With the horror of the Russian invasion of Ukraine and its turbo-boosting of already rocketing energy prices, the strategic goals for UK and European energy policy have crystallised: reduce dependence on fossil fuels from Russia, particularly gas, as quickly as is practicable, and reduce carbon emissions in a manner that is attractive for other countries to emulate (i.e. as low cost and quickly as possible, while maintaining security of supply).
The question now is what are the short-term and medium-term steps needed to get you there – and which actions support both objectives (and which are in conflict)? With Boris Johnson committing to an “energy independence” intervention soon, what should he be announcing?
Reduce demand for gas and protect the most vulnerable from rising bills (short-term)
Some people are calling for an immediate halt to the purchase of Russian gas, which currently supplies 40% of European gas supplies (and, although just 3% of UK supplies, it does set the marginal price in Europe, which is what is hurting). In a stark example of how catastrophically unstrategic European energy policy has been, that proportion has actually increased in recent years. Faced with the annexation of Crimea, brutality in Syria and other atrocities – our response has been to shut perfectly sound nuclear power stations and build new pipelines eastward.
But like an inveterate addict, coming off the stuff too quickly could be more dangerous than continuing to inject gas into our pipelines and LNG terminals. As Sir Alan Duncan warned, cold turkey on gas risks significant economic self-harm.
Despite this reality, we need to urgently reduce demand for gas across the economy. Steps to take:
· Listen to Insulate Britain and improve our draughty, damp, mouldy buildings. The UK leads Europe in the leakiness of our homes. Addressing that questionable accolade would help reduce poverty, gas use and emissions. But it must be desirable and easy for households. New in-home digital sensors and smart meters should make it straightforward to prove whether measures are genuinely reducing bills – limiting any lagging cowboys. An overhaul of the inadequate Energy Performance Certificate system would help.
· “Level Up” energy. One of the unwritten success stories of the recent Green Homes Grant fiasco, was that local authorities did a solid job at identifying and delivering large-scale projects to improve the efficiency of the housing stock in their area (this has lots of comparisons to public health, where local authorities’ skills were unhelpfully dismissed in our coronavirus response). Committing to the full £9bn promised in the 2019 manifesto for efficiency and giving local authorities (and perhaps local health teams) a mandate to help the most vulnerable, leakiest houses could help reduce pressure on bills next winter.
· Go for heat pumps. Heat pumps are miraculously efficient (at least three times more efficient than gas boilers per unit of energy) and therefore right now look great value to run. And you can use digital monitoring to make sure they work well for households. The upcoming grant scheme only covers 30,000 homes a year. Doubling or tripling that, or providing 0% financing for household retrofit would make another dent in the UK’s gas demand.
· Make sure domestic boilers are working efficiently. Too often our boilers are not set up efficiently and therefore burning more gas than they should. The most unglamorous but immediately effective two fingers to Putin is to tweak the front of your condensing combi boiler (see this very handy Heating Hub guide). This could save you 6-8% of your gas bill – if prices continue to spike that could be more than £100). A national campaign from industry or the Government is urgent and cheap.
The truth is that even in our most ambitious decarbonisation scenarios we are likely to need a lot of gas. The Climate Change Committee’s central scenario still sees us using around 450TWh in 2035, half what we use today. The question Government will be grappling with is: would you rather produce that gas domestically (both in the North Sea and onshore via shale) and tax it – or would you like to import more and more of it through LNG terminals? But proceed with caution, the Government of 2015 onwards (where I was an adviser) threw everything it could at shale gas and failed. The Ukraine crisis certainly changes the political calculation that led to the shale moratorium…
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More EVs please (short-term)
Some 60% of the oil we use goes into transport. And 90% of vehicles in the UK still use oil-based fuels. Holding firm on the 2030 end to sale of combustion engines (it is likely the market will probably achieve it anyway, such is the extraordinary innovation in EVs) and not wobbling on fuel duty in the upcoming Spring Budget are essential. The key challenge is improving our EV charging infrastructure.
That raises a wider point – planning. It can take close to 10 years for a new, low-cost windfarm to get through planning. About the same for significant electricity network upgrades, limiting our ability to exploit our natural resources. Our EV charging infrastructure is patchy at best. Slashing those lead times through strategic energy planning at a national and local level and slashing some of the fussy rules around heat pumps and insulation would match the seriousness of the crisis we are in.
Get serious about nuclear (medium-term)
The UK, lest we forget the global pioneer of civil nuclear power, last opened a new nuclear power station in 1995. Hinkley Point, currently an enormous building site in Somerset, will eventually provide 7% of the UK’s power demand when it opens later this decade.
But the UK’s multi-decadal dither over nuclear power has left us facing the closure of those early pioneering plants without an adequate replacement pipeline. We have flirted clumsily with the Japanese, the Koreans, the Chinese – now settling for the French.
You cannot be half committed to nuclear. Inside Government, there have been rainforests of Cabinet papers reaffirming the strategic case; trilateral meetings between a rotating cast of prime ministers, chancellors and secretaries of state; and endless agonising over baroque financing trying to avoid the new project being placed on the Government’s balance sheet.
This self-indulgence looks increasingly absurd. The medium-term goal must be nuclear being built without Government subsidy. But in order for that to happen, we need to reduce build and financing costs. The best way to cut build costs is a programmatic approach – you take the learning from your first reactor, move the team from Somerset to Suffolk and strip out costs. This is what we have done with renewables, and what France did with nuclear in the 1970s. South Korea repeated the feat over the past two decades. You need to take on the green NGOs, many of whom will oppose you at every turn.
At the same time, we must speed up progress on innovative technologies, like Small Modular Reactors which could largely be manufactured in factories, cutting costs. SMRs have languished since being a priority in George Osborne’s last spending review in 2015.
This Government now appears to be grasping the nettle on new nuclear, but it will need relentless, high-level political focus to break through bureaucratic inertia if it is to succeed.
Redesign power markets for a renewable future (medium-term)
In pretty much every plausible scenario renewables will be the workhorse of the future power system. The cost reductions seen since the turn of the century are extraordinary. It has already reduced our dependence on coal, that dirtiest of fossil fuels. It is inevitable it will help reduce gas demand over the coming years.
But the wind does not blow all the time, and the sun does not shine. This is a feature, not a bug of our future system. At the moment, we have not made enough progress on matching that increase in renewables with designing a more flexible demand side (or building dispatchable technology like nuclear and carbon capture and storage). The power system is, at times, already starting to creak – this is the next energy crisis. The potential of digital technology and data to transform energy as it has so many other sectors, and create that more flexible system, where EVs and new forms of storage could bolster the system, is a huge opportunity – where the UK could be leading the world. That opportunity is electrifying many of the firms we work with at Energy Systems Catapult, as well as investors. We need to design markets to reflect the new physics of the system to take advantage of that opportunity and to ensure our system remains robust. In the end, physics always wins…
In the absence of reform, we also risk drifting back into a centrally planned energy system, where more and more decisions are made in Whitehall and fewer are made by market innovators taking risks. Some say the twin pressures of Ukraine and net zero mean central planning is now essential. It would be a strange thing for a Conservative government to agree. It all feels a long way from the Lawsonian “Tell Sid” reforms of the 1980s.
Don’t play ball with countries who are not serious about decarbonisation (medium term)
Finally, the Ukraine crisis highlighted the need for a more muscular energy diplomacy. While cutting European dependency on Russian gas, we need to ensure that our efforts to liberalise trade do not punish our own industry and households. Doing the right thing on climate is not enough if the rest of the world is free-riding on fossil fuels. To redress this balance, we should club together with willing allies – the US, Germany and France are currently the most forward-leaning – and get serious about carbon border mechanisms – basically tariffs and non-tariff barriers that stop overseas countries who are failing to curb pollution from undercutting our manufacturers and heavy industry. It would also have the benefit of hitting countries that rely most on fossil fuels, like Russia. It risks undermining the process that just about managed to mention the phrase “fossil fuels” at the recent Glasgow COP summit. But it may be more effective at delivering on our strategic energy goals.
All of this would require political will, daring diplomacy and an honest conversation with voters about the future of energy, its challenges and opportunities. But if not now, when?
Guy Newey is Director of Strategy at Energy Systems Catapult, the clean technology innovation centre. He was previously Energy Adviser to the Secretary of State for Business, Energy and Industrial Strategy, Greg Clark, and Special Adviser to former Energy Secretary Amber Rudd.