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Hydro and Intergenerational UK Energy Security

Hydropower, which boasts a low carbon footprint and can operate for over 150 years with refurbishment, has a generation profile well matched to the UK’s energy demand and has the capability to become a cornerstone of UK energy security.

However, as the government prioritises quantity over longevity, favouring projects with the cheapest kWh, funding and support have disproportionately flowed towards solar PV and wind, while hydropower has consistently been overlooked.

In this blog, we will explore hydropower technologies and their potential to establish robust, domestically sourced energy security for the UK.

  • Hydropower: Consumer & Environmental Benefits

Hydropower, among the oldest and largest renewable energy sources, contributed 16% of the world’s total electricity in 2022 according to TheEngineer - comparable to the combined output of wind and solar for the year.

In the UK, there are over 1,650 Run of River (RoR) hydropower schemes amounting to 2GW of installed capacity. This year, hydropower produced almost 3TWh of electricity, or around 1.3% of the UK’s generation. A recent report by Biggar Economics estimated that existing hydropower reduced the wholesale electricity cost for UK consumers by £275 million in 2019; in 2022, this increased to £1.1 billion, with an average of £200,000 reductions on wholesale costs at 5pm every day.

Furthermore, the same report estimates that hydropower has prevented the emission of 160 million tonnes of carbon dioxide since 1920.

  • Pumped Storage Hydro (PSH): Reliable Energy Storage

PSH functions as a versatile and alternative energy storage solution involving two reservoirs at different elevations. In times of low energy demand, excess electricity is used to pump water to the higher reservoir; when demand surges, the stored water is released to produce electricity.

Currently, the UK is home to four operational PSH schemes, featuring an installed capacity of 2.83GW, which, according to Rystad Energy, accounts for more than half of the UK's installed energy storage capacity. However, there have not been any more facilities of this ilk for almost 40 years, despite there being over 6.85GW ready to be built.

These PSH schemes, all state-funded over 60 years ago, were initially designed to consume and store overnight generation from nuclear power plants, addressing their limitations in adjusting to the fluctuating profile of electricity demand. Now, as the share of intermittent renewables on the grid continues to rise, PSH can serve a vital role in balancing the grid.

  • Hydropower Left By The Wayside

Since the introduction of the CfD scheme, the government's key mechanism for backing new low-carbon power infrastructure, there haven’t been any successful bids for hydropower projects. In contrast, newer technologies such as solar PV and onshore wind continue to see success, with the latest auction yielding 24 onshore wind and 56 solar PV projects.

Three fundamental factors contribute to the subdued investor confidence and limited bids for hydropower projects. Firstly, the current 5MW minimum installed capacity requirement for hydropower projects has impeded the participation and funding prospects of numerous smaller capacity sites in the pipeline.

Secondly, the government currently compares hydro with solar and wind in terms of installed capacities and cost competitiveness. In reality, it should be considered as a replacement for high fossil fuel generation methods such as coal and gas peaking plants.

Lastly, and arguably the most critical concern, is the lacklustre strike price caps set at each auction. From the first auction to the latest, the strike price has consistently dwindled, falling from £100/MWh (£145 in 2023 inc. inflation) to £89/MWh (£129.6 in 2023 inc. inflation). Although there's a slight increase to £102/MWh (£148.53 in 2023 inc. inflation) in the recently revealed AR6 strike price caps, the British Hydro Association (BHA) has expressed a higher figure is needed to unlock the unrealised potential of British hydropower.

  • The Call For Supportive Action For Hydropower Development

According to a report by Birmingham University, the hydropower industry can deliver a further 1GW of reliable, winter baseload, low carbon energy generation if a price stabilisation mechanism of £140-180/MWh is implemented.

The BHA have proposed a number of recommendations urging the government to introduce policy support that will allow for the deployment of 1GW hydropower, with the most important changes focusing on the government’s CfD schemes. This includes reducing the current 5MW minimum installed capacity to 1MW, allowing the aggregation of pipelines of projects, and setting a strike price at £160/MWh to enable these pipelines of construction-ready projects to begin building.

Additionally, the BHA have called for the government to reconsider and properly evaluate the role of hydropower in replacing high fossil fuel generation methods such as coal and gas peaking plants, rather than comparing it on their cost competitiveness with wind and solar.

  • A PSH Pipeline Offering Intergenerational UK Energy Security

Similar to proposals for hydropower schemes, the right price stabilisation mechanism can help the existing PSH pipeline deliver an additional storage capacity of around 135GWh to the UK Grid within the next 10 years.

With daily curtailment costs of up to £62 million and an anticipated rise in the cost of managing network transmission congestion to £3 billion per year, the PSH pipeline would offer substantial relief and savings by storing electricity close to the source, thereby preventing curtailment and providing flexible storage at optimal times.

Additionally, as PSH is exclusively controlled and managed by the UK electricity market and system operator, the potential 135GW of additional storage would generate up to £14.8 billion for the UK economy, provide up to 253,700 years of employment, and domestic energy security for many generations to come.

With the growing importance for grid flexibility and storage, it is imperative that the government reconsiders their stance and approach to other renewable energy technologies, especially hydropower and hydropower storage. Recognising it as an anchor asset could provide a robust backbone for supporting the country’s net-zero ambitions.