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The high cost of energy and the urgent need to shore up energy security at a time of geopolitical instability has brought power decarbonisation into sharp focus for both consumers, government, and the media over the past year.
Ben Westerman, executive director, Aldersgate Group (chair)
Nick Pincott, Partner, future energy projects TLT LLP
Ana Musat, executive director for policy and engagement, RenewableUK
Adam Berman, Deputy Director for Advocacy EnergyUK
Throughout this podcast, our speakers discuss:
How to quickly and effectively tackle the barriers to scaling up renewables in the UK.
Whether current measures from the Government are enough to meet the 2035 power decarbonisation target.
How additional policy support from the renewables sector can be structured to enable development and investment in with the UK’s requirements.
What role the Grid plays in enabling the decarbonisation of heating and adoption of electric vehicles.
Why urgent steps are necessary to address grid barriers and smooth the path for growth across different sectors.
How the Government can maximise the job creation opportunities associated with delivering a low-carbon energy system.
Follow the rest of our series on environmental sustainability in business here, or subscribe to Sustainability Breakthroughs on your podcast app.
Hello and welcome to this TLT and Aldersgate joint podcast.We're here today to talk about energy.So, of course, the UK is and has been for a long time, a world leader in decarbonisation and we've made huge progress since 1990 and we have a world leading offshore wind program.In recent times, progress has stalled, and we're here today to talk about why progress has stalled and what the barriers are for continued progress.At the heart of that, of course, is the need to attract continued investment and the scale and transition is such that with constrained public finances, private investment will be absolutely crucial in everything from renewables and network infrastructure to strategic export opportunities, like EVs, batteries, CCS hydrogen and so on.
Over the past year, domestic and international factors have made it a little bit harder to attract that private investment that we need.Domestically, of course, we've seen quite a lot of policy stagnation.Internationally, increased competition from the US and from the EU in the form of the Inflation Reduction act in the States and the Green Deal Industrial Plan in the EU.Just today we've seen proof of that in Boreas off the coast of Norfolk being delayed with, the developer, citing increased costs of 40%.
So today we're going to discuss the barriers to that investment and indeed to wider grid decarbonisation in the UK.And joining me to talk about that are three fabulous panellists: we've got Nick Pincott, Partner in Clean Energy Projects at TLT; Ana Musat, the Executive Director for Policy and Engagement and RenewableUK; and Adam Berman, the Deputy Director for Advocacy at EnergyUK.
Nick, I'm going to start with you, if you don't mind. And I'm going to ask, from a client point of view, how your clients have reacted to the energy crisis and to the policy stagnation I mentioned, and this has accelerated efforts to deliver net zero or slowed them, and the impact of that investment? Over to you, Nick.
Thanks very much, Ben. And hi, everybody. We at TLT, and certainly in my practice, we advise on clean energy projects. We advise our clients on connecting, building, and operating projects like wind, solar, and battery, and other adjacent technologies like EV. So certainly the recent energy crisis and current situation has certainly had a big effect but I suspect it's also fair to say that those clients were busy developing projects before the energy crisis and they've continued to do so, or at least tried to do so and we can come back to some of the obstacles and difficulties that they've been facing. I suppose that said recent energy crisis has provided affirmation if that were needed of why it is so important to develop clean energy projects both from a climate change perspective and most visibly perhaps in the public mind, from a security of supply interest. There are more complicated factors at play I think in terms of how domestic customers have seen their energy bills change and what the role of home-grown renewables could do to improve that situation and maybe we can explore that in a bit more detail.
Thanks Nick, and you mentioned obstacles, so I am going to take that opportunity to go over to Ana. Ana, I wondered if you could talk a bit from a UK perspective about what those obstacles are to delivering kind of affordable clean grid.
Thanks Ben and hi everyone. I think you know, as you’ve said in your introduction we have had a pretty incredible investment environment into the UK in the past few years and we have made a lot of progress in terms of decarbonising the power sector but actually we’ve now hit a bit of a crunch point you know the latest climate change committee report told us that progress is slowing down and I think we are falling short on renewables installation. I think if we look across all the key technologies so if you consider onshore winds, we still have a de facto ban on that in England that’s one of our cheapest forms of generation which we are not bringing online. If we look at offshore wind you’ve mentioned the news from Boreas this morning, but I think that’s not an isolated case the investment environment has worsened quite substantially given all the political turmoil that we’ve had, the confidence in the measures that government has put forward. analysis shows that we are under the current scenario we are on track to meet 40 gigawatts of offshore wind by 2030 rather than the 50 which is the government target, so we need to be doing much better on that. I’d also say that you know if we look at hydrogen again, we haven’t got the business models sorted for that meanwhile the US they have been quite swift in terms of analysing their production and investment credits so it is quite a big piece of international competition. And finally, we also need long duration energy storage if we are going to make the future system work and again, we have not got a clear route in market for that. So, I guess the barriers are really around the investment landscape around the route to market and then we’ve got a few key barriers around building the right infrastructure and building it in a timely way so I am sure we will get into that.
Thanks very much Ana and you mentioned on shore wind, and I think it is always worth mentioning the staggering statistics that Ukraine built more onshore turbines than England did since the invasion, England has two to Ukraine’s nineteen which amounts to 114 megawatts as opposed to England’s one, which is an indictment I suppose of where Governments at in encouraging that investment and encouraging grid infrastructure. There is of course a wider point around the market and Boreas really today is I suppose a result of a market which has been rest to the bottom on price while supply chain costs are being increasing so I wonder if Adam I can bring you in there and talk a little bit about what from the energy, UK point of view, what you would like to see in terms of the market and the regime to encourage that investment into the UK.
Sure, well I mean the contract for regime is the UK sort of premier regime for trying to incentivise investment in renewables it’s done an exceptional job, but it’s had one primary purpose, and that purpose has been to drive down costs. It’s done that exceptionally well but we probably need to recognise we are at the point now where costs have roughly got as low as their going to get for some time, they might get a little bit lower at a certain point we are in a bit of a supply chain crunch at the moment where you know as we have heard from this project this morning we are seeing supply chain costs kind of roughly 20-40% but as a broader point what we really need to see now is the programme shifting from one where the focus is on driving down costs of low carbon energy to one where it’s procuring the most low carbon energy we can get at the lowest available costs rather than the lowest costs and so the difference there for me, it sounds sort of subtle but it is quite a big difference in practice, what it might mean is procuring a much smaller number of projects that say £44 per megawatt hour than a considerably larger number of projects at £50 per megawatt hour now that to the consumer perspective for us it is much better in any world to pay a little bit more to get a lot more low carbon capacity and I mean the size of the prize here is huge as the UK we have paid out almost, well we will have paid out, almost 80 billion pounds worth of tax payer money over two years to support energy bills and that’s precisely because we have been reliant for too long on essentially an international wholesale gas market that’s then been kind of set the price of electricity so when we are thinking about what the future of the contracts for different programmes look like for me that’s the size of the prize is essentially shrinking our reliance on that international market and ensuring that we can build the largest capacity at the lowest available cost. So it’s just about shifting mindset to one where we’re saying alright well if want 50 gigawatts of offshore wind as per Ana's point and we are considerably off reaching that target at the moment then you probably need to shift to a model in which you are saying yes to close to every project that comes through the CFD scheme now that’s a controversial opinion because competition lies at the heart of that scheme so there is a legitimate question as to whether there is a rebalancing needed within that scheme to actually ensure that the government is prioritising getting the capacity rather than getting some notional value of lowest costs for consumers which doesn’t quite stack up in a real world in which slightly more expensive renewables are still vastly cheaper than the alternative of remaining reliant on gas for longer.
Thanks so much, and we'll come back to that consumer point in a bit, because it's very important. And I suppose the proof is in the pudding when I said race to the bottom. And the funding from the current round of the CDF is down £285 million on the last round so I suppose that's exactly the point, that expanding that budget will be very important going forward. And just staying on this point on investment, Nick I wonder if I can come to you again from a client-facing point of view, one of the things that we are hearing a lot, not only in energy but in the industries that energy affects, so thinking about the heavy industries, the off takers, the steels, the cements etc, etc facing particular difficulties with this investment point is really important. One of the things we hear a lot is this thing around market signals. The UK is misunderstanding what a market signal is, in a world in which the Inflation Reduction Act – I'm going to call it IRA from this point on – sets out a ten-year policy environment. The Net Zero Industry Act in the EU will probably look to do the same later this year. The UK, conversely, is leading on market signals that it sees around stretch targets or aspiration and not stable policy, and we've already touched on a few of the little things the UK could do to amend that quite easily. I wonder if you could say a word about that, Nick, and where you're seeing that from a client point of view.
Yeah, sure. Well. I think the first positive to say is that the money is here, but I think, as has been alluded to, it is important to make sure that that money keeps investing here. It's highly mobile and it can easily – you've mentioned what's going on in EU, what's going on in the Inflation Reduction Act in the US – it can very easily be moved. So, some positive news only this week about Land Rover and a possible UK battery plant in Somerset. Similarly, only last week I was reading about in Germany moving to the US and plans being put on hold.
So, on positives, I think the UK compares to other countries I've done projects in. Has done a relatively – not perfect – but a relatively good job of keeping a stable regulatory ship. And we've equally seen how not that doing has set back generation and encourages investors to move away.
But I think it's also important for UK government, UK plc, not to rest on its laurels and congratulate itself about what a great job we've done so far. Yes, it has been good but also look at why it has been good and keep doing that and keep enabling the projects that are trying to develop to do so. And I think it was just earlier this week, Aldersgate reported on a survey they've been carrying out, 164 clean energy projects under construction but 1300 waiting.
And there are immediate actions the government can take, or government can enable the taking of to help those projects come forward. And, frankly, grid and access to the grid is a conversation we have with developers.
Other issues face industry, yes, in terms of investment and supply chain and so on. We're all in competition for finite resources for these solar, these battery projects and so on. But without a grid and somewhere to plug in, these projects will clearly come to nothing.
So, grid I think is the most acute but also, perhaps, the most of the issues. There are some specific things. There has been criticism about – certainly it's clear that the current system does not work. At the risk of speaking out of turn, I've even had someone from National Grid say that the statement of works process is not fit for purpose and it's a broken system. And I've also, and I think with some fairness, there's criticism that we operate a very strict queueing process. So, to come back to your point, Adam, it might be that there's a five-megawatt project that's at the front of the queue. On the one hand, it's the last straw that breaks the camel's back and it triggers £10 millions of grid reinforcement work that's required. And it's one of the features, certainly, if you're distribution connecting in the UK, that you get to pay that. As opposed to -while the costs are generally higher but with transmission connections, of course, a lot more of those costs are socialised. So that's the first thing, a small project base with a huge bill connect but equally, that's a small project ahead, perhaps, of a hundred-megawatt project behind it, which could deliver if it could get that access to the grid. And ironically the enforcement work would be a much smaller relative cost for that size project. It might even enable the small one to slipstream through.
I think there are also actions that can be taken to enable or require the grid companies' transmission and distribution to be less conservative in their reinforcement estimates and what they're going to be building over the next three to five years. I think there's been a lot of criticism that they're, that they're too conservative and they're focusing only on the dead cert projects that be happening as opposed to the, the large number of projects that we know will be coming through but enable them to build a bit more head room into the grid. I suppose where I'm going with this is yes, we can talk about new technologies and so on, but we have existing projects with existing tried and tested technologies, the investors are there, they are waiting to happen and surely, I think those need to be the priority, just get those over the line.
Thanks very much and that kind of brings us nicely towards grid which is obviously as you say hugely important particularly in a capital-intensive industry. I suppose one last point about investment that's worth making is, is the pace that's required and I'm gonna come to Ana on the pace because Adam's already mentioned raising the strike prices, one small thing we can do and what's clear at this point is that the UK at the very least keeps up with the pack. You know, we saw 10% decrease in UK renewables investment last year whilst Germany went up something like 15% and the US about 25%, something in that ballpark, so the increase, that increased investment means the UK will be left behind. So that's kind of a nice way to segue onto grid. I wonder if, Ana, you could talk a bit more about those kind of grid barriers, you know, Nick's mentioned a queue issue, the TEC amnesty last year wasn't a huge success so what are the issues you're seeing around Grid ?
Yeah, I think Grid is biggest issue for our members across the renewable technologies and I think need to just start talking about it as a barrier to economic growth because it's not just the energy sector that's facing problems. If we're going to decarbonise heating, if we're going to get electric vehicles, again impacts other distribution network and huge demands on Grid. So that's going to be a pretty big barrier that we need to tackle quite urgently. I think there's two sides to the problem, I think, you know, Nick talked about connecting to the Grid. Currently we've got about 350 gigawatts worth of projects waiting in the queue and the queue is growing quite exponentially because we know that National Grid ESO has put forward some measures to, to ensure that the queue is streamlined is a little bit. So, you know, in worst case scenarios you could even have around 600 gigawatts in the queue by the end of next year. That's a job so it's not just about how we manage the queue going forward which is what a lot of the proposals are looking at but ultimately how do we deal with this huge backlog of projects that we already have waiting to connect. And it's worth saying that some of them are quite speculative, you know, some of them might not get built under the future energy scenarios that we have a lot of them are battery storage so there's a big discussion around whether they should be connecting under a separate regime. In addition to the connections point we also need to build more transmission and we need to do so quite quickly because we're basically re-engineering the whole energy system, we need to build a lot of power lines that move the power from big, big sources of generation so in Scotland we're gonna be installing a lot of offshore wind, to big centres of demand in, in the southeast.
A lot of the challenges around that are around investment, around Ofgem being a bit reluctant to sanction that investment ahead of need, so it's been to see the change in the remit to net zero much more actively and not just focus on the immediate impact on cost to consumers. Because we don't build this grid it's going to end up costing consumers much more in the long term. Um, but I think in addition to that one of the challenges to building grid and we're going to face this more and more as we, as we start the project, is around community engagement and acceptability of the infrastructure. It's something that we're already seeing quite a lot in East Anglia where there needs to be a lot of grid development taking place, but I think until we crack this community benefits package and are clear as to what we can offer communities to persuade them to, to support that infrastructure it's going to be quite difficult. And again, if we think about doing this in an integrated way, we need to make sure we're consistent across the country, not offering one community something and then something else to another.
Ben, if I might just jump in there. Um, I mean just to amplify what Anna was saying but, you know, referring to all those gigawatts of projects in the queue and some, to be fair, are in different stages of development, but certainly we're seeing, um, real projects which are ready to go, they have a grid connection, in a sensible time period, in the next one to two years, looking at their anticipated connection date, but once they then go through what's called the "statement of works process" which is looking at the onward impact that these projects are going to have on the transmission network and the reinforcement and very big reinforcement costs that that might involve, that's when we're seeing them come back with many millions of pounds of additional cost and perhaps even worse, connection dates in the late 2030s and even 2040s, um, and at the risk of stating the obvious, you know, that is the thing which kills a project and that investment money will quite readily go elsewhere.
Absolutely, yeah, and I'm just going to stick on that point. Um, so Ana, you quite rightly raised the, the good news I'm sure everyone on the call and in the sector indeed will welcome the news about Ofgem's remit being changed hopefully through the Energy Bill. Um, and to combine it with something Nick just said about anticipation, I wonder if there's more you think can be done on anticipatory investment, um, because that's obviously a big issue that a lot of projects face.
Sure, I mean I think the Ofgem remit reform is, is one thing but, um, obviously we're going to have judge this in doing the spending control periods that are coming up so, um, I think we really need to see first of all that, um, holistic network design and the follow up exercise being finalised so getting the clear picture as to what the future network needs to look like. Um, then we have the, um, the ASTI regime, so Accelerated Strategic Transition Investment, um, again ensuring that the money goes into those projects is great but there's a few bits of network reinforcement that need to happen which currently fall outside of that, that framework. Um, so I think, you know, it is a bit of a challenge because we, we continue building as we're trying to design the final shape of the network, er, but I think we need to keep looking at what other bits of network reinforcement do we need to do. Er, because I think as soon as a project like this kicks off and then you, your bit of the transmission is left out it's quite difficult to, to get that built ahead of time. And then I think, you know, with, with Ofgem's remit reform that's news, we've been really delighted to see that, but the proof is going to be in the pudding in terms of what level of spending sanction. And I think one of the questions that will need to be answered is around how they balance their net zero reform, the net zero remit against their consumer protection objective. So again, we're going to have to see if one of them up taking priority over another. Ideally, we'd have a good balance because again this investment is all in the interest of consumers as well.
That's right. Um, and I think it's also true to say that Ofgem already had a net zero mandate, it's enshrined in the legislation but equally I'm all in favour of bringing that front and centre and putting a spotlight on it. I think related to that is something I learned quite recently in the discussions which are going on about what the role of the future system operator might be, and I understand and I think this will be a real positive, that they might be given both a net zero mandate and also related to that a security mandate as well. And I think that's, um, that's potentially a real step forward. The private sector is reacting as best it can, we're seeing certainly on the projects that we work on a much greater role the private sector in the form of IDNOs trying to assist and be more creative with the, the ways in which these projects can connect to the distribution network. Others looking at transmission level at either private networks or even applying to become TOs. Um, but there's only so much the private sector can do, some of it come from the existing TOs and the, the direction and encouragement of Ofgem and perhaps this future system operator as well. Again, the tools are there, we saw how the OFTO regime worked going back quite a few years now in terms of offshore transmission infrastructure. Not long after that there were proposals for an onshore equivalent, the CATO regime, that's fallen a bit by the wayside. But again, you know, there's a structure that could be used, you open it up to auction and investment so the, again the, it's an attractive investment to have a regulated and safe return type investment, the funds are there to do it, but, um, it just needs that further step to be taken, I think.
Thanks Nick, and I'm, I'm really pleased you kind of mentioned that piece around, around regulators because I think it's important that, you know, the Ofgem steps are really important but there are other, there's a whole suite of regulatory reforms that are needed, um, through the other regulators and obviously we have pieces of legislation like the NPS, the National Policy Statement is coming up, these are really, really important bits. Um, Ana raised the question of community engagement, and I'm going to throw Adam this difficult question around community engagement, and it's politically speaking the most difficult bit after the grid by quite a long way. Um, Adam, I wonder if you had any thoughts around the planning issue and the community engagement issue?
Yeah, so this is a really interesting one because I think if you read a newspaper, some particular newspapers, you'd think that there is no community engagement at all, you would think that communities are largely not involved with building projects from, you know, as Ana said, kind of, large scale transmission infrastructure reinforcements in East Anglia through to, you know, some major onshore wind turbine in Scotland. That's just simply not the case. I mean you look at National Grid community engagement plans in East Anglia, they are, they are vast. Now, you know, there are always going to be more people you can contact and discuss this with, but the question is what, what are we really talking about here. Are we talking about widespread dissent across the economy borne out by systematic polling, no, because systematic polling bears out almost exactly the opposite, not only that people agree with the need for climate action, but they also agree with the need mostly for the generation infrastructure but also for some of the transmission infrastructure as well. Um, what we are seeing is often small and vocal minorities in particular constituencies and particular when it comes to transmission infrastructure, when it comes to grid, we are talking about a relatively small number of constituencies, you're not, you're not talking about across the, across the economy, across the country in the way that might be true of, of generation.
Um, so look, you know, once we get down to this, I think there are two things you need to talk about. Firstly, is the engagement itself, is there a problem with engagement. I'm not sure there's a fundamental problem with the engagement. I mean if you talked to the folks on the ground that are doing it they do say one of the issues is you tend to get a lot of the same people engaging and it tends to be the people that have the time to engage, so that's always a tough nut to crack when you're trying to actually, you know, kind of canvas the views of local communities. But , from the studies that have been done door to door looking around things like a new wind turbine development what you'll find is that there's higher levels of local support than might be borne out by things like, um, kind of local hearing on it. The second question is around the community benefits. And I think this a broader question for anyone that cares about climate and feels strongly about the infrastructure that needs to support climate action is the extent to which communities should just feel some sense of kind of national or international, you know, benefit which is coming through that project and that should be enough for them. Certainly, certainly, for some communities that will be, for other communities they may want to have some tangible kind of financial of non-financial benefit and again what you're seeing time and time again is, you know, some communities they might want some money off their energy bills, great. For some communities they might want energy efficiency measures installed across their homes.
For some communities it might be early years education. I was just talking to a colleague from Scottish Power earlier, they'd built an ice rink for one community because that was what the local community said they wanted. Now frankly it's neither here nor there for me to say what a local community wants; every community is different. So we do need to come up with a, with a regime that's robust and that works to provide the benefit that is relevant for the local communities but, um, I do just wonder at the end of the day and again this is probably a slightly controversial opinion whether we are not at points slightly overvaluing or overjudging the opinions of some because they are often trumpeted quite loudly in the national media over the vast majority of the population which I think is largely, you know, largely content with this. Now if you are in East Anglia and there is a substation which for repeated years needs development, you know, they might do, they might do some works for six months and then stop and then they might do some works for six months again. Now that is genuinely disruptive, and we need to find a way to work with those communities but for most of it when you were talking about a wind turbine being erected or a solar panel it's just not that same level of disruption for the most part. So, um, yeah, I think we probably need to have a slightly more reasonable conversation about this, respect the rights of communities that do want this infrastructure, respect the right of communities that genuinely don't but again I have not seen many examples of communities where you really feel that the people who are pushing most vociferously against these infrastructure buildouts are necessarily representative of the broader population.
Thank you very much and I have to say when we started this conversation, I didn't think that build more ice rinks would be one of the ways we could decarbonise.
Who'd have thought?
So, you know, these things go in funny directions. Um, I think that's take and I think, um, it is part of a wider issue in which I think it's fair to say the net zero is becoming increasingly politicised, um, and you quite rightly said a lot of these views are trumpeted perhaps more loudly than they are held. Um, but there's clearly, clearly more to do on the community engagement because, you know, we spend a lot of time, I spend a lot of my time, probably too much of my time talking to politicians who tell me that, that, you know, local planning issues are a huge problem, that planning's the only problem, that the rest is going to sort itself out because the money will come when we sort out the planning situation. I think what's come across from all three of you have said is that that, that is kind of just the tip of the iceberg. Um, but there are clear, clear issues around, um, the kind of community engagement thing and I wonder from a kind of technical point of view I'm gonna go to you, Ana, on this one, um, just to kind of warn you 'cause it's a tricky question, around the suite of options there. And Adam's raised a few ice rinks, um, but there are, there are various kind of options right the way through from, um, some people talking about locational marginal pricing through to locational signals at a slightly softer level. I wonder what your view is on, on how we can encourage those benefits? And also with a mind to equity because of course what we don't want to be doing is encouraging, encouraging, um, you know, reduced bills in areas where there's higher wealth as opposed to those communities who can't necessarily host, um, energy infrastructure, you know, thinking about urban communities particularly who may not have the same levels of wealth.
Yeah, thanks Ben. I think that's question and we've been talking about locational marginal pricing for quite a while. And, I mean, personally I think locational marginal pricing would be a great idea if you were starting from scratch, right. You were just building out your country's network, you can locate it pretty much anywhere. You're basically doing SimCity right, you have choice as to where you locate your centres of demand, where you place your industry. That's not where we are, of course. We, a lot of this has been built out already. I don’t think there is any feasible scenario where we can say we'll relocate our heavy industries to the northern part of the country, because that's just simply too difficult. So, I think the benefits of locational marginal pricing, given that you have some constraints, are limited. At the same time, if we're serious about moving to a renewables-based power system, again we don’t have the range of choice that advocates a location marginal pricing thing that we do. So if you think about where you can build wind power, of course you're going to build it in Scotland where wind speeds are higher, you're going to build it in most of it in the North Sea, you're going to build up some of it in the Celtic Sea, you can't just start placing wind turbines wherever you want located next to centres of demand. And again, if we think about onshore winds, given that we've got a de facto ban on it in England, and effectively right now planning authorities need to preselect areas where you can develop, it's quite difficult to make that locational decision and a locational signal in an effective way. So, I think, ultimately, you know, this is a policy idea that sounds on paper, but I think it's going to be to that developers that locational signal. And I think, you know, we haven't even talked too much about the implications of how that would play out in terms of bills, you know, what's the impact on consumers. As you said, surely, we don't just want to pass through the costs to consumers directly so there might need to be some level of government support to ensure that those located away from generation but in big centres of demand are done , because not all of them will be able to relocate. And again, I think that locational marginal pricing will have some significant impacts in terms of how we pursue some of the other policies we need to decarbonise a power system. Again, going back to the grid point, and I know we've talked about this quite a lot, but one of the points around the connections reform, is how we can better embed those locational signals in the way that we could queue management and bring projects forwards. I think that's already a conversation, and it's great if we can crack it, but if we then go to full locational marginal pricing and we bring this in play in about ten years, we've got to start again and think about connections in a way. So, I think it's quite a risky one, and personally I don’t see the benefits in the reality that we're in.
Yeah, I'm seeing lots of nodding and certainly from an Aldersgate point of view, we absolutely agree with that. I think there's and issue with LMP that, you know, people present it as a silver bullet but really, certainly in our view, it's kind of tinkering with the retail market that is broken in a much wider way than just that particular issue. Unless the other two have any on LMP, I'm going to kind of power through and I'm conscious we only have a few short minutes left, just a kind of few final points really. I've mentioned the retail market. We are currently the first part of REMA, the review of electricity market arrangements. Adam, I am going to go over to you on, what you’d like to see from this stage of the REMA process and indeed going forward. I appreciate this is a very large question because it's wide-ranging piece of legislation. So perhaps you could kind of talk, list us through very quickly what it's about, and what the opportunities are with REMA to really change the recent market for the better for consumers.
Yeah, of course, I mean, so REMA is the most fundamental review of the electricity market in the UK, probably for, probably since privatisation I would imagine, almost certainly since the last major review, electricity market review. It's, well it claims to be sort of top to toe from the kind of generation side of the market right down to the retail market and it's trying to modernise and update all of these, we say market, but it's all these, all these small markets that are sort of interlinked, trying to update them and trying to bring them in line with a twenty-first century power system, which is going to need to be a lot more clever, and a lot more flexible in the way it's used. I mean we've spoken, almost exclusively, about how you build the nice, shiny infrastructure that powers the network. That's great, we need that. But we also need what, between 5-15% of flexible demand at any given point, which is households and businesses that moderate and change their demand patterns based on generation patterns, based on storage patterns. So, you do need a smart system so there's definitely, there's that the market, that is required within the market. I think the fundamental problem here is, if you'd asked, I imagine any of us, what the biggest problems are with, you know, our attempt to reach our power decarbonisation target by 2035, it would be all the usual stuff. You need to build grids, the, you know, planning problems, investment problems, supply chain, skills. The market isn't really in the top five, it's not in the top ten. Yes, there are things that need to be changes, but, but problem policy is never static. These things change anyway. The contracts are different, regime changes every year, the capacity market changes every time there's a new auction, you know, these little bits and bobs they change over time. So, there is a bit of a question about REMA which sees itself, I think , as a reform program that is underpinned by, probably, a few quite major changes. Again, there is no clarion call for such major changes within the market. Especially not at a point when you need to build, build, build, build, and so you need investment clarity as much as possible. And some of the things that REMA's focusing on, from my point of view, you know, there are some interesting things, where again, from that incremental evolutionary perspective, you do need to keep updating markets. But some things that they're focusing on, and I have the sort of dubious honour of being on the government, sort of, industry expert group, and, you know, we talk through various issues, important issues, and you sort of get asked what, how, you know, how critical do you think this is, how much attention do you think that the government should pay to this. And, you know, for example, I was in a session the other day looking at, more the sort of, downstream elements, things like demand flexibility and I had to say to them: look, let's do the stuff that we already know we're supposed to be doing, and we're not doing well enough. Stuff that's already happening. So, you need to roll out smart meters. We're at, what, 54% roughly, national roll out of smart meters. It’s been a national embarrassment this, this entire programme, and we need to do a better job of it. We need to roll out to everyone because we cannot realise the benefits of a smart system until everyone has smart meters. You know, similarly, half hourly settlement, making sure that we have information about when energy is used on a half hourly basis. It's just been pushed back another year. These are the types of things that are important now. Last Christmas, probably people remember there was something called the demand flexibility scheme. The first nationwide scheme in the UK. First time internationally, it's been used on this scale, where people were, households were allowed to kind of opt into a scheme where they could, let's say, you know, turn on their dishwasher a bit later and essentially get paid to do it. That's fantastic and to me that it is a blueprint for what a net zero power sector might look like. That doesn't involve remarkable new profound market changes. It involves someone having a smart meter and having half hourly settlement if possible. It doesn’t really require much more. Now, that’s not to say it's the be all and end all but I think it gives the, gives the impression of the types of things you need done in the market which is let's do the stuff that we know that works, let's do the stuff that completes the tasks that we have already committed too, let's make sure we're not providing any investment signals which run contrary to the government's stated ambition, and at the end of the day if there's still scope for market changes, great, let's do them. But let's not, let's not kind of upset the apple cart over it.
Thanks very much. Really interesting points down, and it's, what comes across from is, is, is that there isn’t a huge amount that needs changing necessarily for the UK to kind of keep up its leadership status, to keep up with the competition. It's not necessarily wholesale reform a lot of the time, it's small policy changes here and there. The one thing I would say about, about REMA is that whilst you're right about the consumer point, there is a different challenge for industrial off takers who obviously use electricity at a significant rate and in the likes of Germany, France industrial electricity prices are much, much lower and that's making investment in those industries in the UK which will power things like electric cars, home building, that kind of stuff, extremely difficult. Just to kind of wrap up, because we're almost at time, I am going to ask each of the three panellists to give us a kind of quickfire summary of what they'd like to see in the next year before a general election. So, we won’t get on to the GB energies of this world, post, possibly post general election, but what you think the government could do with the year that it's got remaining before an election, that'll really change the game. Particularly, on that investment piece. Nick, I'm going to start with you.
Okay. Well certainly from a perspective of getting projects built, and getting stuff in the ground, we've already mentioned grid as the most acute. Planning has already been mentioned as well. But just picking up on something that Adam mentioned in terms of being smarter, and I think that applies from the customer consumer level, the smart meter level, but all the way up to the system operator. When we do have those projects installed, the technology is there. We have aggregators who are using that same technology at the moment but the system is not sufficiently joined up or custom and practice is, needs to evolve to reflect what we've got available to the system operator, so when they need some capacity dispatched, they don’t pick up the phone to a gas fired power station, they call on some of the many, you know, grid aside battery storage projects that we've got available as well. So that's smartness through from bottom to top or top to bottom.
Absolutely. Ana over to you.
I think I'm going to say supply chain investment and having a serious plan to do that. Not only because we need to respond to the Inflation Reduction Act and the Net-Zero Industry Act which are very clear, very targeted incentives for supply chain investment in their respective geographies, but ultimately, we can't do any of this if we don’t have the supply chain. More countries are taking on targets, more countries are building our capacity with very limited supply chains, so I think the more we rely on supply chains that aren't located here, the more difficult it's going to be for us. We've talked a lot about grid, but if we think about what it takes to get the components to build that grid, the manufacturers have their order books full for about the next four/five years. So, you know, even if that meant wave a magic wand and kicked off a programme to build a grid ASAP, it will still be difficult to achieve that because we haven’t got the right supply chains and we haven’t got the skill. So, for the autumn statement, I'd really like to see a response to those investment packages from the US and the EU, and a serious strategy for growing our supply chain here in the UK.
Thanks. It comes back to what we were saying at the start about market signals and making it very clear to investors that this is a good place to do business. Adam, .
Yeah, I mean look. You know, we've spoken about things like the Inflation Reduction Act, the UK has turned around largely and said, well we're not going to be able to meet the US when it comes to fiscal firepower, but we can offer, you know, some strategic subsidies and we can do regulatory stuff. I don’t see much of the regulatory stuff, you know, we've been talking about planning, we've been talking about grid, there's so much here that could be solved within six months with the right government that is able to extend political capital on it. That could well be this government in the run up to the general election, should it choose to be. So, I think on the regulatory side there are a set of things but on the investment side, again, we are largely told by this government, you know, that there are going to be large subsidies. We also read there's going to be a new battery giga battery factory in the UK, which has largely been funded by subsidies, which we're not allowed to know the cost of. So, both those things can't be true at once, and me, that's fine. I don’t mind the government spending money on things like that. I just want us to be strategic about the things that we spend money on. So, whatever comes out in the autumn statement, some UK response to the Inflation Reduction Act, let's make sure it's aimed at the right areas. We are not going to compete in every single area in the clean energy transition. But there are a few things from the established renewables that we already do , to things like CCS, where we already have half of Europe's entire CCS capacity, notionally at least, not built, storage capacity. Let's exploit that. But we do need the right fiscal structures to make it work.
Thanks, and it always comes back to this point of backing your winners and backing them early and the UK did that with offshore wind and we had great success. There's no reason why the UK shouldn’t be able to do it with a host of other technologies with our innovation around de-capacity. And it's that clarity that's come across from all of you today, the kind of, the need for pace and the need for clarity for investment that's really kind of sang across from the three of you. There's so much more we could talk about, but it's been a hugely interesting and stimulating discussion. Lots to go away and think about for all of us, I'm sure. So, all that's left is for me to thank Nick, Ana and Adam for your time today and for your comments, and thanks to our listeners.
31 August 2023
News 18 AUGUST 2023