The affordability challenge for gas

While the UK remains dependent on imported gas, fluctuations in international prices will make the cost of operating a gas-fired power station unpredictable.

The problem

The cost of the fuel itself is a significant part of the cost of generating electricity using gas. UK North Sea gas reserves peaked in 1999 – are now in decline – and we increasingly rely on imported gas. The cost of generating electricity from gas-fired power stations is thus affected by international gas prices.

The UK is shifting to a low-carbon economy. If gas is to be part of this energy mix, gas-fired power stations may need to be fitted with Carbon Capture and Storage (CCS) technology.

CCS captures carbon dioxide (CO2) emitted when gas is burned and stores it underground, rather than releasing it into the atmosphere. Installing CCS into gas-fired power stations carries an upfront cost, and may also make them less efficient and therefore more expensive to operate.

The solution

By 2025, it is estimated that generating electricity from a gas-fired power station fitted with CCS technology will cost about 14.0 pence per kilowatt-hour (p/kWh, EDF Energy adjusted for inflation). But the cost of generating electricity from gas using CCS may decrease as the UK gains more experience of operating such power stations.

‘Unabated’ gas (without CCS) is expected to be less costly, because incorporating CCS increases the upfront cost of building a gas-fired power station. CCS may also make power stations less efficient and therefore more expensive to operate.

The cost of generating electricity using unabated gas is expected to rise – in part due to taxes on greenhouse gas emissions. CCS could potentially capture 90% of the CO2 emitted by gas-fired power stations, so the impact of these green taxes on CCS power stations should be much less significant.