10 Energy Things I Like and Don’t Like – 27th October 2023

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.

Welcome to another one of my attempts to make sense of what’s been happening in the GB energy sector over the past month (plus a sprinkling of international news) by using a format first introduced by the American sportswriter Zach Lowe. Let’s get into it.

1. National Infrastructure Commission, not holding back

The NIC’s second National Infrastructure Assessment includes the strongest statement made to date by a public authority about decarbonising heat:

“The Commission’s analysis demonstrates that there is no public policy case for hydrogen to be used to heat individual buildings. It should be ruled out as an option to enable an exclusive focus on switching to electrified heat.” [emphasis added by me]

Importantly, the NIC paired that view with a recommendation for developing a network of hydrogen and carbon capture & storage clusters (see figure below). That doesn’t address the question of what we do with the gas distribution system – as flagged recently by the Regulatory Assistance Project. But having the NIC – which has no horse in this race – come out unequivocally on the thorny challenge of heat decarbonisation is a big step forward. ?

There is a lot more in the National Infrastructure Assessment – reflecting several years of research and analysis that went into the report. ??

2. The International Energy Agency, stressing the importance of electricity grids

The IEA is becoming one of the highest-profile and most consistent advocates for the energy transition. Its recent report ‘Electricity Grids and Secure Energy Transitions‘ highlighted the essential role that investing in electricity network capacity has in enabling decarbonisation across the world. The IEA estimates that delays to grid projects would result in slower uptake of renewables and higher fossil fuel use – leading to as much as 58 gigatonnes of extra CO2 emissions from the power sector by 2050.

While the Catapult wasn’t one of the many contributors to the IEA’s report, it is encouraging to see so many of the report’s recommendations aligning with the Catapult’s work. For example – as in our work for the Electricity Networks Commissioner – the IEA recommends whole system strategic plans, planning reform, regulatory approval for anticipatory investment, and standardised procurement to create a pipeline of projects and support supply chains.

3. Retrofit housing credits

The Housing Associations' Charitable Trust (HACT) has launched an initiative to fund retrofits of social housing by issuing carbon credits that are linked to the avoided emissions from such retrofits. HACT claims this is a world first in generating carbon credits from domestic retrofits.

There is not much information available online about the ‘retrofit credits’, so there are important questions that are currently unaddressed – such as how to ensure credits reflect emissions reductions that are truly additional. But this approach offers another avenue for tackling the long-standing problem of making retrofits financially desirable.

4. P415, ready for take-off

Ofgem has approved Balancing Settlement Code Modification P415, which will allow aggregators (officially ‘virtual lead parties’) to participate in the wholesale electricity market. Until now, aggregators were only able to participate in the national balancing market (and in local flexibility markets). Most of the debate has centred on how this change could expose suppliers to further imbalance risk as a result of flexibility actions by its customers. Ofgem has decided that this risk should be addressed through a mutualised fund paid for by suppliers – the alternative, in which aggregators would have had to compensate suppliers was seen as potentially discouraging aggregators from participating in the wholesale market. The modification comes into effect in just over a year’s time.

5. Notes on achieving orbit

Hang around in the energy innovation game for long enough and you’ll notice the same science fiction themed idea crop up again and again – space-based solar electricity. The Financial Times ran a balanced article (behind a paywall) on the topic, highlighting how the logarithmic decline in the cost of launching materials into orbit, has improved the economics of space-based solar. And still, the article is littered with statements that would have derailed any other idea long ago. Some are presented below without further comment:

“Each satellite has to be huge — 1.5km across or more — if it is to beam power accurately to a specific location. The receiving antenna, a mesh of thousands of small receivers, will be multiples bigger — perhaps several kilometres in diameter […] The International Space Station is the largest object humans have ever put into orbit — and it comes in at just over 100 metres long.”

“Putting such massive power generators in space also raises questions about vulnerability to attack. […] ‘There are huge political and security challenges that no one is talking about’.”

“While space is a big place, fleets of kilometre-scale satellites even in geostationary orbit 36,000km above the Earth could pose new risks, such as a cascade of collisions that could render certain orbits unusable.”?

“EDF’s researchers estimate that “space weather” — factors such as solar flares, geomagnetic storms and radiation — could degrade satellites faster than expected. That would add about ￡2-￡7 to the cost per megawatt hour. ‘We think there is a roughly 20 per cent loss of productivity over the lifetime of the system, due to space weather’.”

6. A better use for satellites?

The creatively named HotSat-1 satellite has delivered on its proof-of-concept by providing granular thermal imaging from space. There are probably much more lucrative uses for satellite-based thermal imaging of earth, but one use I’d be curious about is improving the accuracy of Energy Performance Certificates – the justifiably maligned desk-based estimates of a home’s energy cost.

7. The Energy Bill comes to life

The Energy Bill received Royal Assent on 26th October. This wide-ranging bill includes legislation to support hydrogen and CCS business models, regulation of heat networks and of multi-purpose interconnectors. Most importantly, it sets the legal grounds for the creation of the Future Systems Operator. The FSO has a seemingly impossible task ahead of it – having been pre-assigned responsibility for every challenge that seemed too difficult for government, Ofgem or industry to resolve. Already, Ofgem has indicated that it would introduce a new regulatory framework for major electricity transmission projects that would rely on the FSO identifying project needs and using competitive procurement.

8. OVO joins the heat pump race

OVO Energy (behind a paywall) became the latest supplier to offer a highly competitive offer for air source heat pumps, claiming their offer is cheaper than a new gas boiler – helped in no small part by the additional funding available under the euphemistically named Boiler Upgrade Scheme. OVO’s offering is based on achieving higher coefficients of performance than have typically been observed to date, and that relies on high-quality installations. As always, the grand announcement is the easy part; actually delivering on it is hard. Let’s see if OVO and its installers are up to the task. ?

9. Brookfield strengthens GB wind portfolio

The investment firm Brookfield – not often known for spending money in fits of exuberance – completed a deal to buy Banks Renewables’ (behind a paywall) onshore wind portfolio for a rumoured $1 billion. It stands in stark contrast to some of the other noises coming from developers and investors: to make future allocation rounds of Contracts for Difference more generous, to not make significant changes to the wholesale market through REMA. Brookfield is likely to be taking the long view here – market reforms and policy overlays come and go, but the fundament need to build and dispatch lots more renewables is here to stay.

10. Empire state of mind?

90 renewable energy projects in the state of New York – estimated to supply a quarter of forecast electricity demand by 2030 – sought to reopen the Power Purchase Agreements through which they would have been subsidised. The counterparty for the PPAs is the New York State Energy Research and Development Authority (NYSERDA), but the decision of whether to accept higher subsidies sits with the state utility regulator – the Public Service Commission. The PSC rejected all of the developers’ requests, on the grounds that renegotiating the contracts would undermine the competitive procurement under which these contracts were awarded.

This episode echoes Britain’s troublesome fifth allocation round of Contracts for Difference for renewables – which attracted no bids from offshore wind projects because the administrative strike price (maximum bid price) was deemed too low. Centralised procurement of renewables projects has the appeal of long-duration guaranteed funding and a strong counterparty. But it faces the problem of politicisation – having lauded their mechanisms for reducing the cost of renewables project, policy-makers are loath to act in a way that could be seen as directly resulting in bill increases.