How UK is adapting to the New Energy Future

How UK is adapting to the New Energy Future

Throughout the year, the Natural Resources Forum a leading independent think-tank for the resources sector, holds forums and breakfast seminars at the London Stock Exchange. These seminars bring together senior representatives from investors, corporates, advisers and academia to discuss issues of relevance for sustainable future growth.

In October, the NRF breakfast seminar was on the subject of how the UK is adapting to the new energy future. Industry professionals from leading companies, finance professionals and academics met alongside board directors, advisors and investors to review progress, opportunities and problems as the UK transitions to a low-carbon economy.

Concerns ranged from the financability of projects to the speed of delivery, to the balance between long term success and short-term wins, to prioritisation and opportunities. Here are some highlights from the seminar, which is conducted under the Chatham House Rule.

The importance of the transition to low carbon

Energy transition is nowhere near fast enough to meet the Paris climate change goals.

DNV-GL’s Energy Transition Outlook 2019 projects at the current rate of change, global warming will exceed 1.5% by 2028, by 2048 exceed 2% and by 2100 exceed 2.4%  Other participants were more pessimistic, estimating global temperature rise of between 3.5-4% by 2100. Whilst energy demand could peak in 2035, it would be caused not by a drop in demand but by an improvement in energy efficiency.

Access to electricity is key in achieving the UN’s Sustainable Development Goals: 2.8 billion people do not have access to clean cooking fuels 1 billion people have no access to electricity at all. How do we engage with the people who this is going to affect? 2.7 million people in the UK are in fuel poverty.

But over the past 10 years, there has been a complete attitude change. Blue Planet and Greta Thunburg both have far greater impact than government policy.

Financing the transition

There are a multitude of pathways to Paris, of realistic and unrealistic scenarios. To achieve a carbon neutral world, $110 trillion of capital needs to be deployed by 2050. In the UK, 85% of homes today are heated by gas. The Liberal Democrats, for instance, have committed to a policy which means no more use of gas in homes – but to do that in their time scale means 1 million homes per year need to be converted, which will cost £300 billion in the domestic market alone.

Energy is a political football, and that makes financing difficult. Especially, rules on funding and recouping investment are not helping and need to be re-examined so that, especially, solar and onshore wind become more attractive for private sector finance.

The impact of government policy

There was a genuine welcome for the UK government policy of moving to net zero in 2050 – because it gives business nowhere to hide. The role of government is essential in this process – but is frequently complex and confusing.

For instance:

  • How do we deal with infrastructure decisions? Hard to divorce them from a more centralised government steer. Town gas went to methane in the 1960s. It only took 10 years, but it needed government intervention.
  • Government is providing 15 year contracts but the economies of solar have a return on asset life of 30 to 35 years: what happens after the conclusion of the contract?
  • Energy efficiency in buildings is the number one priority: but how do we resolve home heating in light of the UK’s housing stock?

Some bodies, like the Energy Systems Catapult, offer ways forwards: “it is a skunk works and living laboratory. It is helping us understand the difference between persuasion, regulation and instruction”.

As governments include younger people, and as the older generation moves on, there will be an increased acceptance of the need for regulatory change: “There’s a clear generational divide on the importance of climate change across Europe.”

Sectors

There’s a minefield of robust and less robust business models in the sector. Whilst the costs of renewables are actively decreasing, each sector has its own issues and advantages.

Oil particularly poses a problem. It is a manufacturing feedstock, a very difficult to transition away from. Solar is increasingly cheap (the Portugal auction price for solar is 1.5 cents per kilowatt hour) but more difficult to finance. There is an enormous cost advantage in offshore wind, but it is difficult to fund onshore wind without subsidies. Nuclear power was seen as “very key” to the transition – but participants acknowledged the public relations issues.

An interesting problem is posed by energy storage. Whilst there have been significant improvements, the short term frequency response market is a problem as is the day market: there is a real need to engage with the technology.

Resourcing the transition

Technical innovation requires more rare earths and copper. The UK could consume half to one full year of the world’s copper to electrify our vehicle fleet.

How do we pay for the extractives requirement for copper and rare earths? And how do we spread the understanding of mineral scarcity? It is unlikely in the short term that nickel, cobalt and copper will ever correct after 2023: at least unless unexpected on planet resources are discovered or asteroid mining becomes a reality.

Improving efficiency

Improving energy efficiency is important to the energy transition. “Home insulation makes all of this work”. Outside the UK, the developing world can take advantage of technology leapfrogging and move swiftly to net zero, taking advantage of technology learning factors to build in efficiency from the outset.

Written by Jonathan Blanchard Smith, Fellow and Director of SAMI Consulting, and also chairs the Natural Resources Forum breakfast seminars.

Image by 3D Animation Production Company from Pixabay

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