

generators and transformers

Physical impacts of climate change • Increased risk to generation & transmission infrastructure• Water availability affect cooling cycles negatively• Rising sea level and storm surge threaten coastal plant• Reduced efficiency of thermal plant

Demand shifts in UK• Combined with other socio-economic

factors climate drives increasing demand• Change in seasonality of demand:

summer increase & winter decrease• Increase in peak demand• Savings could outweigh costs

UK resilience activities• Flood planning advanced• Sophisticated operational weather

forecasting capacity• Collaborative industry and Met

Office/science adaptation projects• Climate Change Act 2008 stimulating action

Current opportunities (5yr)• Existing and new power

generation and distribution infrastructure

• Oil/gas storage• Integrated risk management and

modelling and impact services

Barriers in the UK• Adapting infrastructure/assets

that are nearing end of their life• Shortfalls in modelling and

impact data need to be filled through continued investment in R&D

Future opportunities (+5 yrs)• New plant and infrastructure• Smart network s• Distributed power systems• Asset management, risk

assessment and maintenance programme

• Improving resilience of assets in developing economies

Interdependencies with other sectors

• Energy recovery from water treatment works

• Electricity for transport• Dynamic demand with

industrial/consumer equipment

• Energy crops• Carbon trade and offsetting

3

Figure 4.2: SWOC analysis of the UK energy industry

Figure 4.3: UK competitive advantage greatest in consultancy and finance

Figure 4.4: Long-term opportunities are large both in domestic and global markets

Global market

Projected demand increase 2.4% p.a. to 2030 More than 5000 GW of generating capacity

needed by 2030 to meet growing demand £1,700bn investment required between 2010-20

to meet 450ppm stabilisation target UK power sector exports £4.75bn in equipment

and services a year Low carbon industries worth £1,500bn by 2050

UK market

£200bn of investment in generating capacity needed in next 10-15 years

£264bn of investment in UK energy infrastructure needed by 2020

UK energy companies generate £90bn revenues UK has second highest level of inward

investment in renewable energy Load balancing services £950m in 2010

Strengths

World class modelling and

operational weather forecasting

expertise

Turbine/power island, boiler island,

transmission/distribution technologies

Low carbon energy technology R&D

and some niche technologies

High supply chain capability and

ability to integrate new technologies

UK a leading centre of project

financing

Opportunities

Huge investment in new build will

require resilience measures to be

factored in at the EIA, planning and

design stages

Retrofit opportunities around

resilience of current assets (e.g.

bunding) and maintenance services

Capacity building and strategic

planning within organisations

Export opportunities to ensure

resilience of plant in developing

economies

Weaknesses

Poor resilience due to ageing

infrastructure

A lot of generation capacity in areas

affected adversely by climate change

Shortfall of STEM skills continues at

least in medium term (5 yrs)

Constraints

Ageing energy infrastructure /

planned closure makes adaptation

difficult to justify

Shortfalls in modelling and impact

information

Competitive advantage Opportunities Barriers

Technology /

manufacturingHigh Medium

KeyDistinctive strengths

Construction High Medium Moderate strengths

Planning / consultancy High Low Limited strengths

Capital / financial

servicesHigh Low

4

4.1 Physical impacts

Climate change increases the vulnerability and efficiency of energy assets and

infrastructure in various ways.

Energy infrastructure in the UK is predicted to be affected by long-term climate change

such as droughts, heatwaves and increased temperatures, rising sea levels and more

extreme weather such as flooding. Key potential climate impacts in the UK include3:

Droughts could reduce the availability of cooling water for inland power

generation stations;

Increased temperatures and heatwaves could reduce the efficiency of fossil

fuel and nuclear power plants;

Sea level rise and storm-surge changes could threaten coastal nuclear power

plants and oil and gas storage infrastructure; and

Flooding could pose threats to electricity sub-stations, requiring the location of

new and existing sub-stations to be examined in detail.

In 2006, the Met Office’s Hadley Centre undertook a scoping study in collaboration with

eleven energy utilities to identify the main climate change risks for the UK energy

industry through to the year 20754. The study found that more than one third of plant

process elements were sensitive to temperature, while many were exposed to changes

in wind, rainfall, sea level and soil moisture. Table 4.1 summarises the most significant

impacts together with associated adaptation business opportunities.

Table 4.1: Highest priority climate change impacts on the UK energy industry

Industry process Impact Description Opportunities

Balancing supply and maintenance schedules

Altered seasonality

Warmer summers / milder winters expected to reduce demand for

heating during winter and increase summer air-conditioning and

refrigeration demand

Dynamic demand & load balancing, demand side

management (DSM), modelling behaviour

Generation infrastructure

Increased weathering/

damage

Changing temperatures and patterns of subsidence, heave,

flooding, and wind pose a significant risk to the infrastructure

of generation

Modelling future climate conditions and feeding

into design modifications

Underground cables

Changing soil moisture

Climate change could lead to an increase in damage to cables from

changing precipitation, evaporation patterns and decreased soil moisture

New cable materials; sensors and

autonomous condition monitoring

Nuclear power stations

Rising sea level

Sea level rise and storm-surge changes threaten coastal plant

and infrastructure

Opportunity to implement innovative

design ensure can adapt over its lifetime

River-water cooling of generation plant

Increased temperatures

Cooling cycles become less efficient as the abstracted river-

water temperature increases and Integrated Pollution Control limits

Innovative methods for cooling including

waterless approaches

3 Several of these issues were raised at the Engineering, Infrastructure & Climate Change Adaptation Conference, 1

st

December 2009, Defra & Engineering for the Future 4 Met Office, Climate change and energy management - Scoping study on the impacts of climate change on the UK

energy industry (EP1), 2006

5

become difficult to satisfy

Combined Cycle Gas Turbine (CCGT) output

Changes in air density

CCGTs operate less efficiently in warmer temperatures because air

intake has a lower density. Increased summer demand may

reinforce adverse effects.

New turbine designs; growth in distributed

generation and DSM to offset peak demand

Adapted from Met Office EP1 project findings (2006)

Clearly these impacts are likely to occur in a wide range of markets; impacts will be

more severe in some than others. Overall, across the energy sector, both transmission

and distribution infrastructure are considered some of the most vulnerable areas to

climate change5,6

.

4.2 Demand shifts

In the UK, increases in peak demand will require innovative approaches in both

generation and demand management. Overseas, adaptation will also need to be

factored into the supply response to rapidly increasing energy demand in the

developing world

Demand shifts in the UK

Energy utilities already take account of climate variability, but climate change will

expand the conditions that they will have to deal with, with an increased frequency and

intensity of extreme weather events being a particular concern. Adapting to climate

change will require measures across the sector to ensure system performance and

reliability and avoid disruption to services.

This will increase risk for companies and will require different approaches to be

devised for the design, construction, operation and maintenance of assets.

It also impacts on regulators. For example, given the large level of water abstraction for

the power sector, for cooling purposes, (determined by the Environment Agency and

Scottish Environmental Protection Agency), there will need to be long term planning

and forecasting to ensure that abstraction licenses for rivers and other water sources

are set at a sustainable level.

Socio-economic factors (e.g. increases in single living; ageing population; increases in

use of electrical appliances) play an important role in driving increases in energy

demand7. Decreases in demand are mainly driven by increased energy efficiency,

technological innovation, the decline of energy-intensive sectors and fuel poverty. The

influence of climate change on demand patterns is interwoven with these trends and

cannot be separated easily. Overall, UK electricity demand is projected to remain

relatively stable until 20208.

Climate change is likely to lead however to seasonal changes in demand, with less

energy required for winter heating and greater summer demand for air conditioning

especially in urban areas (e.g. London) in the south of the country. Peak demand is

also expected to increase as electricity consumption increases during hot periods9.

During the 2003 heat wave, for example, total demand for electricity increased while

5 Rothstein et al., ‘Impacts of climate change on the electricity sector and possible adaptation measures’ in Hansjürgens

and Antes, Economics and Management of Climate Change, 2008 6 Adaptation and Mitigation Strategies (ADAM), Policy appraisal for the Electricity sector: Impacts, mitigation, adaptation,

and long term investments for technological change, August 2009 7 Met Office, Climate change and energy management - Scoping study on the impacts of climate change on the UK

energy industry, 2006 8 DECC, UK Low Carbon Transition Plan Emission Projections, 2009

9 HR Wallingford, Impacts of climate change on demand for water - Project summary (for South East Water Ltd.), 2008

6

daily consumption patterns changed significantly10

. Increases in demand were driven

by the extensive use of air conditioning, fans and cooling devices while altered daily

routines and work patterns caused displacement of electricity consumption. Energy

companies will have to factor such changes in domestic and industrial consumption

patterns in their strategic plans for building of base load and load following power

stations, or else consider other strategies such as energy storage, demand

management, or buying in peak load capacity.

Global demand shifts

Globally, demand for electricity is projected to increase by 2.4% on average from 2006

to 203011

. Developing countries are estimated to account for the largest proportion of

this rise with non-OECD countries projected to increase their share of global electricity

consumption from 45% in 2006 to 58% in 2030.12

This will require the planning, design,

financing and construction of massive quantities of new generation capacity worldwide.

According to UKTI13

, there is scope for UK firms to work in these markets, both on the

back of existing international success and the knowledge that is being generated from

current efforts to build new generation capacity and improve the resilience of the UK

energy sector. UK consultancies will also be able to advise on smart grid distribution

and strategies to reduce peak demand based on existing global work in this field.

4.3 UK resilience to climate change

Energy utilities are beginning to invest strategically in adaptation measures,

particularly for the most vulnerable assets such as electricity substations

Energy sector research helps identify the critical adaptation requirements

The underlying issues involved in building a resilient energy sector and the implications

of climate change for adaptive actions are well researched. An energy sector-wide

group now exists for sharing knowledge, experience and best practice in adapting to

climate change14

. In 2008, the energy industry, in collaboration again with the Met

Office, undertook a project, EP2, which15

:

Developed innovative new techniques that apply climate models to energy

applications;

Modelled future soil conditions and their impact on cables;

Developed a screening tool to assess whether UK coastal and marine sites

should be investigated for sea level rise impacts;

Investigated how urban heat island effects may change, so that network

companies may have more resilient infrastructure such as transformers in

cities;

Examined the relationship between historic weather patterns and network fault

performance, with a view to developing a tool to predict future network

resilience.

Government review stimulates proactive action to reduce flood risk

Following the 2007 floods the government instigated a resilience review of electricity

generating plant. Standards for acceptable flood risk and a systematic flood risk

assessment for generation plant and substations have been established and the Flood

10

Rothstein et al., ‘Impacts of climate change on the electricity sector and possible adaptation measures’ in Hansjürgens and Antes, Economics and Management of Climate Change, 2008 11

EIA (2009) International Energy Outlook, 2009 12

DECC, UK Low Carbon Transition Plan Emission Projections, 2009 13

Consultation with Bob Bish, Power Sector Lead, UKTI 14

Met Office, Energy Project 2. http://www.metoffice.gov.uk/climatechange/businesses/casestudies/energy.html 15

www.scottishpower.com/uploads/MetOfficeProjectExecSummary.pdf

7

Forecasting Centre Initiative has set up a warning system whereby the Environment

Agency provides daily flood warning updates directly to companies16

. The Energy

Networks Association (ENA) and Local Resilience Forums have also set up procedures

for collaboration on knowledge sharing and emergency response planning.

All electricity companies have now identified sites at risk of flooding. Electricity

distribution companies also include necessary resilience improvements (e.g. for

electricity substations) in their investment plans under the five year price reviews.

Strategic investments to improve resilience to flooding have now been made. For

example, permanent flood defences are in place at Walham and Castlemeads sub-

stations in Gloucestershire, both affected by the 2007 floods. Other planned adaptation

measures include the purchase of movable flood defence systems and review of

designs for new substations at risk of flooding17

.

Climate Change Act 2008 helping to raise the adaptation agenda

The statutory reporting requirements introduced under the Climate Change Act 2008

cover organisations with functions of a ‘public nature’ and ‘statutory undertakers’ such

as energy and water companies. Such organisations should produce reports on current

and future predicted impacts of climate change on their organisation and proposals for

adapting to climate change. This is acting as a stimulus for action across energy

companies.18

4.4 Current opportunities

Diverse opportunities exist for consultants and technology suppliers particularly

in improving the resilience of transmission and distribution.

UK market opportunities

The structure of the electricity generation sector in the UK is set to change in the period

to 2020, leading to substantial new required capacity, as a result of numerous drivers:

planned retirement of aged nuclear power stations and their replacement with

a new generation of nuclear power plants;

replacement of coal fired stations that cannot comply with emission limits

under the Large Combustion Plant Directive (LCPD);

the need to comply with the Renewable Energy Directive which specifies the

proportion of all energy consumption that must be met from renewable sources

by 2020

the need to comply with the 2008 Climate Change Act’s legally binding target

to reduce the UK’s emissions of greenhouse gases to at least 80% below 1990

levels by 2050.19

a broader transition to a low carbon economy, as set out under the UK Low

Carbon Transition Plan, e.g. increased electrification of rail and use of electric

vehicles.20

Ofgem has estimated that £200bn of investment in energy infrastructure is needed in

the UK over the next 10-15 years21

. By 2020, minimum total investment in required

energy infrastructure is estimated to reach £264bn in the UK22

. The long lifetimes of

16

ENA Bulletin, 20th July 2009. http://2010.energynetworks.org/westminster-blog/ena-bulletin-20th-july-2009.html

17 ENA Bulletin: 7

th July 2009. http://2009.energynetworks.org/westminster-blog/ena-bulletin-7th-july-2009.html

18 For instance, Scottish & Southern Energy has staff specifically tasked with managing this responsibility (Consultation

with Rufus Ford, Public Affairs, Scottish & Southern Energy) 19

www.theccc.org.uk/carbon-budgets 20

www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx 21

Ofgem, Project Discovery - Energy Market Scenarios, October 2009 22

Delivering a 21st Century Infrastructure for Britain, Policy Exchange, 2009

8

new plant – extending well in the middle of the century – will require significant

planning and design considerations to ensure resilience against future climate risks.

The National Planning Act (2008) provides for a more efficient, transparent and

accessible planning system, it also includes an ‘adaptation duty’.23

Development

consent for nationally significant infrastructure will be administered by a new

independent body, the Infrastructure Planning Commission (IPC)24

.

National Policy Statements (NPSs) lie at the heart of this regime. The draft

Overarching Energy NPS (EN-1)25

is an umbrella under which all draft technology-

specific Energy NPS26

will sit. EN-1 clearly sets out how applicants for all new

nationally significant energy projects and the IPC should take into account the impacts

of climate change in the design, build and operation of new energy infrastructure. Each

NPS sets out the type of issues that new energy infrastructure might need to take

account of. For example, EN-2 for fossil fuel generation plant27

notes that “As fossil fuel

generating stations are likely to be proposed for coastal or estuarine sites, applicants

should in particular set out how the proposal would be resilient to:

coastal changes and increased risk from storm surge;

effects of higher temperatures, including higher temperatures of cooling water;

and

increased risk of drought leading to a lack of available cooling water.”

Consequently, as part of the project application process, resilience measures will be

identified by consultants undertaking the Environmental Impact Assessment which will

be set out in the Environmental Statement accompanying an application. The IPC will

call on its own Council for Energy and statutory consultees such as the Environment

Agency, to inform its planning decisions28

. Any specific conditions the IPC decides are

necessary will also form part of the IPC’s development consent order29

.

For retrofit, adaptation opportunities exist across the value chain

(technology/manufacturing, engineering, construction and consulting) in making

generation, transmission and distribution infrastructure more resilient. According to

experts30

, generation plants are better prepared for climate change impacts than

transmission and distribution infrastructure which will require greater investments in

physical impacts assessment, ‘soft’ or ‘hard’ protection measures, and updated

operations and maintenance regimes to take full account of adaptation requirements.

Overall, across new build and retrofit, diverse opportunities exist for consultancies and

for technology suppliers (e.g. for low or no water cooling, climate resilient materials and

smart grid control systems). Some examples of short-term opportunities for UK

businesses are shown in Table 4.2.

23

www.energynpsconsultation.decc.gov.uk/home/intro/ 24

http://infrastructure.independent.gov.uk/?page_id=39 25

http://data.energynpsconsultation.decc.gov.uk/documents/condoc.pdf 26

The Government currently envisages that there will be 12 National Policy Statements, covering major infrastructure for energy, transport, waste, water and waste water. Energy NPSs include nuclear power (EN-6), renewable energy (EN-3),

fossil fuel electricity generation (EN-2), etc. 27

http://data.energynpsconsultation.decc.gov.uk/documents/npss/EN-2.pdf 28

Consultation with Anne Stuart, Energy NPS, Planning Reform, DECC 29

http://infrastructure.independent.gov.uk/wp-content/uploads/2009/10/Introducing-the-IPC.-Guide-to-our-role-for-senior-stakeholders.pdf 30

Report of the Engineering, Infrastructure & Climate Change Adaptation Conference, 1st December 2009, Defra &

Engineering for the Future

9

Table 4.2: Short-term adaptation opportunities in the UK energy sector

Adaptation Opportunities

Infrastructure

improvements

Measures to reduce transmission losses resulting

from higher temperatures.

Ensuring sub-stations are flood resilient

Voltage controls to enable renewables to be added

to weak grids

New build of

generation capacity

Design, construction and maintenance of new and

more efficient generation plant that can withstand

future climate variability on their operational

performance over the long term will be necessary

Consultancy

services

Vulnerability / risk assessments

Modelling and forecasting

Operational weather forecasting

Integration of climate models with business plans

Network resilience prediction tools

Developing supply chain security

Opportunities may cover more than one part of the supply chain and may also overlap

as interdependencies with other sectors, such as is the case for

the built environment - where the focus is on improved energy efficiency in

buildings and reducing urban heat island impacts;

water - where energy efficiency is coupled to a drive towards greater

renewable power;

transport – where electrification of railway lines is being extended and new

infrastructure (e.g. a network of charging points) for electric vehicles is

expected to be needed. The energy sector will also be increasingly reliant on

ports for import of raw materials such as coal.

Global market opportunities

A summary of adaptation measures across the global energy sector are shown in

Figure 4.5. They illustrate that there are a plethora of opportunities for consultants and

planners.

10

Figure 4.5: Summary of opportunities for adaptation goods and services across the global energy industry supply chain

Energy source Generation Transmission Distribution Usage

Distributed

power Energy storage

Consultancy

and planning

Optimising and climate proofing existing assets, systems and infrastructure / incorporate adaptation measures into replacement cycle of vulnerable system assets

Vulnerability assessment / modelling and integrating climate into decision-making and asset planning

Implementing long-term R&D programme to fill climate knowledge gaps across the sector

Operational weather forecasting

Improving operation and management regime

Researching uncertainties

surrounding resource

availability

Optimising operation in

changed weather

conditions

Modelling climate

impacts on transmission

systems

Modelling climate

impacts on distribution

systems

Use of climate projections

and modelling for demand

forecasting and planning

Modelling / analysing

distributed energy

resources

Materials modelling

and device testing

Strategies for hybrid

power production/

diversification

Monitoring / analysing

asset trends and

performance

Building tools to predict

future resilience of

network

Analysing impacts of

urban heat island effect

(e.g. on sub-stations)

Load management to

balance demand and

supply

Developing effective

coordination and

connection of distributed

energy resources

Research into new

materials for improving

battery and super-

capacitor performance

Forecasting trends in

existing sources

Modelling climate impacts

on renewable energy

sources

Minimising transmission

losses Switching to smart grids

Price information and

tariff incentives

Developing active

distribution networks

Developing power grid

interface systems

Water management for

sustaining capacity during

water scarce periods

Managing vegetation to

minimise damage to grid

during storms

Energy conservation

strategies

Design Designing for greater flexibility of infrastructure and long lived assets / over designing for future climate change impacts

Technology

Improving technologies

for extraction to withstand

altered climatic conditions

Water efficient generation

and cooling technology

Developing climate

resilient materials

Developing climate

resilient materials

Dynamic demand

technologies

Developing and

improving distributed

power technologies

Developing and

improving storage

devices

Construction Building protective structures (e.g. bunds) to cope with extreme weather, flooding and sea level rise

11

Retrofitting existing

assets

Retrofitting / building new

plant capacity

Upgrading and

extending existing

networks

Upgrading and

extending existing

networks

Retrofitting / efficient

buildings Extending power grid

Services

Installing new water/

cooling technologies

Offshore services for

renewable energy

Burying or re-rating

cables to reduce risk of

failure

Installing generation

technologies and smart

meters

Installing distributed

power systems

Installing charging

systems

Asset life extension

programmes Surge protection products

Facility operation and

management

Finance

Carbon trade, offsetting schemes, renewable energy portfolio investments

Developing new insurance products to deal with new and amplified climate change risks

Incorporating climate uncertainties into investment decisions

Source: Acclimatise (2009), ADAM (2009), Met Office (2008), NBS (2009)

12

4.5 Future opportunities

The largest UK opportunities will centre on ensuring new generation infrastructure is

designed, built and operated in a way that enables long-term resilience to climate

change – this includes clean fossil fuel generation, nuclear power and renewables.

High growth economies such as China and India are rapidly expanding their

generation capacity to reduce power shortages which could expose long-term risks

Future market opportunities in the UK

Fossil fuels and nuclear, will continue to dominate the energy mix through to 2020, although

renewable power generation is set to rise to around 30%31

(Figure 4.6). This will drive

continued investment in resilience measures for land-based generation capacity as per the

challenges set out in section 4.1.

Figure 4.6: Rise of renewable power generation in the UK energy mix

Source: DECC, Low Carbon Transition Plan, July 2009

Offshore renewable technologies such as wind, wave and tidal energy, and innovations like

carbon capture and storage (CCS), will take energy generation assets and infrastructure

further offshore. Round 3 offshore wind farm sites in the Southern North Sea, for example,

provide the largest opportunity32

(Figure 4.7). In March 2010, the Scottish Government and

the Crown Estate also signed ten power project agreements which could generate up to

1.2GW of power off Scotland’s north coast following the world's first commercial wave and

tidal leasing round.33

It is expected that the UK offshore industry will help to make these

structures resilient to the hostile offshore environment and to more extreme events that

might arise from climate change. Given that off-shore projects have shorter lifetimes, less

technology and relatively modest asset values compared to land based generation, these

impacts are assumed to be less problematic.

31

www.decc.gov.uk/en/content/cms/publications/lc_trans_plan/lc_trans_plan.aspx 32

Government is hoping that the offshore wind sector will deliver 33 GW of capacity by 2020. However, there is overall potential for 39GW of offshore wind across UK waters Low Carbon Industrial Strategy, p.20 33

www.scotland.gov.uk/News/Releases/2010/03/16095233

13

Figure 4.7: Round 3 development zones and expected installed megawatts by zone

Source: DECC, 2009 (NB excludes projects in Scottish & Northern Irish territorial waters)

Elevated summer temperatures in the UK are likely to increase peak demand and new

technologies and systems will be introduced to overcome this problem. In reality, however,

the UK is likely to serve as a demonstration test bed for technologies that can be mass

exploited in overseas markets where grids are less robust than the UK’s. For example,

technologies to help dynamically manage demand (see Box 1) and to help store energy to

balance the grid during peak demand periods (e.g. supercapacitors, sodium-sulphur

batteries34

and compressed air energy storage) will increasingly be used as part of the

global power sector’s tools for ensuring grid resilience in the face of climate extremes.

Box 1 : Dynamic demand for managing fluctuation in demand and supply

The UK market for load balancing services is estimated to be worth £950m in 2010 and is

expected to grow rapidly in the near future as a result of increased renewable generation

integration35

. UK company RLtec provides dynamic demand software that can be installed in the

control unit of appliances like fridges, air-conditioners and heaters to improve their efficiency and

provide load balancing services to national electricity grid operators. This helps manage

fluctuations in demand and supply and improve the overall stability and efficiency of the grid,

effectively turning multiple electrical appliances into a virtual power station that offers real-time

energy storage. RLtec is currently undertaking a large residential trial working with Indesit and

RWE npower to demonstrate the potential for smart appliances36

.

The future success of high speed electrification and electric vehicles in the UK will to some

extent also depend on having decarbonised power supplies and infrastructure that are

resilient to climate impacts. This independency of the energy and transport sectors creates

closer sector linkages and additional considerations in planning future energy infrastructure.

34

www.businessgreen.com/business-green/news/2211044/xcel-energy-trial-wind-power 35

http://www.lowcarbonaccelerator.com/ir/lca/ir.jsp?page=news-item&item=118942676818118 36

www.rltec.com/sites/default/files/Indesit_Rltec_npower trade release Oct 2009.pdf

14

Future global market opportunities

Clearly, opportunities will be different in economies with mature generation capacity and

networks compared to those economies in the process of developing assets and

infrastructure.

In major export markets like Western Europe, USA, Canada and Australia there is an

immediate need for upgrading ageing plant and infrastructure, and making them more

resilient to climate impacts at the same time. This is particularly critical where there are

interdependencies in the grid that may pose risks during extreme events. It is estimated that

the EU as a whole will need to invest £870bn to meet government targets for cutting

greenhouse gases, developing renewable energy and replacing ageing infrastructure37

.

Eurelectric, the trade association for electricity companies in Europe, estimates that making

electricity production carbon neutral by 2050 requires investments in the order of €1,800bn

(~£1,500bn) by 203038

.

Worldwide, more than 5000GW of generating capacity is needed to meet expected demand

in 203039

. The International Energy Agency estimates that total required global investment

in energy efficiency and energy generation technologies to stabilise greenhouse gases at

450ppm amounts to £1,700bn between 2010 and 2020, and £5,900bn between 2021 and

203040

. By far the greatest investment for the whole period is for energy efficiency -

£4,700bn or just over 60% of expenditure, illustrating the huge potential for demand

management and end-use efficiency measures – important mechanisms for ensuring grid

resilience over the long term. For example, hotter regions such as Southern Europe, the

west coast of the USA, Australia etc. are likely to experience more extreme temperature

increases during summer months than in the UK, which in turn puts greater stresses on the

grid. In such countries the management of peak loads and grid balancing will become ever

more challenging.

In many developing countries there is a need to install new capacity to alleviate chronic

power shortages. For example, the main priority in India and China is building new fossil-

fuel based plants to close the demand and supply gap. There will be opportunities for UK

firms to provide consultancy support around longer term resilience measures that they have

demonstrate in the UK new build market. Other opportunities lie in potential joint ventures

with firms more used to dealing with extreme physical environments, so that a blend of UK

and overseas capabilities can be sold as a ‘package’ into overseas markets.

Opportunities also arise for exploring the independencies between sectors. For example,

the water and power sectors converge in desalination plants which require considerable

power requirements, often co-located. In such cases, the need for overall system resilience

becomes more pressing.

A summary of all adaptation measures across the global energy sector classified by supply

side opportunities are shown in Figure 4.7.

37

‘The power bill arrives’, Financial Times, 3rd

Feb. 2010 38

Eurelectric Declaration, March 2009. Available at: http://www.eurelectric.org/CEO/CEODeclaration.asp 39

UKTI, http://www.ukenergyexcellence.com/why-uk-energy/sectors/power 40

IEA, ‘How the energy sector can deliver on a climate agreement in Copenhagen’, 2009

15

Figure 4.7: Assessment of market opportunities in the energy sector

Climate change adaptation response Supply side opportunities

Category Opportunities Technology /

manufacturing Construction

Planning /

consultancy / management

Capital /

finance

Measures to enhance

demand side efficiency in domestic

and commercial premises

Uptake of energy saving appliances and products

Dynamic demand technology (e.g. in fridges)

Increased use of micro generation (e.g.

biomass, ground source heat pump, micro wind turbine)

Installation of smart meters

Natural and low carbon air conditioning

Insulation

Increase generation capacity

through new construction

Combined heat and power (CHP) generation

Higher efficiency coal/gas-fired plants with

combined cycle gas turbines (CCGT) or integrated gasification combined cycle

(IGCC) technology carbon capture and storage (CCS)

Offshore wind power

Marine and tidal energy

Nuclear new build

Extend/upgrade transmission and distribution networks

Introduce voltage controls to balance networks

Introduce energy storage systems into network

Retrofit

Upgrade hydroelectric systems to be drought resilient

Reduce energy losses from transmission system during hot days

Retrofit coal plants with carbon capture and storage (CCS)

Rebuild plant core with super-critical or ultra-supercritical boiler

Retrofit energy production plants to use less water in cooling phases

Resistance measures against flooding (e.g. blocking water entry points, bunding)

Resilience

Upgrading grid (shifting to smart network)

Reducing vulnerability to water scarcity

Sensors & condition monitoring for cables

Burying or re-rating power cables

Thicker cables to deal with heat loss

Resilience measures against flooding

(protection of sub-stations, use of water resistant materials)

Resource Reducing transmission losses (e.g. load balancing)

16

management Asset management (e.g. monitoring and analysing performance)

Demand management (e.g. planning and price information)

Enhancing monitoring systems

Developing power grid interface systems

Services

Maintenance and repair

Risk management and vulnerability assessment

Design of new and more resilient energy systems

Life cycle analysis / carbon accounting

Impact modelling and forecasting (e.g. operational weather forecasting)

Research and development

Insurance products that compensate for

adverse effects of climate change and incentivise installation of adaptation measures

4.6 Barriers

There are current challenges around adapting assets that are nearing the end of their

life and modelling and impact information could be improved

The UK energy sector’s ongoing work with the Met Office coupled with the Climate Change

Act’s statutory reporting requirements have helped to stimulate action. Furthermore, the

reforms to the planning system for nationally significant energy infrastructure look like being

an effective method for ensuring resilience is factored into new build. There appear to be

some potential constraints, for example:

Shortfalls in modelling, impact information and resource projections (e.g. a lack of

wind data that could help plan both onshore and offshore wind farms) will also

create market opportunities for the research community;

Close monitoring and continual risk assessment by consultants for ageing assets

that have nothing spent on them to ensure long-term resilience;

The first annual National Strategic Skills Audit, published in March 201041

,

highlights the need for individuals with skills equivalent to levels 4 and 5 in the

following engineering disciplines: mechanical, design, civil, structural, electrical,

aeronautical, marine and geotechnical. These disciplines cover all forms of energy

infrastructure. New training such as ‘systems thinking’ that includes adaptation has

also been identified as a requirement for engineering courses.42

Outside the adaptation agenda, general constraints which may have an impact across the

energy sector and a knock-on effect in terms of overall resilience to climate impacts include:

The scale of investment required across different parts of the energy sector could

slow investment which in turn might create longer term security of supply issues.

The massive growth in renewables and the anticipated growth in decarbonised

power supply (i.e. nuclear and CCS), will place a strain of supply chains supplying

41

www.ukces.org.uk/reports/skills-for-jobs-today-and-tomorrow-the-national-strategic-skills-audit-for-england-2010-volume-1-key-findings 42

Source: Engineering, Infrastructure & Climate Change Adaptation conference, Defra and Engineering Institution, 1st

December 2009, Royal Society

17

common components across the energy sector leading to potential production

bottlenecks43

(see Figure 4.8).

Figure 4.8: Energy supply chains will be pressured through competing demands

from different types of low carbon generation projects

Source: BWEA, UK Offshore Wind: Charting the Right Course, 2009 (WTG’s = wind turbine

generators)

There is an emerging skills gap across the energy sector, particularly for engineers.

According to Energy & Utility Skills (EU Skills), while enrolment on engineering

degrees is increasing in the UK, many are awarded to foreign students who often

leave the UK after their degree. The number of British students taking engineering

courses is declining.44

The challenge of deploying offshore renewables will

exacerbate this recruitment situation. EU Skills also note that there is a “general

shortage of power engineers, mechanical engineers, and construction and

technology-focused people” in the industry.45

A National Skills Academy for Power

has been started by EU Skills and thirteen businesses, including many energy

companies, to try to overcome skills and training shortages.

4.7 UK competitive advantage

UK consultancies have world class expertise in providing integrated risk

assessments, modelling and asset management services. The UK offshore services

industry will help build energy sector resilience

The UK energy market is large and continues to show strong growth, not least due to

legislative drivers governing renewable capacity and emissions trading. UKTI estimates

that the UK energy sector (comprising SMEs through to some of the world’s largest energy

companies) currently generate revenues of more than £90bn from domestic and

international business. In 2008, the UK exported around £2bn of electricity distribution and

control equipment and £2.75bn of electric motors, generators and transformers46

with

services contributing further export sales on top. It employs around 600,000 people.

Revenues are expected to rise to £200bn and employment to one million employees by

43

‘Securing the UK’s energy future – seizing the investment opportunity’, Ernst & Young, July 2009 44

http://www.newenergyfocus.com/do/ecco/view_item?listid=1&listcatid=32&listitemid=1890 45

http://www.newenergyfocus.com/do/ecco/view_item?listid=1&listcatid=32&listitemid=1890 46

http://www.statistics.gov.uk/downloads/theme_commerce/Mq1009Q3.pdf

18

203047

. The total value of the UK renewables sector is approximately £31bn.48

The UK has

the world’s second highest rate of inward investment for renewable energy projects.

UK companies have core capabilities in transmission and distribution as well as world class

capabilities in mini-grids and distributed generation – areas where adaptive measures will

play a critical role in improving resilience in the energy sector. UK firms are therefore well

placed to take advantage of market opportunities worldwide, assuming they can team up

with adaptation specialists.

UK firms could enhance their capabilities through collaboration with countries already faced

with dealing successfully with extreme environments and applying this good practice in the

design of new energy infrastructure and services. For example, while higher temperatures

reduce the efficiency of transmission, countries like Saudi Arabia already have functioning

grids.49

The energy sector is also backed by a world-class research base in universities, institutes

and the private sector. The collaboration between utilities and the Met Office shows how the

industry is seeking to achieve resilience, cost savings and increased resource efficiency.

The oil and gas sector has built up world class expertise in project management, design

and manufacturing of advanced equipment and marine engineering in hostile environments

on the back of operational experience in the North Sea. These offshore capabilities are

highly developed and already benefit the growing renewable energy sector as commercial

offshore wind projects and pre-commercial wave and tidal projects are deployed. They are

also likely to be useful in the scale up of CCS transportation and storage projects into the

North Sea.

The UK is a world leader in delivering and exporting professional services into the energy

sector, including financial, legal and regulatory advice, asset management, capacity

building, education and training, monitoring and verification. UK companies have developed

some of the world’s most advanced condition and performance monitoring systems, such

as equipment for monitoring cables and switchgear, IT systems and modelling software as

well as decision tools and asset management procedures.

4.8 Suggestions for further interventions

Good progress has already been made in improving the understanding and readiness of

the energy sector to the implications and operational risks arising from climate change.

However, several areas could be investigated:

Technological innovation

The energy sector could continue its joint working and invest more in research (i.e.

through the Met Office, Technology Strategy Board, Energy Technologies Institute,

RCUK, etc.) to make more accurate long term projections and enhance technological

innovations. This will help increase the resilience of the energy supply chain.

Skills and training

The Energy and Utility Skills Sector Skills Council could investigate the provision

of adaptation training across energy sector employees so that overall the sector is

better prepared.

The professional engineering bodies could factor adaptation into their continuing

professional development (CPD) curriculum to ensure that engineers respond

appropriately to climate change impacts in their work.

47

UKTI, www.newsroom.uktradeinvest.gov.uk/~/content/news/uk-energy-excellence-to-take-centre-stage.ashx 48

Innovas, Low Carbon and Environmental Goods and Services: an industry analysis, 2009 49

Report of the Engineering, Infrastructure & Climate Change Adaptation Conference, 1st December 2009, Defra & Engineering

for the Future