10 Energy Things I Like and Don’t Like – 27th September 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.
It’s been another very big month in Britain’s energy sector, so let’s get right into it. This post “borrows” a format used by the great American sportswriter Zach Lowe, and we wish him well on his next career move.
1. This must be the place (na?ve policy)
Strategic planning is an essential part of the transition to Net Zero. To paraphrase Bill Hicks: if you leave this post thinking “Ben doesn’t like planning”, you’d be wrong.
But doing planning right is very difficult. What I’ve not seen much of is a reckoning with the trade-offs between the different ways you could approach planning. Some have argued that plans could be drawn up quickly – but any such plans could only ever be high-level and full of platitudes. Indeed, both the Strategic Spatial Energy Plan and the Centralised Strategic Network Plan have been delayed – to 2026 and 2027, respectively. The former is being de-prioritised while the National Energy System Operator (NESO) advises on how to meet the government’s 2030 clean power target. The latter has been pushed back due to industry feedback that it actually quite complex.
Others have visions of the plans being directive – specifying the (types) of projects needed at each location, their technology, size, sequence, etc. That would be a lengthy and potentially difficult process – particularly if the NESO was required to carry out some of the early planning activities for the planned projects, such as conducting community engagement. A directive approach means NESO would effectively be picking winners, potentially between projects that are already in traction. As Ed Birkett from the renewables developer Low Carbon notes, that could undermine investor confidence.?
And the third element of the planning trilemma is efficiency. Some advocate for the Strategic Spatial Energy Plan to be used as an alternative to electricity market reform. But a plan based on bad data will be a bad plan. Strategic planning is complementary to reform to better reveal value across the electricity system (see item #3).
2. This ain’t no party, This ain’t no disco, This ain’t no fooling around
The National Energy System Operator will officially take its role on 1st October. It’s probably the most important institution to the energy transition over the next decade or so.
It’s also been handed all the most difficult problems by government and Ofgem, with little clarity on how NESO’s recommendations would guide those organisation’s decisions. The track record so far is concerning:
I think the biggest challenge NESO will face is a cultural one, as it will bring together two radically different functions.
The operations / control room function is safety-critical and economy-critical, so it will understandably be risk-averse (although the Association for Decentralised Energy, like others before it, has argued that the Electricity System Operator has been overly cautious in the past and unwilling to move in time with changes to the sector). But the new function to carry out strategic planning (as per item #1) and provide advise to government and Ofgem needs to have a much higher tolerance towards risk.
NESO leadership will naturally gravitate towards the operations side, as it’s more immediate and any failings would be more directly attributed to it. It’s easy to see how that mindset could permeate the strategic advisory function, causing it to be overly cautious. The result could be over-reliance on big, transmission-connected assets, which would leave little room for innovation and chart an expensive path to Net Zero.
3. Heard about ERCOT? Heard about MISO? Heard about the PJM?
While we wait for the new government to decide what it wants to do with the Review of Electricity Market Arrangements, others are getting on with understanding the options that are on the table. Octopus Energy published analysis by FTI Consulting as to why alternatives to locational pricing in the wholesale market will be ineffective. Octopus remain steadfast (as am I) that the only credible solution is to introduce zonal pricing into the wholesale market as soon as possible. This view was reinforced emphatically by Sam Dumitriu.
Meanwhile, the Regulatory Assistance Project set out how nodal pricing could work across the single European electricity market. That kind of change is not imminent – getting 27 countries that are in varying stages of decarbonisation and development to agree on a matter of such complexity is no small matter. But it’s clear that the design flaws of an electricity market that’s divorced from the physics of the system are becoming harder to ignore – in Britian, Europe and Australia.
4. Going right through, try to stay cool
The first output from the GB Energy function that has been nestled within the Crown Estate is a vision document about how the Crown Estate could facilitate more and faster clean energy investment in English and Welsh territorial waters. It’s not yet clear how this will feed into NESO’s Strategic Spatial Energy Plan, or how it interacts with ambitions to coordinate offshore network investments. But the report says sensible things like using leasing design to encourage co-location of assets, and has pretty charts about where’s best to develop offshore wind projects:
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5. The heat goes on
Any serious attempt at large-scale decarbonisation of heat in buildings needs some planning behind it. This is especially true when it comes to heat networks. DESNZ has published maps that aim to identify which areas are most suitable for heat networks. The description says the model compares, for each building, the suitability of a heat network when compared to an air source heat pump (Nesta recently published a similar kind of mapping, but focusing on areas that are deemed most suitable for heat pumps).
But a closer look suggests the modelling is based on little more than demand density: my colleagues at the Catapult spotted that the map highlights most of Birmingham, but only a small area around Tyseley Energy Park, despite that facility having a significant amount of waste heat. This highlights the additional value of proper whole-systems modelling.
For those actually developing heat networks, engineering firm Ramboll has launched an AI-based design tool with a slick interface.
6. No visible means of support and you have not seen nothing yet
Slowly but surely, there’s what looks like genuine progress on carbon capture and negative emissions technologies. Google has followed the example of its rival Microsoft and contracted for carbon credits from a direct air capture facility. Google has gone one further than Microsoft and announced the price it will be paying: US$100/tCO2 – claimed to be a record low price for the technology, although US taxpayers will be footing an even larger share of the facility’s cost thought a tax credit worth US$180/tCO2.
The project funded by Google won’t be operational until the next decade. But live projects are coming online too: enfinium has added carbon capture to one of its energy from waste plants. At one tCO2 per day, we are still talking about “pilot” scale, but it’s all helping to chip away at the problem.
7. There was a line, there was a formula (Spurious attribution of benefits – home edition)
A good rule for quantitative analysis: if your model suggests larger savings than there are variable costs in the system, it’s probably wrong and/or the way costs are recovered in flawed. There’s probably a bit of both going on in analysis presented by the MCs Foundation that suggests building new homes with solar PV, a battery and heat pump would save the average consumer around ￡1,300 on their energy bill – equivalent to 80% of the retail price cap for the upcoming quarter. There are some other strange results in the analysis, like the cost for flats being modelled as more than twice those of large detached houses (both new builds). ??
It absolutely should be the case that new developments incorporate solar, storage and clean heat technologies, as well as smart controls. Markets and tariffs should be designed so that occupants would face the true cost of their impact on the energy system – capturing the benefits of systems savings they contribute to. But this kind of questionable analysis muddies the water instead of helping to clarify it.
8. “Facts not doing what I want them to”
Professor Michael Grubb’s proposal of creating a separate market to pay for renewables was shown to be fundamentally unworkable. Undeterred, and noting that a move to zonal pricing is currently in vogue, Professor Grubb is now suggesting a “regional split markets” for renewables. That’s kind of like finding out that your rocket design can’t reach escape velocity and thinking that the solution is to launch it from the bottom of the ocean.
It's not even his worst idea. He’d prefer it if we didn’t talk about the price of energy to consumers, and instead devised a metric of national energy costs as a share of national wealth. Get back to me on that one when people’s salaries are set as a percentage of GDP.
9. Turn like a wheel inside a wheel
It’s been a good month for the energy sector in Wales. While we wait to find out GB Energy’s role in delivering local projects (the early signs are promising!), the Welsh government has committed ￡10 million towards community energy projects. Bonus points for emphasising innovation by targeting projects that integrate local energy generation, storage, and infrastructure.
Wales is also a beneficiary of Ofgem’s latest funding allocation - ￡84 million across 12 innovation projects – a project led by the System Operator has been granted over ￡10 million in funding to develop a digital twin of the electricity and gas transmission and distribution networks in Wales. The digital twin should enable better planning and help identify where flexibility is most needed.
10. Say something once, why say it again?
Network tariffs are a second best approach to signalling value in the electricity system, but Sweden already has a zonal electricity market, which has been effective at attracting clean industry and green hydrogen developments to the north of the country. So we won’t begrudge it following Norway’s example (another country with a zonal electricity market) and introducing multi-part, dynamic network tariffs, which have a mandatory rollout date of 2027.
Each distribution network company is developing its own approach (unlike in GB, there isn’t a standardised charging methodology) but they all must consist of four components:
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