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UK Needs an ‘Energiewende’, says Energy Industry Chief

Engineer inside wind turbine at Walney Offshore Windfarm project

© Ashley Cooper/Corbis

The public, media and politicians have not yet caught up with the fundamental changes going on in the UK energy sector, says Lawrence Slade, chief executive of industry group Energy UK.

The UK needs a national conversation and narrative around these changes, effectively its own version of Germany’s “Energiewende” (energy transition), says Slade, speaking exclusively to Carbon Brief before publication today of an Energy UK report on pathways for the sector out to 2030.

The report, based on interviews across the sector, will reveal an industry embracing the UK coal phase out and facing up to a technology-led transformation. Carbon Brief runs through its findings.

Energy revolution

Today’s report, on pathways to 2030 for the UK electricity sector, was prepared for Energy UK by KPMG. It is based on interviews with 23 companies from across the UK energy industry on where the sector needs to be in 2030, and what needs to happen to get there.

KPMG interviewed seven large utility firms, four small suppliers, three developers, three generators and six others in August and September 2015. The “Big Six” major utilities were all interviewed.

The report touches on almost every aspect of UK energy policy, from the coal phase out (the energy industry backs it) to the institutional structures of energy regulation and markets (they need to change). It looks at carbon budgets (the report assumes they must be met) and the squeeze on electricity generating capacity (it isn’t as bad as the government fears).

A broader theme runs through the report, however: the energy sector is in a state of transformation.

Energy firms sense a looming technology-led “revolution”, similar to those that have overtaken telecomms and banking, the report says. Asked which sources of electricity will be playing a larger role in 2030, their top pick is solar.

Solar is expected to reach grid parity “in the next few years at residential level”, the report says. It adds: “Many [in the sector] believed…the combination of small-scale renewables and electricity storage could create a complete paradigm shift in how the power sector operates.”

These sorts of views are “very widely shared” across the energy industry, Slade tells Carbon Brief, adding: “We are in the middle of going through a period of fundamental change.”

UK data bears this out. Since the turn of the century, renewable sources have gone from generating effectively none of the UK’s electricity to a quarter today, while fossil fuels have gone from providing four-fifths to around half. Many large, centralised power stations are closing down while thousands of windfarms, solar schemes and biomass power plants have been built.

A UK Energiewende

This energy transition is certain to be challenging. It will require billions in investment. Utility business models will have to change, though there will be opportunities, too. Regulators will have to adapt market structures designed for the top-down, centralised energy system of the last century.

Slade tells Carbon Brief:

“There needs to be a broader conversation with stakeholders and the media, around how our energy system is working today, how that compares with ten years ago, five years ago and how we intend it to work ten years hence. The system is going through this transitionary phase. It’s moving from the carbon intensive world into a much lower carbon future, different ways of managing the system, making it smarter. There are going to be costs associated with that.
“There’s definitely a need for a much stronger narrative [on that transition]. I suppose, yes, we do need our own version of the Energiewende…I think the industry is ready for it. I think government’s, perhaps, slightly struggling with how to create the policy to bring all of this together. I think the general public and commentators are another step further behind.”

Germany’s Energiewende (literally “energy turnaround”) is routinely either lauded or ridiculed by the UK press. Notably, it has so far failed to provide a solution to Germany’s coal problem. It has attracted NIMBYs and business criticism at home, as well as abroad.

Nevertheless, the Energiewende has provided a focal point for a generational shift away from nuclear towards an energy-efficient and largely renewable economy. Public support remains high.

In contrast, the UK clearly lacks a shared national vision on energy. Media coverage is frequently hostile and political debate is often focused on “green crap” than visions of a cleaner future.

So, what might a UK Energiewende look like? It would probably be very different than Germany’s, not least given government support for new nuclear power. A more flexible energy system should be at its heart, Slade suggests.

Slade tells Carbon Brief:

“[The] Pathways [report] was meant to lay out the conversations that need to be happening, and point to some of the decisions that need to be made. What should come out of it is this flexible energy system, that learns lessons from other parts of the world — and the UK will have to be a bit different because we are an island nation.”

Coal phase-out

Another clear difference is the UK’s decision to phase out coal as a top priority. The government has set out its intention to force unabated coal off the system by 2025, with a consultation on the details due this spring.

Today’s report finds unanimous support for a coal phase out. This includes the Big Six utilities and coal-heavy generators, such as Drax. Most are behind the 2025 date, the report says, though some are concerned about replacement capacity. None see a long-term role for unabated coal in the UK.

The report says:

“Nobody argued for relenting on taking unabated coal off the system, including those with coal assets in their generation portfolio.”

While some large new power stations will be needed to replace retiring coal and nuclear plant, the report argues the UK will probably need fewer than expected, because of the spread of energy efficiency, demand-side management and interconnectors.

Electric vehicles and electric heat will also be slow to take off without new government policies to support them, meaning demand for electricity will continue to be flat or falling, the report adds.

Slade says:

“We know we need substantial investment in new major lower carbon plants, but we also need to have a structure in place that allows innovation, and allows the grid to modernise, allows new technologies to flourish, incentivises things like storage, looks at how we can really incorporate wind into the system, solar into the system to create something that’s really flexible and starts putting customers in control.”
“The way we regulate and the way policy makers structure their market interventions hasn’t necessarily kept pace with the change of technologies, and, actually, how the system will be used, maybe not right now, but how the system will be used in the 2020s and in the 2030s and further on.
“You’ve got to start thinking about that change now…across the generation sector, across the supply sector, and into these other areas like heat and transport, to make sure that you’re maximising all of the opportunities that new technology is going to bring.”

Clear policy

To help usher in a new era for UK energy, the report asks for a series of policy interventions and an end to the sudden changes since the election, seen by the sector as “retroactive” and “ad-hoc”.

These changes mean the attractiveness of investing in the UK energy sector has “declined markedly”. This, in turn, has “pushed up the risk premium and, ultimately, the cost to consumers”.

Slade says:

“It’s fair to say that the policy chops and cuts and changes since May last year have drastically undermined confidence in the market. There is, as Carbon Brief has highlighted a need for much greater transparency in areas like the Levy Control Framework [LCF].
“We’re saying [to government] you’ve undermined confidence with your actions so far…You’ve got to have more transparency. If you’re going to win back the confidence of investors, you’ve got to be very clear around direction of travel, what you want to achieve.”

The report calls for more transparency on current and forecast future spending under the LCF. A cap for the money available out to 2025 should be published in the first half of the year. A “full breakdown” of current and forecast LCF spending should be published quarterly, the report asks.

Energy UK is sympathetic to the idea of measuring LCF spending against new gas, as proposed by the Committee on Climate Change, rather than against fluctuating wholesale prices.

The report says any low-carbon technologies which could help reduce costs — presumably including onshore wind, solar and biomass — should be allowed to compete for support. The government should also set a “clear and stable trajectory” for the carbon price floor beyond 2020.

More broadly, the report calls for a national taskforce to map out the “critical requirements” for the UK’s low-carbon economy of the future. This could be part of the government’s proposed National Infrastructure Commission, it suggests.

The report says it is “vital” that policy be coordinated across heat, power and transport as well as across government departments. It also wants energy efficiency to be made a priority.

Kodak moment

Today’s report sets out a vision for an energy system that is less reliant on baseload generation; one that is more flexible, more decentralised and much more consumer-oriented.

Similar conversations are going on around the world. The vision echoes aspects of the EU’s plans for a new electricity market design. A survey of 550 US utility executives finds “nearly every respondent to the survey believes their utility’s business model needs to change”.

Fatih Birol, chief executive of the International Energy Agency, says of his agency’s new report on electricity markets: “We must reinvent how electricity is produced, traded and consumed if we are serious about mitigating climate change.”

Back home in the UK, Steve Holliday, departing National Grid chief executive, writes in the that the “power of technology will transform the way we that we deliver and use energy”.

Holliday adds:

“Ultimately, the future energy system will be much more flexible than today’s. It doesn’t make sense to keep building an ever larger system just to meet the rare peaks of energy demand. We need flexible networks and the ability to flex unnecessary demand. This will allow a cleaner future that can be cheaper and more efficient.”

A shift towards more flexible, energy efficient and renewables-heavy energy systems is going toaccelerate over the next six years, says Catherine Mitchell, professor of energy policy at Exeter University. She writes in Business Green:

“By 2022, the energy system will look substantially different to the one we have today. Businesses, investors and policymakers should prepare accordingly.”

A Sunday Times article suggests some energy firms – as famously happened to Kodak – could be left behind by technological progress. Energy UK’s report aspires to a happier sort of Kodak moment — a cleaner, more flexible and secure energy future.

Main image: 17 Jul 2010, Barrow-in-Furness, Cumbria, England, UK — An engineer climbs the ladder of a Siemens wind turbine tower, destined for the Walney offshore wind farm. — Image by © Ashley Cooper/Corbis.

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