Madness On Stilts: UK Turns To Diesel To Meet Power Supply Crunch

  • Date: 04/11/15
  • Kiran Stacey, Financial Times

Britain is set to grant hundreds of millions of pounds in subsidies to highly polluting diesel generators as a way to help solve the energy supply crunch facing the country over the next 15 years. The subsidies on offer are so appealing that even solar-power developers are building diesel generation on their sites as a way of maximising their returns.

Analysis of publicly available figures shows that companies have registered to build a total of about 1.5 gigawatts of diesel power under a government scheme to encourage back-up energy for the grid. The figures have been analysed by the Financial Times and experts at both the Institute of Public Policy Research and Sandbag, an environmental think-tank.

If all of those registered are successful in their bids — which analysts believe is likely — it could cost the taxpayer £436m, provide enough energy to power more than 1m homes and emit several million tonnes of carbon a year.

The subsidies on offer are so appealing that even solar-power developers, which have recently had their own subsidies cut, are building diesel generation on their sites as a way of maximising their returns. Lark Energy, a solar-power developer, is bidding for subsidies to build 18MW of diesel generation on its Ellough project in Suffolk, for example.

The UK is facing serious energy-supply difficulties over the next few years as old coal plants are taken offline without new power plants being built to replace them. National Grid, which runs the country’s power network, has predicted that the gap between electricity supply and demand this winter could get as close as 5 per cent — the tightest in a decade.

As part of the solution to that problem, ministers last year decided to start paying electricity providers extra money to make additional capacity available at short notice should the need arise.

They did so by holding an auction where companies bid for those subsidies, which they hoped would encourage gas plants to be built. Instead, it was more successful in giving incentives to other forms of generation such as nuclear power.

This year diesel looks to be one of the main beneficiaries of the process, with 1.5GW of generation having successfully registered for the bidding process.

The collapse in the oil price over the past year has driven down the price of electricity supply, making it uneconomic for companies to build capacity with high capital costs, such as new gas plant.

Dave Jones, power sector expert at Sandbag, said: “All diesel operators have to do is buy in diesel units in shipping containers from China and plug them into a grid connection.

“The low capital cost means that they can undercut things like gas.”

If all of those schemes secure government funding at the same level as last year, it would cost the taxpayer £436m.

According to the International Energy Agency, diesel electricity production emits only slightly less carbon than burning coal, and if the power plants were to run full-time for a year, they would emit 10m tonnes of carbon. They will avoid having to pay for their carbon pollution under the European emissions trading scheme, however, because they are too small to do so.

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