10 Energy Things I Like and Don’t Like – 31st May 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 a busy month in the energy sector, so here are ten things that had my brain whirring in May. Let’s get into it.

1. UK energy policy: the greatest light is the greatest shade

At the Innovation Zero event in London, I listened to a panel of developers. The developer of hydrogen electrolysers bemoaned how long it takes to connect to the network. The interconnector developer expressed concern about Ofgem rejecting regulatory support for a series of new projects. And the offshore wind developer noted the lack of domestic supply chain.

What came across clearly is how the UK’s energy policy focus on supporting specific technologies is both the reason for the claimed success of those policies and for their apparent failures. The approach has led to a lot of investor money and developer focus rushing into the technologies government picks, only to find that the enabling environment isn't there.

Offshore wind is the clearest example. It has a very attractive business model backed by Contracts for Difference (CfD) – which is now also being rolled out for hydrogen – but, without corresponding grid development and locational price signals to guide investment, the policy results in a growing connections queue and lots of wasted clean energy. And the focus on cost-minimisation in the design of CfDs, coupled with an absence of industrial strategy for offshore wind, means that UK wind farms largely rely on international supply chains – with all the associated downsides for growth and resilience.

It's a similar story for interconnectors – the cap and floor model is so attractive that we’ve seen a flurry of new projects being developed since the model was introduced a decade ago (before XLinks took the crown there was the questionable IceLink proposed interconnector between the UK and Iceland). But the interconnectors that have been developed frequently flow “the wrong way” because capacity is traded on the basis of a single national electricity price, meaning more interconnectors are expected to adversely impact the system instead of improving security of supply.

If we’re not careful we’ll see the story play out time and again with heat pumps, short- and long-duration storage, carbon capture, etc.

That’s why Energy Systems Catapult keeps stressing the need for a ‘whole systems approach’ – it’s not a management consultancy buzzword for us but an essential way of maximising the likelihood of a transition to Net Zero that is as smooth and prosperous as possible.? ?

2. Nuclear - building fast and slow

The Department for Energy Security and Net Zero has announced an intention to revive the Wylfa Newydd site for development of a major nuclear power station – only a couple of years after the previous developers cancelled the project when they weren’t able to secure additional funding from the government in the face of escalating costs. There are rumours that South Korea – the most efficient developer of nuclear plants – could be involved this time, so maybe things will turn out better this time, but there’s reason to suspect they won’t.

Sam Dumitriu’s article in the Spectator about why new nuclear power stations in the UK are so expensive and take so long to build is as clear and well-argued as anything you'd read on the topic - to the point that I started to symathise with EDF! And the lack of standardisation and modularity means that we don’t see the kind of “learning curve” benefits in nuclear that are so evidence for other zero carbon technologies (solar PV, onshore and offshore wind, batteries, EVs, etc.).? ??

It’s not just nuclear. These kinds of stories – painfully familiar to anyone who has tried to develop any bit of energy infrastructure within sight of human dwellings – demonstrate, time and time again that we can’t just “build our way to Net Zero”.

3. Decarbonising through Warm Home Prescription

If you’ve read my previous ’10 Things’ posts you might know that one of my guiding rules is that items should not focus on the work of Energy Systems Catapult, with one exception: Warm Home Prescription.

A proof of concept trial in 2022/23 clearly demonstrated that through a targeted Warm Home Prescription intervention it’s possible to improve health outcomes for people whose health conditions would otherwise have been made worse by a cold home. The Catapult’s research also found that 76% of the recipients of Warm Home Prescription were more likely to want to improve their home’s energy efficiency. So the logical next step is to ask whether the same approach could be used to accelerate the decarbonisation of homes.

And so for the launch of a trial with Scottish Power, in which NHS data will be used identify low-income households where people live with health conditions that are sensitive to a cold or damp indoor environment. Scottish Power would deliver the home energy improvements, in line with its mandate under the Energy Company Obligation (ECO) – thus exploring the potential for Warm Home Prescription to offer a better way to target ECO funding and efforts.

The trail may well reveal that Warm Home Prescription can be an important part of the policy toolbox for fund home retrofits at pace and scale – adding to the options recently summarised by the Association of Decentralised Energy. ?

4. Who plans the planners?

The need for strategic planning is one of the few things about the energy transition that garners broad consensus – not just in the UK but also internationally, see the US Federal Energy Regulatory Commission’s Order 1920 that requires transmission planning on a regional basis. At a local level, Ofgem has set out a high level vision for ‘Regional Energy Strategic Planners’ and a new paper from Regen offers a perspective on how these entities should operate, and what should happen during the their set-up phase.

Two things stood from Regen’s paper: support for Local Area Energy Planning, which has not always been the case from Regen; and the idea of establishing ‘Regional Boards’ that give strategic guidance and a democratic mandate to the RESPs' decisions:

5. Pumping the accelerator / brakes on heat pumps

It’s been a busy month for announcement from providers of smart home technologies. Passiv launched a new smart thermostat and?Tado launched a smart heat pump controller – both claiming substantial consumer savings from their technologies; as did Homely in publishing the results of its smart controller tests.

Meanwhile, DESNZ announced funding for a series of innovation trials related to heat pumps. A particularly interesting idea is Nusku’s "heat pump for distressed purchases", which could be installed quickly to address the problem of how to decarbonise heating when it comes to emergency gas boiler replacements.

On the other hand there’s Cadent Gas, which has a commercial interest in slowing down the transition to electrified heating. Its new report on the recovery of energy policy costs makes for an interesting reading. The underlying analysis seems to throw up some unusually high estimates of the impact on households of moving these costs to gas bills, but the conclusions are fairly sensible: allocate policy costs on a proportionate basis between electricity and gas bills, with the proportion recovered from gas declining as more households switch to electric heating. That kind of approach can address the “death spiral” risk of allocating these costs to gas bills.

6. What we talk about when we talk about people

Hard to fault Utility Week and CGI’s note on demand-side flexibility for content - all the key points are there: the need for compelling consumer propositions, data security, consumer protections, and clear communications. But some of the language used betrays an industry-centric mindset: “persuading consumers to give consent to control their assets” … “consumers buying into the idea of participating in flexibility markets”, etc [emphasis my own].

Ask yourself: when was the last time you were persuaded to have your internet speed flexed in light of system needs? Have you thought once about consenting to sharing your viewing preferences with your streaming service of choice? You probably answered “never” and “no” because those propositions are so clearly attractive that you’ve never needed to. That should be the ambition for future energy services too.

7. Expanding the UK Emissions Trading Scheme

Continuing the theme of genuine progress on carbon policy over the past year or so, the UK government and devolved administrations set out proposals for expanding the UK ETS to waste (including energy from waste) and, perhaps more radically, to both engineered and nature-based Greenhouse Gas Removals.

It’s increasingly clear that we will need Greenhouse Gas Removals to have a real shot at achieving Net Zero emissions, so clarity on the enabling policy environment is hugely welcome. There’s a lot in the consultation, but the main point is the two-phase approach to allocations. Initially, the current ETS allowances cap will be reduced for each allocation to GGRs – ensuring consistency of the cap with the trajectory that has already been set towards Net Zero. In the longer term, a “net” cap would be set for allowances, reflecting the possibility that there would be more removals than residual emissions within the covered sectors. ?

There’s still a need to expand the ETS further – firstly to heating and then to transports, as set out in a recent report from the Catapult and the Grantham Research Institute.

8. Debt financing of synchronous condensers

Quinbrook Infrastrcuture Partners invests in energy infrastructure in the UK, US and Australia – so it’s got plenty of options for where to put its (customers’) money. Amongst other things, it’s decided to invest in synchronous condensers – an unglamorous but increasingly important part of the transition to an electricity system that relies on inverter-based technologies (such as wind, solar and batteries). There technologies do not naturally produce the inertia our currently system requires to operate safely.

The specific projects were backed by regulated revenue, funded through National Grid’s ‘pathfinder’ project. The next step is working out what commercial arrangements could facilitate large scale deployment of synchronous condensers and other grid-stabilising technologies.

9. Smarter regulation

A new report from the Department for Business and Trade sets out a helpful approach for making sense of the UK’s complex regulatory landscape. Not least, for the first time it defines what a “regulator” is. Also good to see is the application of the ‘disclose once’ principle and the proposed use of digital infrastructure to make it easier to track consumers who require support – an approach that should be extended to emissions reporting.

10. Integrated modelling of hydrogen

Let’s end with the opposite of the first item – an example of what a whole systems approach looks like in practice.

The industry groups for electricity and gas European transmission system operators (ENTSO-E and ENTSO-G) have been working together to model the cross-system impact of hydrogen, such as interactions between hydrogen supply via the gas system and the use of hydrogen in electrolysers. The modelling is intended to inform cost-benefit analysis of potential network investments, where there’s a cross-border impact to the investments. The progress report makes for an informative, if quite technical, reading.