In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.
At Protel we cover process intensive energy sector capex projects with a gross output greater than 5MWe. In our previous post we covered some of the developments facing the UK energy sector, some of which persist into 2020, with some new challenges thrown in.
The majority of the capex activity we are tracking is in energy from waste (EfW), biomass and anaerobic digestion (AD). Previously we saw a number of schemes involving gasification, although this has reduced significantly due to a lack of delivery at scale. As such, we expect to see a reversion to high temperature combustion progressing over the next year and beyond.
New EfW projects are still on the increase in 2020, as the UK strives to reduce landfill usage and minimise the export of non-recyclable waste.
AD plant development has mostly stalled, with the trend now firmly toward smaller ‘farm’ scale plants for distributed generation. We expect most future AD plants to be co-located with materials recovery facilities and EfW capabilities to provide a neat solution for local authorities and industrial players.
The UK government is requiring separate food waste collections in England from 2023 through its Resources and Waste Strategy. This represents a concerted effort to capture the potential of compostable waste and promote a circular economy. As such, there could be opportunities for additional AD capacity in the market, although this has not yet materialised.
There is a major drive toward energy storage and load balancing as a response to the greater utilisation of renewable energy and potential of new technologies. However, the majority of these projects do not meet our criteria for coverage (note: if you are a member of our private LinkedIn groups you’ll have access to intel we uncover in these areas that aren’t suitable for a full project bulletin).
The challenge posed by Brexit to the UK energy sector, which was generally delaying investment decisions since the vote in 2016, has been further added to by the COVID-19 pandemic, with construction schedules suffering additional set backs amid greater uncertainty.
Project cancellations in the previous year have not been significantly over and above what we would expect, but the changes to project schedules have been rapid and wide-ranging across energy sector capex projects in the UK. Projects where funding had already been agreed are being delayed less often than those that are yet to achieve sanction. Delays to sanctioned projects are generally related to difficulties in commencing construction, although these concerns are easing.
The commitment to net zero carbon emissions by 2050, presided over by the UK’s independent climate advisory body, has now been written into law and will have wide-ranging consequences for the UK energy sector over the long term.
Many initiatives are already in planning or underway in response to this. An example is Net Zero Teesside, a carbon capture, utilisation and storage (CCUS) project.
Hydrogen is a major growth area of investment, with many projects in design to deliver hydrogen supply to the National Gas Transmission network. Some examples include HyNet in the North West of England, H2H Saltend in Yorks & Humber and Pale Blue Dot in Scotland.
Brexit is officially complete, with the UK having left the EU officially in January 2020. However, much uncertainty remains around the future of the UK energy sector’s relationship with the EU energy market as negotiations continue. The status of future access to The Internal Energy Market (IEM), which provides cross-border balancing, optimisation, market coupling and capacity market trading, is currently unknown.
RIIO-T2 is Ofgem’s new performance-based investment model, which seeks to ensure the necessary investment takes place in Britain’s energy networks to provide energy to consumers at a fair price. RIIO stands for: Revenue = Incentives + Innovation + Outputs. Organisations that do not deliver value to customers will incur financial disincentives from doing so via automatic penalties.
Although challenges remain, the large volume of capex we are seeing in the UK energy sector means that there remains significant potential for suppliers of capital equipment and services in 2020 and beyond. Fabrication, steelwork, pipework, gas compression and treatment and grid connection/utilities are all areas of high demand.
On our MyProtel project search engine we are currently tracking:
• 276 active energy & gas capex projects;
• totalling a potential value of approx. £25.6bn
Of these projects, nearly half are in the £15m-£60m [10We – 100MWe] range – and thus contain ample potential for suppliers.
A selection of major schemes entering the pipeline in the last year is below (full details available to subscribers):
• MVV Environmental Services Ltd – £300m
• Uniper UK Ltd – £300m
• Alternative Use Boston Projects Ltd – £300m
• Graythorp Energy Ltd – £230m
• Veolia Environmental Services (UK) Ltd – £200m
• Agile Energy Recovery Ltd – £200m
• MT Green Power Ltd – £200m
Selection of largest investors:
• Orthios Eco Parks Ltd
• King Street Energy Ltd
• INEOS Olefins & Polymers Europe
• North London Waste Authority
• Egnedol Wales Ltd
• Cheshire Energy Ltd
• MGT Teesside Ltd
In general we have seen less of an impact from COVID than we were anticipating on capex levels in the UK energy sector in 2020. Projects are entering the pipeline and are also achieving sanction, albeit with a greater number of delays. Both delays and kick-offs are happening at a rapid pace, with a greater need than usual for suppliers to be in ‘the right place at the right time’.
As such, there remains a need for suppliers to stay connected to the industry to track both fast-moving smaller-scale investment as well as larger-scale capex which is reaching procurement and project implementation after a period of uncertainty and delay.
For more information on our project coverage and subscription options, please contact us.