The UK Energy Landscape 2019


Last week (May 15th & 16th) I attended the annual “All-Energy” event in Glasgow.

It seems clear that the general “vibe” around the UK clean energy sector has been buoyed by recent events. Key amongst these was the recent Parliamentary Climate Change Committee recommendation that the UK as a whole set a “net-zero” carbon target of 2050. In parallel to that recommendation, we’ve had even more aggressive targets coming from specific cities such as Glasgow and Manchester. And of course there seems to be an increasing public profile of climate and other environmental issues, including more vocal and disruptive demands for action, on the back of IPCC reports covering not just climate, but biodiversity too.

All-in-all there seems to be a real sense that “this time it’s different”; that policymakers will have little choice but to adopt a more aggressive and unified approach to encouraging low-carbon investment (compared to often-vague messages and many muddled, inconsistent approaches thus far).

Of course a week is a long time in politics but, assuming the UK does start to take a speedier approach to transitioning its energy systems, which particular business and investment opportunities were industry talking about?

Below are just a few very brief extracts from my event notes. They aren’t in any particular order or detail, but are intended to highlight “big picture” themes that stood out either through weight of repetition or by otherwise being noteworthy. (If you want my more detailed thoughts on UK energy in more detail, do get in touch).

 

Onshore wind.

While the UK is quite rightly exploiting its vast offshore wind resource – and building world-leading, exportable expertise in doing so – it can be easy to forget that onshore wind is still both cheaper and quicker to construct. Any rapid route to low-carbon power needs to put onshore wind firmly back on the policy & planning agenda. Just like offshore wind, onshore (along with other sectors in renewable energy, hydrogen and more), should have a “sector deal” as part of the UK’s industrial strategy.

 

Hydrogen.

As an energy vector capable of integrating the power, heat and transport sectors, the idea of a “hydrogen economy” has been around for years. It’s now very much back on the agenda, aiming to fill those decarbonisation holes where electrification is likely to prove impossible or impractical (segments of heavy transport and heat, in particular). However it’s important to note that while there are plenty of trials and pilots and models and theories, neither infrastructure nor suitable economics exist at scale as yet (and neither are certain to in future). What does exist though, is what I call ‘momentum’: big, deep-pocketed energy players keen for hydrogen to succeed, not least from an oil & gas sector which sees opportunities in leveraging advantages of relevant expertise while avoiding stranded assets. The next two or three years will be crucial in taking hydrogen from prototype to proof-of-concept to market-reality stage, by identifying practical barriers to scale and developing real business plans. Expect pressure on policymakers to help it grow, but also much debate on how ‘clean’ it really is, which leads onto…

 

Carbon Capture, Usage and Storage (CCUS).

CCUS has long been controversial, more often than not seen as a mechanism to allow fossil fuel burning to continue rather than as a sensible (or ethical) route to decarbonisation. However it’s now regarded by many policymakers, via their scientific advisers, as “essential” to achieving net-zero targets, at least in the shorter timeframes being framed by the notion of a ‘climate emergency’. Its role is particularly essential for the specific aim of ensuring that any rapid scale-up of hydrogen production is “clean”: since any scale-up there will almost certainly be dominated by continued natural gas reforming for the near future. Thus the UK’s Climate Change Committee report made clear that it isn’t a case of hydrogen or CCUS, it has to be both. Having previously u-turned away from supporting CCUS, don’t be surprised to see the government complete a full, wheel-spinning, 360-degree doughnut back towards it.

 

Consumers & the Transition.

Whatever detailed pathways it takes, the transformation of our energy system will be slower and more difficult if the public isn’t brought on board with it. So, amidst all the technical design and thermodynamic calculations seeking the most scientifically-efficient answers, perfect cannot be the enemy of the good. That means competitive and deployment advantages for solutions which cause minimal disruption and change. But that’s not the same as saying there won’t be major, major disruption to our energy markets. There will. In particular there are huge opportunities to combine this energy transition with greater consumer empowerment and choice, particularly around new local trading, prosumer and aggregation models. On the industry side, the transition of employees in ‘legacy’ industries also needs to be better managed than it has been in the past (to avoid the previous experiences of coal-mining communities, for example).

 

Local content.

Politically, job creation and economic multipliers will remain crucial to driving both policy and public support for the low-carbon agenda. Indeed, with ‘industrial strategies’ firmly back on the agenda, such factors will increasingly take centre stage over totally ‘let-the-market-decide’ approaches. The move to EVs provides a good example of multipliers, with studies suggesting that the replacement of imported fuel by in-country generated electricity supply provides three-times the impact in terms of associated local economic activity. There are other reasons to do things locally too: in addition to economics, manufacturing EV batteries here in the UK will have environmental benefits. That’s because the resulting embedded and hence lifecycle emissions of EVs will be far less than if they use batteries that are manufactured in countries with more carbon-intensive energy systems and then imported.  

 

Solar.

After abruptly finding itself in a ‘post-subsidy’ environment, UK solar nevertheless is expected to add around 1GW in 2019 and has over 4GW of applications in the planning system. Though there is strong demand for behind-the-meter and private wire C&I (commercial and industrial) systems, the future of other large post-subsidy solar is dependent on demand for corporate PPAs (still small) and a change in policy to allow it to compete for CfD contracts. Like onshore wind, solar is quick and cheap, so its continued exclusion from the latter seems similarly unsustainable under any policy regime targeting rapid decarbonisation.

 

Grid Service Revenues.

These days almost anyone, attaching anything, anywhere in the grid seems to be chasing grid service revenues. While there’s no doubt that the need for flexibility services in the grid is only going to increase, demand in itself doesn’t make something valuable. The relative level of offers to supply these services will determine what happens to their value (and hence how many business planners will end up disappointed). In this respect, a big change will be the growing emergence of local flexibility service markets (rather than system-wide ones such as frequency response or balancing). Value in these local markets will very much be driven by local congestion and constraints in distribution networks. This has big implications for business models looking at grid service revenues from distributed assets. For example V2G (vehicle-to-grid) is one area where there have been many optimistic revenue forecasts based on current, system-wide grid-service markets such as frequency response and balancing. In practice, better value may be available by providing local flexibility. However this value will be much more variable: revenue opportunities available from EVs (and hence for drivers) in one area may be good, whereas those just a short distance may away find that no value exists at all. It will all depend on local grid conditions.

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So there they are: some of the big themes that stuck out – at least to me – from All-Energy 2019. There are plenty of other topics of course: different attendees will come away with different views depending who they talked to and which conference sessions they attended.

Whatever your favourite niche though, the overall clean energy market environment in the UK is one of growing optimism, activism and opportunity.

 

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