Station to power up to 840,000 homes war in Ukraine raises concerns over blackouts
Mark Birley grins as he gazes up at the sprawling mass of pipes that form part of the bowels of this new £350m machine that will help keep Britain’s lights on this winter.
“It’s the biggest HRSG (heat recovery steam generator) Siemens has ever built,” says Birley, project manager at the gas-fired power plant’s owner SSE, whose focus for the last four years has been getting it to the finish line.
It has been a complex process: A 13m-long, 5.5-m high turbine, weighing the same as an Airbus A380, has been shipped from Berlin, over the North Sea and up the Humber Estuary towards the plant in Keadby, North Lincolnshire. Night shifts were set up to keep work going during the Covid pandemic.
Today, however, the final preparations are being made for the station to start sending power to the grid from October 1. It will be able to power up to 840,000 homes just as demand for energy jumps as the nights draw in, and Russia’s war on Ukraine raises concerns over blackouts.
“They put a lot of sensors in, more than 3,000, to check it was working properly,” Birley says.
“Now they are taking a lot of the sensors out and putting the components back in. It will be there now for the next 25 years.”
The plant is the first gas-fired power station to be built in the UK since 2016. It may well be one of the last of its kind. Last year, the Government set a target for the power system to be “decarbonised” by 2035. Unless Boris Johnson’s successor has a change of heart, gas-fired power stations will need to change.
Catherine Raw, managing director of FTSE 100 energy giant SSE’s thermal energy division, sees the station as the “middle or first step” in the push towards net-zero carbon emissions. The station is 7-8pc more efficient than its sister, Keadby 1, which was built in the 1990s and which emits more than 460,000 tonnes of carbon dioxide per year.
SSE is also pushing ahead with plans to use hydrogen instead of natural gas at new power plants, and try to scrub out emissions from burning natural gas.
As one of the UK’s biggest energy investors, its work will help determine whether fledgling green technologies such as carbon capture get off the ground, and whether the UK’s energy security and costs suffer in the process.
Its role in security is especially acute in coming months. SSE has secured lucrative contracts from National Grid worth around £172m for three of its power stations, both Keadby plants and one in Medway, to be available to provide back-up power when needed this winter. The plants are specially designed to be able to quickly turn on and off in response to demand.
The contract auction in February this year saw generators secure a record price of £75 per KW to be on standby, amid high fuel and carbon prices and concerns over tight electricity supplies. Russia’s invasion of Ukraine a week later has put unprecedented further pressure on energy markets due to cuts in Russian gas supplies to Europe.
Soaring gas prices in Europe and the UK are the key driver of the cost-of-living crisis gripping Britain. The price cap on energy bills is set to climb 80pc in October, pushing average bills up from £1,971 to £3,549.
Liz Truss, the front-runner to be prime minister, last week ruled out energy rationing this winter, in response to questions at a hustings. Critics question how she can be so sure, given unknowns over whether Russia will go further.
National Grid, which has to balance supply and demand, believes the lights will stay on this winter despite the chaos. Its early winter outlook, however, assumes “normal market conditions” including “no disruption to fuel supplies for thermal power stations” such as SSE’s gas-fired units. Yet if Russia keeps up its squeeze on Europe, nothing is guaranteed.
Raw says SSE has “taken all the measures that we can as a company in terms of securing gas supply contracts”.
She adds: “We feel we are in a good position. We have taken all the precautions we need to take. We’ve engaged with the business department and with National Grid. Really then it comes down to the system as a whole.”
Any tensions in gas supplies are likely to be felt in higher prices, rather than cut-offs, as Britain pays more to attract supplies from elsewhere, she argues.
“You just need to incentivise the electricity and gas to come back into the country,” she says. SSE has been “very focused on making sure we mitigate any issues” to make sure Keadby 1 is ready to generate in October, she adds.
Despite high fuel prices, the energy squeeze has been profitable for generators such as SSE. Profits at its thermal division climbed 91pc last year from £160.5m to £306.5m, as the gap between costs and sales widened.
Ministers are now toying with the idea of windfall taxes on electricity generators to help keep household bills down. The prospect has helped push SSE’s shares down from 1,916p in May to 1,663p this week. Unsurprisingly, it meets fierce pushback from the company.
Alistair Phillips-Davies, its chief executive, has instead recently called for more generators to sell electricity through long-term, fixed-price contracts below current high wholesale prices. He insists windfall taxes would deter investment, at a time when it is sorely needed to boost supplies and push forward the shift to cleaner energy.
For SSE, that involves its plans to invest around £24bn in the UK this decade, including on building major new wind farms, upgrading its electricity cables and developing hydrogen and carbon capture. It and others want the Government to hurry up with subsidy support for these fledgling technologies, however.
Wind power, for example, has been helped for years by long-term fixed price contracts backed by a levy on consumer bills.
“We need long-term pricing mechanisms to be able to secure that investment,” says Raw, arguing that under current arrangements it “just wouldn’t be economically justified” to add carbon capture onto power stations.
“The returns and the economics of building power stations is challenging,” she adds, noting that Keadby 2 “almost didn’t get built”, given uncertainty over its revenues when decisions were being made, and rising carbon prices.
“The board took a huge risk going ahead with it on the basis that we could anticipate the need for it then given everything [other generators] closing down,” she adds. “It was really a leap of faith in understanding that flexible capacity was going to be needed.”
SSE’s Keadby gas-fired power stations are built on the site of the former Keadby coal-fired power station. Grass-covered ash piles are all that’s left of the former, now surrounded by wind turbines. Its plans to burn hydrogen in power stations are based on the expectation that the future energy system will be dominated by offshore wind.
Burning hydrogen in a power plant makes little sense on its own, as hydrogen needs to first be produced either from natural gas or through electrolysis.
SSE’s planned 100pc hydrogen power station, in partnership with Equinor at Keadby, would be a world first. It and others believe hydrogen production can serve a useful role in “soaking up” excess electricity at times of high wind, effectively storing it to later convert back into power.
Critics question, however, whether there will be so much excess electricity given growing numbers of cables trading power with continent, creating new sources of demand. One major challenge identified by Raw is where to store the hydrogen once it is produced. Much more hydrogen is needed to produce the same energy as natural gas when burned in a power plant.
“Being able to have sufficient storage and then be able to run reliably even a 50MW plant is rare,” she says [Keadby 2 is 893MW]. I don’t know of another one.”
The Government is currently in talks with SSE rival Centrica about re-opening its Rough natural gas storage site off the Yorkshire coast. The immediate aim is to help secure natural gas supplies this and next winter, but Centrica hopes to eventually use it to store hydrogen. Large salt caverns around the Humber could prove a useful resource.
The potential is huge, Raw believes. “You can create this internal, indigenous sort of system that limits the impact of external shocks on the UK’s power supply,” she says. “That’s the vision we want to get to by 2030.”
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