10 Energy Things I Like and Don’t Like – 29th January 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.

Welcome to my first post of 2024. I borrow a format introduced by American sportswriter Zach Lowe to rattle through 10 interesting things that have happened in the UK energy sector (usually with one international item thrown in). Let’s get into it.

1. Green finance innovations

The Department for Energy Security and Net Zero (DESNZ) has announced funding for 12 projects that will trial different innovations to help with the decarbonisation of homes. Most of the projects involve a web-based platform to help homeowners and landlords navigate the green retrofit journey, and to identify what’s possible and affordable for their properties. This is then paired with access to favourable financing, such as reduced rate mortgages.

The Catapult is a partner in two of the projects: one looks to trial ‘energy as a service’ in the form of a 20-year contract between the supplier (E.ON) and the customer, which would address the upfront cost of homeowners investing in low carbon technologies. The second will trial a long-term mortgage product that switches to a lower interest rate upon the homeowner completing a green retrofit. It will be fascinating to see the insights from these and the other 10 trials. ??

2. Those who don’t learn history’s lessons…

Utility Week has reported that the government wants to introduce a heat pump campaign body modelled after Smart Energy GB (behind a paywall).

While the intention here is clearly well-meaning, I worry that this sort of campaign would create a perception that heat pump rollout is a government-mandated technology switch-over. The smart meter rollout has been an abject failure, no matter what rollout statistics try to lead you to believe (side note: two of the largest energy suppliers in the country have told me they can’t read my meter remotely because it isn’t “smart” enough; but refused to install a more modern meter because, as far as they’re concerned, I already have a smart meter). The second risk is that it would give the impression – as has been the case with the smart meter rollout – that this is all about the technology rather than about better user experiences in achieving thermal comfort in the home.

Don’t get me wrong, the current experience of switching to a heat pump leaves a lot to be desired. It takes an uncommon level of commitment and technical understanding to make it happen – as the Catapult’s CEO Guy Newey described of his own experience of getting a heat pump. But that’s exactly the point: the market is ripe for innovation. Already we’re seeing Octopus and Ovo Energy taking contrasting approaches to their heat pump offerings. Start-ups like Heat Geek (who Ovo partnered with for their offering), Ventive and many others are bringing to market consumer-centric propositions. I'd rather let that market develop naturally. ?

3. DESNZ, master of puppets

The government has gone on an energy central planning binge to start the year.

First there was the proposal to introduce a cap and floor approach to support investment in “long duration” electricity storage. Others have highlighted the issues with adopting a definition of “long duration” storage that more accurately covers medium-duration technologies that would cycle regularly, and with the exclusion of lithium ion batteries, so I won’t belabour these points here. More concerning to me is that, faced with analysis from LCP Delta and Regen that a single national wholesale electricity price incentivises storage to behave in a way the worsens system outcomes, DESNZ has decided to overlay the market with the cap and floor mechanism rather than addressing the underlying problem by moving to locational pricing. Our work with FTI Consulting for Ofgem found that nodal and zonal pricing lead to far more efficient use of storage than under the current system. ???

Next, DESNZ has indicated that the Regulatory Asset Base model[1] that has been developed for new large nuclear plants will also be applied to advanced nuclear technologies (i.e. smaller plants). At least that consultation alludes to the possibility of withdrawing (some) support once the advanced nuclear market develops beyond first-of-a-kind project.

Lastly and most disappointingly, DESNZ is proposing to make Contracts for Difference available to repowered onshore wind farms, starting with next year’s allocation round (AR7). The argument made is that repowered projects face high upfront costs, comparable with those of new projects, thus needing the price guarantee of a CfD. This ignores all the things that are different from when CfDs were introduced a decade ago: the technologies in question are proven, so investors are much more comfortable investing in them; global supply chains have been established, making a MWh of wind power much cheaper; and there is a mature market of dedicated financial products (e.g. insurance) to help developers achieve their desired risk profile.

All of the above consultations pay lip service to the need for consistency with Review of Electricity Market Arrangements, yet proceed indifferently. The lack of integrated policy-making, and the re-use of out-of-market tools make for a very complicated investment and operating landscape. ?

4. National Grid ESO commits to digital twins

The ESO has signed on to collaborating with the government-led National Digital Twin Programme – a programme that’s described as aiming to “develop the standards, processes, and tools that will build the foundation of a functioning market in digital twins”. This is an initial step and still a long way away from a viable digital twin of the energy system, let alone true interoperability across different types of infrastructure. But it is a step in the right direction nonetheless.

5. Hydrogen subsidies done right

The strategically-named Inflation Reduction Act went from universally acclaimed to divisive faster than even J.K. Rowling. A recent announcement (behind a paywall) specified that subsidies for hydrogen production at the generous rate of $3/kg would be subject to projects meeting the following three conditions:

• The hydrogen must be produced from new clean energy projects
• Those renewables projects must be located on the same grid as the hydrogen plant
• From 2028, the above criteria would need to be meet on an hourly basis (compared to annual basis until 2028)

Some early proponents of the IRA lamented not getting free money. But these conditions are an unquestionably positive step. Aside from aligning the approach in the US with that of the European Union, it ensures that funding is limited to truly clean hydrogen. And the requirement to demonstrate such clean origins on an hourly basis is an invitation for innovation in granular emissions tracking – a topic the Catapult explored in the context of the GB grid.

6. Spurious attribution of costs and/or benefits, BECCS edition

The government gave planning approval for Drax to convert two of its biomass power plans into bioenergy with carbon capture and storage (BECCS). This acted as the starting gun for a debate about the value-for-money of the proposal:

• Drax published analysis by the consultancy Baringa that argues the BECCS plants would be ￡15 billion cheaper than the next best way of providing power and removing emissions. (Note: Baringa used the Catapult’s Energy System Modelling Environment, but the modelling assumptions it used are not specified).
• But the think-tank Ember has estimated that a subsidy to Drax’s BECCS plant would cost ￡1.7 billion per annum.

But with very little information about how the estimated costs and benefits, what should have been an opportunity for informed debate is missed.

7. UK Power Networks, continuing to push the frontier

UK Power Networks continues to be a star pupil. It has started publishing data on historical curtailment of generators across its network and, soon after, announced that it would be changing the way it contracts for flexibility. Having until now used the Piclo platform to procure specific flexibility services in certain locations – contracted long in advance of the services being used – it will now move to a local flexibility market operated by EPEX SPOT. The EPEX SPOT market, as the name suggests, allows for day-ahead and intraday trading of flexibility. The expectation is that this would allow for more flexibility on the system and for more innovation in how it is delivered.

8. Heat that goes around in a loop

Portsmouth Water has announced intentions to develop a heat and cooling network that includes some interesting innovations: the heat will be drawn from / returned to a reservoir operated by the water company, will be transported via an ambient loop system, and the system will operate energy exchange to distribute excess heat.

Following an initial build stage, Portsmouth Water has ambitions to scale the project to as many as 6,000 homes. Here’s hoping that this idea delivers on all of its promises. ??

9. Wind turbines that go around in circles

Danish wind farm developer Vestas is looking to bring together energy decarbonisation and the circular economy by developing sections of its wind turbine towners from recycles steel. It also claims that manufacturing would be through an electric arc furnace that is “100% powered by wind energy”.

I found the different claims of emissions savings in the press release quite difficult to track, so I asked Vestas for an explanation. And I’m sure they will not mind me sharing this helpful summary table they provided:

10. It’s pronounced You-Roo-G-Why

Policy-making in the UK (arrogantly) rarely looks beyond our nearest neighbours in western/central Europe and the four major English-speaking countries: Australia, Canada, New Zealand and the US. But when it comes to the energy transition, Uruguay has long been recognised as an example of good practice. An article in the Guardian highlights that the transition in Uruguay:

• relied on clear and consistent political ambition, which was coupled with public genuine efforts to engage with and address public concerns about the transition; and
• approaches technical and operational challenges as opportunities for innovation.

Of course, Uruguay is not a perfect comparator for the UK’s energy system (no country is) – it’s a relatively small system that benefits from some of the best hydropower resources on the planet. But we’d be doing ourselves a disservice in figuring out the wicked problem that is decarbonisation if we ignore lessons from imperfect comparators.

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[1] In the Regulatory Asset Base (RAB) model, the costs invested the power plant are accumulated and then recovered through electricity bills over the plant’s operating life.