10 Energy Things I Like and Don’t Like – 19th December 2024

The opinions presented here are my own and do not reflect the views of Energy Systems Catapult or of any organisation that works with the Catapult.

No shortage of energy news since the last time I wrote one of these. So, for the last time in 2024: let’s get into it.

1. 2024, we have a winner!

You could have trained a large language model on nothing but PowerPoints full of management consultancy cliches and it would have still not come up with a headline like this one:

EDF to use AI-powered drones to devise heat pump roadmaps

The article in Utility Week (behind a paywall) from which this headline is taken explains that EDF won funding from the Department for Energy Security and Net Zero to run a trial with 500 of its customers. In the trial, EDF will use a drone to take thermal imaging of the customers’ homes. EDF will then use AI analytics to recommend energy efficiency improvements to the home by combining the drone data with smart meter data, local weather data and the property’s Energy Performance Certificate rating.

I hope this approach works. But even if it doesn't – Utility Week, you’ve won The Most 2024 Headline award. Congratulations!

2. MWHHS FFS

Ofgem has (once again!) agreed to delay the deadline for market-wide half hourly settlement (MWHHS) of retail electricity consumers. The initial case for MWHHS, which is necessary to start delivering on some of the expected benefits of smart meters, was based on estimated benefits of ￡1.6-4.5 billion over the period 2021-2045. Now the programme will be at least 5 years late.

(As an aside, no-one is disputing the value of MWHHS, while the industry is still arguing whether the benefits of zonal pricing is ￡15 billion as estimated by DESNZ’s consultants, or some smaller number. As if the precise estimated benefits make or break the case for zonal pricing).

The failings of the MWHHS programme are emblematic of the wider failings of the smart meter rollout. (Former) MPs[1] and industry insiders alike (both articles are behind a paywall) have given up on market-led rollout and resorted to suggesting that we should make electricity distribution network operators force smart meters on unwilling customers. If you want a sense of how well that approach is likely to go, just check in with the state of Victoria, Australia.

This is what happens when we take a technology-first, people-last approach to the energy transition.

3. Reforming Energy Performance Certificates – half a bird in the hand

At long last, DESNZ and the Ministry of Housing, Communities and Local Government have set out the vision for how EPCs could be reformed to better align with decarbonisation aims. The main recommendation is to replace the current headline metric known as the Energy Efficiency Rating (really a standardised estimate of energy costs) with four metrics presented on a like basis:

• Energy cost
• Fabric performance
• Heating system
• Smart readiness

I’ve already posted my thoughts on the proposed changes, so will keep this brief: EPCs are so central to the housing market and to home decarbonisation policies that it would be a shame if government didn’t take a more ambitious approach – particularly to using EPC data to inform local plans and vice versa.

4. What to do about the “spark gap”?

In addition to EPC reform, there has been a raft of heat policy announcements from the government. But one topic that’s still unresolved is the price differential between electricity and gas prices for consumers – a barrier to the electrification of heat.

The debate usually centres around the allocation of support schemes such as Renewable Obligation payments. And so is the case in a new report from Nesta, but with a twist. Nesta’s analysis focuses on whether the current allocation is fair, with "fairness" defined as a function of income and ability to pay.?Enabling the uptake of heat pumps is treated as a secondary objective in the paper.

Most of the analysis focuses on reallocating policy costs from electricity bills to gas bills. But, before that, Nesta does my least favourite thing in energy analysis: suggesting that costs could be moved to general taxation and simply assuming that recovery is more progressive than through energy bills, but not actually modelling this matter. It’s not at all a given that such a move would favour households on lower income.

The most interesting insights from Nesta’s report are the caveats at the end of the report:

• The analysis is only valid if you're able to restrict the reallocation of policy costs to domestic consumers. If you cannot, there's a risk of shifting the cost burden from businesses to households.
• The distributional impact of moving policy costs to gas bills can get worse over time, as more consumers shift to heat pumps.

5. Heat networks in Scotland

Scottish Renewables published a vision document for heat networks in Scotland. It calls for a whole bunch of sensible things, like making better use of waste heat and geothermal (it also calls for using solar thermal – hard to see that working when Edinburgh has 10% less solar irradiation than Denmark’s second largest city Aarhus, which is hardly known as a sun-trap).

More than anything, the report highlighted how interventions are being stacked on top of one another: Scottish Renewables calls for heat networks vision statement from the Scottish government, which would sit above the Local Heat and Energy Efficiency Strategies that every Scottish local authority is required to prepare. In England, heat network zoning will sit alongside Regional Energy Strategic Plans. How well all of these disparate initiatives “talk” to each other will determine how effective they are at enabling rapid heat decarbonisation.

6. Hydrogen, in the trough of despair

These are tough times for those working on hydrogen. Not a day goes by, it seems, that the investor Michael Liebreich isn’t dunking on the deflating “hydrogen soufflé”. But there’s a path out of the pit: hydrogen’s role in the power system is gaining traction.

DESNZ has confirmed that it will introduce a ‘dispatchable power agreement’ scheme to support hydrogen for power. On the same day, SSE announced that it will partner with Siemens Energy to convert its Keadby 2 to run on hydrogen. Centrica published a lengthy report by FTI Consulting that highlights the potential role of hydrogen in complementing renewable generation (although it misuses the term “whole systems approach”).

Greater Manchester Combined Authority tops all of these for optimism – giving itself a target of having 800GWh low carbon hydrogen generation by 2030!

7. Stand and deliver!

The first output from the Clean Power 2030 mission came out in the form of an ‘action plan’. It does a good job of articulating the challenges involved in delivering this incredibly ambitious mission. It’s also fair to say that it doesn’t go much further than to summarise things that are already happening (e.g. connections reform) and things that may happen, subject to consultation (e.g. Future Homes Standard). But that’s not surprising, since the plan had to be drawn up at breakneck speed by a team put together from scratch.

I’ve written a few things about the plan already – I’m optimistic that Mission Control will ultimately prove to be a force for good. The main thing I’m concerned about is the risk of locking in high costs into bills due to the confluence of the rush to approve any viable project, the impact on the supply chain, and borrowing costs being at their highest level in 15 years. I’d really like to see Mission Control set out a plan for tackling this risk head-on. That’s not easy to do, of course, or it would have already been done!

8. Skip to the end

After a lengthy wait, the National Energy System Operator has published analysis of how efficient its balancing actions are. They do that by estimating how often the control room instructed units that were more expensive than others that had submitted bids / offers (“skipping”). Units across nearly all technologies are skipped more than 50% of the time, with batteries consistently amongst the highest skipped technologies for both bids and offers. But some context is helpful: batteries still make up a pretty small share of the balancing market, which is still dominated by gas peakers:

As with any such analysis, it’s only as good as the data (which the authors acknowledge is incomplete) and the assumptions made (which the authors acknowledge are sometimes simplifications). More than anything, the results reinforce the need for control room staff to be given better tools to make the split-second decisions that are needed when balancing the system.

9. The new age of nuclear?

A report from the Tony Blair Institute argues that countries around the world are increasingly looking for nuclear power to support decarbonisation and security of electricity supply. Two points that are touched on in the report are worth emphasising:

• The safety case against nuclear is outdated. Using the Chernobyl disaster to argue against building new nuclear stations is a bit a like using the Titanic as an argument for never building ships again.
• Costs forecasts of nuclear build are optimistic. The cost of building new nuclear stations has risen over time across the developed world – a lot of that has to do with ever stricter regulation, necessitating bespoke design and re-design on-the-go, leading to delays and cost increases. Nuclear optimists (including the authors of the Tony Blain Institute’s report) suggest that the answer is having a pipeline of standardised designs. But will a country like the UK ever need so much nuclear power that it would have a meaningful pipeline of projects? ??

10. Denmark’s failed offshore wind auction

Much has been made (in my social media circles, at least) about the lack of bids into Denmark’s auction of licences to develop three 1GW offshore wind farms. The blame game from wind sector insiders echoed the noises from GB when no offshore wind bids were submitted in last year’s Contracts for Difference auction, and from New York state when developers sought to re-open contracts for delivering onshore renewable energy projects.

There are some similarities across these jurisdictions. The main being that - having claimed credit for the volume and cost savings of renewables delivered under their schemes during a period of historically low interest rates - central authorities did not respond to the changing landscape (rising interest rates, supply chain pressures).

There are also some important differences. For example, the Danish auction was not to access a support scheme such as contracts for difference – it was for which developer was willing to pay the highest concession price to the Danish government. Much more important – but less discussed – is the question of whether Denmark needs that extra 3GW of offshore wind. The country’s peak electricity demand is 6GW, wind power already serves more than half of annual demand, and there is over 8GW of import capacity from Germany, Sweden, Norway, the Netherlands and Britain. Maybe this is just market players making the right decision?

[1] Alan Whitehead is now an advisor to Energy Systems Catapult’s board