Optimal net-zero energy system transitions: The impact of fuel prices

The recent extreme fuel price hikes raise questions regarding the affordability of net-zero energy system transitions. Researchers on the IDLES Programme have performed a study on the impact of different fuel prices on the optimal net-zero energy system transition in the UK. Using a comprehensive whole-energy system optimisation model, optimal transition pathways for a multitude of scenarios are explored in a new paper published in iScience. In this blog, Mr Matthias Mersch explains the findings. Matthias is a PhD student supervised by Professor Christos N. Markides and Professor Niall Mac Dowell. Christos leads the characterisation of energy conversion and storage technologies for whole‑system modelling within IDLES.

What is the motivation behind this research?

Energy prices have seen a drastic increase since mid-2021. The UK had historically low gas prices, with an average wholesale price of about 15 £/MWh between 2018 and 2021. Over the last two years however, we have seen the average price increase more than 4-fold, with peak prices of 150 £/MWh and higher. This put a lot of stress on the UK energy systems, which rely heavily on gas for electricity generation and heating. The price increase also raises questions regarding the viability of net-zero energy system transition pathways, which have historically been designed with the expectation of low gas prices. With energy poverty on the rise and many households struggling to afford heating their homes, reducing energy costs, and the cost of the energy system transition, is an urgent priority. This research explores the impact of changing fuel prices on cost‑optimal net-zero energy system transition pathways, with the aim to design a robust transition and to identify low-regret decisions.

What is the ESO model?

ESO is the whole-energy system model that was used to perform the research. It is an optimisation model that explicitly considers the electricity, domestic and commercial heating, industrial heating, hydrogen, and carbon removal sectors, as shown in the figure below. The model optimises the evolution of the technology portfolio, starting from the installed capacities today and considering investment and decommissioning decisions until 2050. At the same time, the operation of technologies in different years is optimised with hourly resolution. This allows us to identify optimal whole-energy system transition pathways, to quantify the role and value of technologies throughout the transition, and to assess the impact of different policies or other decisions.

What are your findings/why is this valuable?

The research shows that changing fuel prices only have a small impact on the evolution of the optimal power generation mix. Results always show large capacities of wind and solar power, complemented by nuclear baseload generation, and gas turbines and bioenergy plants for flexible dispatchable generation. Additionally, bioenergy with carbon-capture and storage (BECCS) plays an important role in reaching net-zero. It can provide negative emissions to offset residual emissions e.g., from the gas turbines. The fact that changes in the optimal power generation mix are marginal is good news, as it means that we know which technologies we should be investing in.

The heating sector, on the other hand, shows significant sensitivity to changing fuel prices. At low gas prices a large share of the demand is still provided by gas boilers, with emissions being offset by negative emission technologies. As the gas price increases however, electrification via heat pumps becomes more and more attractive. The model shows no role for hydrogen in domestic heating, and a limited role overall. It should be noted, however, that it was assumed that all industrial heat demand can be electrified. In practice, it is likely that hydrogen will have a role to play in the decarbonisation of energy-intensive industrial processes.

Biography: Matthias Mersch is a PhD student in the Clean Energy Processes (CEP) Laboratory of Imperial College London, led by Professor Christos Markides. He is also a Research Assistant with Professor Niall Mac Dowell in the Centre for Environmental Policy. Matthias is interested in the modelling and optimisation of integrated energy systems, often with a focus on investigating net-zero transition pathways. He works with both technology‑level and whole‑energy system models, and the integration of the two

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