The Energy Whitepaper - Part 2 Implementation & Innovation

Unpicking the 2020 Energy White Paper by focusing on six themes required to reach Net Zero in the UK by 2050.

In December 2020, the UK Government published its awaited Energy White Paper (EWP) ‘Powering Our Net Zero Future’ – demonstrating an intention to move into a new, more aggressive phase of addressing the UK’s contribution to climate change. The EWP sets the stage for a vast number of initiatives and consultations starting this year and points to the way forward, but it’s important to note that the EWP is not a plan.

Yesterday, we looked at interdependency and innovation. Here, we’ll look at implementation and innovation – and whether they could determine the success of forthcoming strategies in delivering Net Zero in 2050 (NZ2050).

Implementation

Both National Audit Office and Her Majesty Treasury (HMT) have recognised that the cost of implementing NZ2050 is currently unknown but will be in hundreds of billions of pounds. During 2021 Department for Business, Energy and Industrial Strategy (BEIS), Climate Change Committee and HMT are due to publish estimates of the potential cost of NZ2050 and policy options for funding. This enormous investment programme will largely be implemented by the private sector, with government intervention in specific areas such as carbon capture and storage (CCS) infrastructure.

At Atkins we have estimated that the current rate of deployment of major capital projects in the power sector is less than half of that needed to meet NZ2050 (see chart below). Government must develop a feasible implementation plan and the mechanisms to monitor and ensure progress. Professor Helm has argued that Government has in effect become the central purchaser of power. The current method by which BEIS determines its purchasing strategy is unclear and seems incompatible with the notional use of competitive markets to bring forward technological and commercial innovation. The EWP recognises the need for market changes as well as the opportunities potentially created by such changes and also decentralisation of energy supply.

How can government ensure the co-ordinated implementation of literally hundreds of separate privately owned projects to a very demanding schedule, while stepping back from being the effective purchaser of the end product? Offshore wind is the poster child of power sector success because: government is the contracting party; the system wide costs of integrating intermittent generation are distributed across all power; and (as Treasury state) the current level of support to renewables through low carbon levies amounts to around £10bn/annum (p50 National Infrastructure Strategy) - sustained policy leading to well marketed cost reductions. But what does the true sign of success look like? When renewables and other technologies compete on a level playing field Equivalent Firm Power basis.

Contradictions from the start

At the heart of the EWP there is an apparent contradiction. In every section there is emphasis on creating competitive markets, the vision is of empowered consumers “able to make money or save on bills through using the new technologies Net Zero will require” [p7]. In power generation [p42] it states: “We are not targeting a particular generation mix for 2050” and later “The electricity market should determine the best solutions for very low emissions and reliable supply”. However, [p45] “We will target 40 GW of offshore wind by 2030”; [p47] “We will support the deployment of at least one power CCS project by 2030” and [p48] “We will aim to bring at least one large scale nuclear project to the point of FID by the end of this Parliament”. As BEIS decides what gets built, there is no transparency to the process and the influence of the market, obscured by multiple different technology support schemes, is not clear.

Since 2019 we have recommended the creation of an Energy System Architect (ESA) with clear responsibility for overall system configuration and implementation. This would bring greater transparency to the strategic decisions that will determine the NZ2050 energy system and separate implementation from policy development. In parallel with the creation of the ESA, the market should be moved as quickly as possible to an Equivalent Firm Power basis. Only then will true competitive forces be able to bring forward an optimal system.

Innovation to drive down future costs

It is essential to encourage both technical and commercial innovation to help drive down the cost of NZ2050. However, it’s unwise to develop a strategy dependent on technology that is not yet mature and based on uncertain long-term cost assumptions. Given the deadline of NZ2050, the development period for new technology to reach commercial deployment, and the duration of major energy projects, the strategy should be designed on the basis of currently available technology and be flexible enough to incorporate new technology as it becomes available.

The EWP addresses support to technology development and demonstrator projects; the three most critical being CCS, hydrogen and bulk long-term energy storage. Dependency on CCS is possibly the major risk to achieving NZ2050, the impact of hydrogen on our future is yet to be clearly defined and, through analysis, we have also questioned scenarios relying on unspecified amounts of electricity storage at grid scale. The forthcoming Net Zero Strategy should include a technology development plan across all sectors focusing resources on those key areas that have the greatest risk or potential for commercial deployment within 15 years.

Throughout the EWP there is expectation of far-reaching commercial innovation empowered by a smart grid and extensive data management. These are key to the objective of empowering consumers and to system optimisation. Experience suggests that wide ranging complex IT projects are challenging and prone to delay. Given the slow initial take-up of contract switching and the challenges of smart meter rollout in the retail market, it’s reasonable to question how rapidly can the vision of empowered consumers be accomplished?

The Net Zero Strategy should include a technology development plan that addresses technologies that CAN be commercially deployable within 15 years and those that cannot. Given the scale of the energy system, it’s very unlikely that a technology that’s first deployed after 2035 will have substantial impact on the achievement of net zero in 2050. Technology assessment should be prioritised according to potential impact on the 2050 system and beyond.

Come back tomorrow for considerations on insurance and investor confidence!