On 10 July 2018 the UK's National Infrastructure Commission (NIC) published its National Infrastructure Assessment (NIA).


This, the first of what will be five-yearly NIAs, sets out the NIC's plan of action for the UK's infrastructure over the next 10-30 years. It covers energy, transport, water and waste water, flood resilience, digital connectivity, and solid waste. Its recommendations are a list of fully costed projects, not an unaffordable wish list.

Our overall impression of the NIA is that it is a holistic view of infrastructure, not looking at different sectors in isolation but acknowledging that they overlap. For example it considers the impact of the increased use of electric vehicles on the energy sector as well as transport, and it recommends mandating the collection of food waste by local authorities to fuel biogas plants for use as a heat and transport fuel.

Having said that, it is worth a look at the report from an energy sector perspective.

Renewables or nuclear…or both?

The press immediately picked up on the recommendation that the government should not agree support for more than one nuclear power station beyond Hinkley Point C before 2025. Together with the recommendation that at least 50% of our electricity should come from renewables by 2030, they proclaimed that "Britain's nuclear ambition must make way for renewable energy", according to The Telegraph. But the reality is not as clear cut. The NIA actually says that its modelling shows that delivering a low carbon electricity system for 2050 powered mainly by renewables is a low cost option, cost comparable to building further nuclear plants after Hinkley Point C. So it is not ruling out nuclear, but saying that renewables could be a viable alternative. It does however acknowledge that no country has yet built an electricity system with very high levels of variable renewables so there is still a large amount of uncertainty. It recommends a 'one by one' approach to new nuclear plants, which will allow the UK to pursue a high renewables mix without closing off the nuclear alternative.

Of course, the reality is that there will not be support for more than one new nuclear power station before 2025 anyway, given the long lead times involved.

To achieve a 50% renewables mix by 2030, the NIC favours using the existing Contracts for Difference mechanism, rather than reinventing the wheel, but revising which technologies are in which pots and reinstating a pipeline of pot 1 auctions. So offshore wind, which is now cost competitive, should be moved to pot 1 after the forthcoming pot 2 auction in spring 2019 and then there should be a pipeline of pot 1 auctions and possibly a small-scale pot 2 auction in the 2020s.

The NIC also recommends that whole systems costs should be taken into account in the strike price as far as possible, but this formula will need to be developed over time as it is very complicated to work out.

The heat is on

Decarbonising heat is the next big challenge. At the moment, 69% of heat is produced by burning natural gas. This must be radically reduced if the UK is to meet its Climate Change Act legal targets. The NIC boils it down to a choice of two routes: hydrogen or electrification. We need to decide which route to take by the 2020s: should the gas network be maintained and converted to hydrogen, or phased out?

So that the government can make an informed choice, the NIC recommend:

  • Establishing the safety case for using hydrogen as a replacement for natural gas, followed by trialling hydrogen at a community scale by 2021
  • Subject to the success of community trials, launching a trial to supply hydrogen to at least 10,000 homes by 2023, including hydrogen production with carbon capture and storage
  • By 2021, the government should establish an up to date evidence base on the performance of heat pumps within the UK building stock and the scope for future reductions in installation costs.

Whether the government is prepared to make such a bold decision in the near future remains to be seen and we think it likely that they will continue to pursue both options for as long as possible. For background on the hydrogen option see our article Hydrogen: more than just hot air?

What we do know is that both options involve energy efficiency improvements in the short term. The NIC recommend a target of installing 21,000 energy efficiency measures in buildings a week by 2020. The Government's response to the recent ECO3 consultation (see our article Energy efficiency: the future of the Energy Company Obligation (ECO3)) does not go this far, so the industry will need to step up without relying on Government support.

CCS is not an option…unless for hydrogen

The Commission's modelling shows that continuing to use fossil fuels with the addition of carbon capture and storage (CCS, also known as carbon capture, use and storage - CCUS) is unlikely to form part of a cost competitive generation mix. So it is not recommending that government subsidise CCS for power generation but it acknowledges that CCS will not be built without government support.

But that does not mean the end for CCS. The most pressing reason to develop it at scale is likely to be for the manufacture of low carbon hydrogen, should the government go down the hydrogen for heat route outlined above. The CCUS Cost Challenge Taskforce Report published on 19 July acknowledges the role of CCUS for hydrogen production but believes it has a much wider role. It will be interesting to see the government's response to both these reports.

Comment

The NIA has made some bold recommendations and the government will need to make some brave policy choices if it chooses to follow those recommendations. We await the government's response but, given the current preoccupation with Brexit, we suspect that the government will keep its options open for as long as possible and continue the current path of supporting both renewables (to a limited extent) and nuclear; hydrogen and heat pumps; and CCUS as far as it can, but with as much risk on the private sector as possible.

Key contacts

Richard Goodfellow

Richard Goodfellow

Partner, Head of Infrastructure, Projects & Energy Group
United Kingdom

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Paul Dight

Paul Dight

Partner, Energy and Utilities
United Kingdom

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James Reynolds

James Reynolds

Partner, Construction and Engineering
Leeds

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