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Hello and welcome to Energy Source. I’m coming from London today. In London, Wednesday was a tense day for the UK’s changing electricity market.
The National Energy System Operator, which is responsible for turning on the lights, has issued a flurry of notices asking power producers to increase supply as wind speeds drop and imported cables are already being laid heavily.
Phil Hewitt, director of energy data group Montell Analytics, said it was “the toughest day of the year so far”, with gas-fired power plants demanding sky-high prices to keep them running. , including one asking for £5,750 per megawatt hour (the previous day’s wholesale price was around £97 per megawatt hour).
The market responded and the lights stayed on. As of 8pm on Wednesday, the UK was getting 57.7 per cent of its electricity from gas, 8.6 per cent from wind and 11.7 per cent from interconnectors.
This day marks the growing complexity of managing power systems as we transition to intermittent renewable energy. This complexity will also have to be managed by other countries undertaking similar initiatives around the world.
Today’s featured item looks at another major step in the energy transition: the long-planned sustainable aviation fuel obligation that has come into force in the EU and the UK.
Politicians are hoping that the airline industry will be the driving force needed to decarbonise. But will it work? Enjoy reading! — Rachel
New efforts to decarbonize European aviation
For many people, January is a time to set new year’s resolutions and set resolutions. For the EU and UK aviation industries, this means following new rules aimed at moving away from fossil fuels.
Fuel suppliers at UK and EU airports are now required to supply a proportion of sustainable aviation fuel (SAF) to departing flights. It can come from cooking oil, municipal waste, or hydrogen, and many types are fine as long as they are not fossil-based.
The first year’s duty is low: 2 per cent of jet fuel used in the UK and 2 per cent in the EU. However, it is expected to rise to 10% in the UK and 6% in the EU by 2030, and even exceed that.
This marks a new phase in the energy transition, as governments become tougher on the aviation industry to meet pressing decarbonization targets. The price of carbon emission certificates is also expected to rise in the coming years, making pollution even more costly.
It also comes at a delicate moment in the energy transition, with support for net-zero emissions targets threatened in many countries, and forcing the use of greener products is a viable strategy. It will be a further test of whether or not.
In the aviation industry, sustainable fuels are more complex and expensive to produce than the fossil fuels currently in use, constraining supply and demand. Policymakers hope that forcing demand will disrupt this dynamic.
“(The mandate) will give confidence to investors, create a clear market opportunity and provide the impetus to bring fundamentally new products to market,” said Eirik Pitkethly, vice president of bioenergy regulation at BP. speak
But last year did not bode well for future supply. Despite looming demand obligations, several SAF projects have been canceled or suspended due to high costs and tight raw material supplies. In July, for example, Shell suspended construction of a planned biofuels plant in Rotterdam, citing “market conditions.”
In total, around 2 million tonnes of SAF production capacity per year has been canceled or suspended during 2024, according to an analysis by consultancy Wood Mackenzie. (To put this into context, this year’s UK obligation equates to around 230,000 tonnes.)
“Challenging market conditions, availability of competitively priced sustainable raw materials and changing strategic priorities are among the reasons cited,” said Ozy Jegunma, senior research analyst at the consultancy. points out.
It estimates that the price of SAF made from used cooking oil in northwestern Europe will still be up to three times more expensive than jet fuel in 2030.
In later years, some EU and UK obligations will need to be met with synthetic fuels to reduce pressure on biofuel feedstocks such as cooking oil.
Synthetic fuels can be produced, for example, by combining carbon dioxide and hydrogen produced using green electricity. However, this is complicated and expensive. Shell and Uniper pulled out of a planned project in Sweden last year.
What it means for airfare
Monika Rybakowska, policy director at EU industry airline group Airlines for Europe, said this was a “year of learning” for the industry to adapt. But she is also concerned about an impending “green premium” as the costs of complying with obligations are passed on.
“The point is not to make flights more expensive. The point is not to put restrictions on flying,” she added. “The key is to decarbonize flying, how to make it better and cheaper. I don’t think that will necessarily happen with all the regulations that we have in place at the moment. .”
UK government analysis says the mandate could increase the average price of a one-way ticket by £9.40 by 2040, but this is “within the annual variation” in airfares since 2010. The government says there is.
It warned that this amount could rise to £37.80 if there is a shortage of available fuel and companies pay acquisition fees instead. But it added that if that were the case, it might “immediately review its obligations and prevent a significant increase in ticket prices from materializing.”
Tim Alderslade, chief executive of British lobby group Airlines UK, argues that the impact of the obligation on airfares could be minimized if the right policies were in place. “Our priority is mission success,” he added.
The UK government has been forced to start tweaking its policy to force car manufacturers to produce a certain proportion of electric cars, complaining that compliance is too difficult. Similar mandates will now be tested in the aviation sector. (Rachel Millard)
power point
Nuclear energy companies are racing to develop “microreactors” to compete with batteries as a zero-carbon energy source.
Constellation Energy is in talks to buy Calpine in a deal worth up to $30 billion, which could be the power generation industry’s largest acquisition.
Shell cut its fourth-quarter gas production forecast and warned that trading in its gas and chemicals sector would be “significantly lower”.
Energy Source is written and edited by Jamie Smith, Miles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Please contact us at energy.source@ft.com. Follow @FTEnergy on X. Click here for past editions of the newsletter.
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