10 Energy Things I Like and Don’t Like – 27th June 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.

Just because there’s an election campaign doesn’t mean the energy sector has stopped generating newsworthy items. So here are 10 more things that got my attention in the past month. Let’s get into it.

1. What is GB Energy?

The energy sector loves a blank canvas: the opportunity for stakeholders to project their wildest wishes. For a while, the Future System Operator was that blank canvas, and given all the most intractable problems before it even existed. But now that it has an official name (imaginatively, the National Energy System Operator) and a structure, and is pretty close to formally existing, attention has shifted elsewhere.

The prospect of a Labour government brings with it promise of a new blank canvas: Great British Energy. The Labour party has only sketched out its vision of what GB Energy would do – not least because the ambition expressed when the idea was first muted has come hand-on against the fiscal reality that the next government will inherit. And that’s left large gaps for people to fill with their ideas of what GB Energy should do.

An excellent note from Flint Global sets out the three types of organisation GB energy could be: a partner in energy investments (like an energy-only UK Infrastructure Bank); a fully-fledged developer; or a convening and coordinating body. Richard Lowes from the Regulatory Assistance Project set out his own view of what GE Energy should be, which includes being the owner of the NESO and of gas distribution networks – the latter with the view of managing their eventual decommissioning.

My personal view is that GB Energy can have the greatest impact at the local level. It should finance strategic planning (Local Area Energy Plans), provide capacity to local authorities to help commercialise local projects, and directly invest / develop local projects. The reason is that the policy tools we rely on to deliver the energy transition – particularly Contracts for Difference – are not effective for smaller projects.

2. What about homes?

If there’s one thing we all agree on about the energy transition is that you’re going to need to build lots more infrastructure. As the famous saying goes: “there’s no transition without transmission”. And that mindset is prevalent in some of the pre-election discussions. In contrast, the major parties’ manifestos are notably light on ideas for decarbonising homes. Both Labour and the Conservatives have also got themselves into the trap of using the unfortunate language that decarbonising heat means “ripping out gas boilers”.

(An amusing way to spend a few minutes is by asking your AI tool of choice to generate an image of a government official ripping out a gas boiler from a granny’s home).

But there’s a way to accelerate the decarbonisation of homes at no cost to the Treasury: by giving better information to the people who want to and can afford to decarbonise. That’s why the campaign by Which? to reform Energy Performance Certificates is so important. It helps, of course, that Which? has essentially co-opted the Catapult’s recommendations for reforming EPCs and the digital infrastructure around them.

3. Spurious attribution of benefits – an all-timer

A report by Future Energy Associates for the End Fuel Poverty Coalition (a worthy cause) proposes ways to reduce standing charges on energy bills. This post is not long enough to deconstruct all of the problems with this report, so I’ll just highlight a few that stick out as particularly egregious.

First is the premise that standing charges are inherently unfair and that reducing them is objectively a good idea. The thirty thousand or so responses to Ofgem’s recent consultation on the subject, as well as analysis by Citizens Advice and others, would suggest that’s far from true.

The report repeatedly argues that moving costs from standing charges to unit rates "incentivises energy efficiency". But is that actually true? It assumes that people would be able to invest in retrofit measures – something that’s unaffordable to most people who are on low incomes. So the change would amount to making energy use more expensive, leading to people in vulnerable situations using less energy in winter – exactly the opposite of the outcome we should want.

Most troubling to me is that the analysis – and there are a lot of numbers in the report – simply wishes away any costs that the authors recommend be moved to general taxation. With those costs lost to the ether, their impact on households is not accounted for in the conclusions. But it's not at all obvious that moving costs to general taxation is equitable. One of three things would need to happen to balance the books:

·?? Raise taxes, which is politically very difficult;

·?? Increase borrowing, which places a greater burden on future generations and increases debt servicing costs for current tax-payers; and/or

·?? Reduce public expenditure, which we know from a decade of austerity affects the poorest members of society the most.

Lastly, the report uses some truly bizarre justifications for its proposals. For example, it argue that the rate of depreciation of energy retailers’ offices, IT systems, etc. is affected by how much energy people use. You have to wonder if the authors have really understood the costs they’ve written about.

There’s a good debate to be had on charging structures (and on the retail price cap more generally), but this kind of misinformation causes real harm by souring an already tricky conversation.

4. Nesta, doing the hard maths so you wouldn’t need to

For an example of a much more valuable contribution to current energy debates, look no further than Nesta’s report on how to make heat pumps more affordable. Nesta, of course, has been driving the heat pump hype bus for a while, including its ‘visit a heat pump’ service, its research on skills and on subsidies for clean heat.

Nesta’s latest analysis seeks to demonstrate the impact that different policy interventions can have the relative “lifetime” cost of an air source heat pump compared to a gas boiler, as summarised in the graphic below for different property types:

Of greatest interest to me is Nesta’s conclusion that innovation to reduce the upfront cost of installing a heat pump “offers the largest advantage for the longest”. This is particularly important because large subsidies towards the upfront cost of a heat pump would become increasingly weighty on the public pursue if the uptake of heat pumps takes off.

5. Hello Drax-ness my old friend

Drax, together with a Swedish energy networks operator called Stockholm Exergi, has published a methodology for calculating the amount of carbon removed through Bioenergy with Carbon Capture and Storage projects. Drax, which is looking to convert its power station to BECCS, has a strong incentive to establish credibility for the project.

It’s true private sector commercial interests can spur faster progress than the slow machinery of government. But the methodology, while seemingly comprehensive, does leave some key decisions to judgement. It also has some (probably) unintended effects, such as implying that a project a BECCS project should only be considered "additional" if its commercial viability depends on participation in voluntary carbon markets. This would seem to imply that a project that is fully funded by government (i.e. is publicly owned) could never be "additional".

So while this helps move the conversation forward, it also highlights the need for establishing better governance of carbon accounting.

6. On the lookout for strategic thinking in government

Ever wondered why UK governments (of different compositions) keep publishing energy strategy documents filled with lists of targets, with little explanation of how those targets would be delivered and what other choices were discounted in settling on those specific targets?

Just before parliamentary activity was paused for the election, a report from the House of Commons Committee set out at length the failings across all levels of government and the civil service in defining what "strategy" is and in encouraging and rewarding strategic thinking.

The report includes a set of wide-ranging recommendations, including developing a common definition of “strategy” for government, setting up a National School for Government and Public Services, and reforming the ways Number 10, the Cabinet Office and the Treasury all work. Guy Newey covers some of these themes, as they relate specifically to the Net Zero transition, in his recent blog.

7. Offshore Renewable Energy Catapult, reminding that life comes at you fast

We’re so busy focusing on the need to build more and ever-larger wind farms (article is behind a paywall), that it’s easy to forget that some of the earlier wind turbines installed in the UK will soon need to be decommissioned. An initiative by Offshore Renewable Energy Catapult (an entirely separate organisation from Energy Systems Catapult) has started exploring the potential for recycling materials from decommissioned turbines. The work is heavily reliant on assumptions about the make-up of these turbines, offering another example where better data can have a meaningful positive impact.

8. Missed (inter-)connection

Building out more electricity interconnectors is sometimes presented as a no-brainer for improving security of supply. But for that to be the case, not only do we need interconnectors to be built in the right locations and flow in the right direction, we also need them to actually flow.

On 24th June, the IFA interconnector (GB – France) failed for the second time in 6 months, causing a massive drop in frequency. Viking interconnector (to Denmark) failed shortly after it started operations earlier this year. On a more positive note, the increasing amount of distributed flexible assets on the system offer a degree of resilience (but not yet enough to completely overcome the impact of a sudden loss of 1GW of supply.

9. War-gaming the energy transition

And now for something entirely lighter: a new version of the board game Catan has been launched. Instead of seeking to accumulate as many resources as possible, as is the case in original Catan game, players in Catan: New Energies have to balance resource use and environmental impact. That’s about as far as I’ve managed to understand, as the game instructions seem nearly as complicated as actually solving climate change…

10. Mapping heat decarbonisation paths in Canada

The Canadian Climate Institute – a government-funded research organisation – has set out a comprehensive vision for decarbonising domestic heating in Canada. Particularly interesting is the different impact that adopting heat pumps could have in different jurisdictions: it massively increases peak electricity demand in states where gas heating is currently dominant, but reduces the peak through improved efficiency in states where electric heating is already prevalent:

The CCI recommends early action to address the challenge of decommissioning a gas system that is still growing in some states. Its main suggestions are about the regulatory approach to recovering past investment (‘rate design’ in North American terminology; ‘accelerated depreciation’ in the UK and Europe).