Small is beautiful

Ian Marchant FEI Immediate Past President

The book Small is Beautiful by economist E F Schumacher was originally published at the time of the 1973 oil crisis. To quote Wikipedia “It is often used to champion small, appropriate technologies that are believed to empower people more, in contrast with phrases such as bigger is better”.
I think these words could usefully be applied to the challenges facing the energy industry today when we are facing different challenges that may, with the benefit of hindsight, look like an energy crisis.

The last hundred and fifty or so years have seen the energy industry fixated with bigger is better. It has been about the larger power stations, heavier and deeper offshore platforms and bigger companies. I think this is, however, yesterday’s trend. The future is smaller, more distributed and local. Here are four illustrations.

More and more homes, schools and offices are fitting small solar systems and now this is frequently being combined with local storage. You can now install lithium ion batteries that are smaller than conventional gas boilers which means that all of your solar produced power can be consumed on-site. These are small, personal decisions which are democratising and disrupting the big centralised electricity system.
The rise of unconventional oil and gas has transformed the economics of the fossil fuel industry. Regardless of the controversy around fracking, one thing is clear. These wells are quicker and faster to develop than the pieces of giant industrial architecture that dominated the industry until recently and this is changing the nature of the commodity cycle and the politics of the energy industry.
Even the nuclear industry is being affected. If the 1600MW Hinkley Point C ever gets built, I suspect it will mark the final death throes of the bigger is better mentality. The focus is now on so-called small modular nuclear reactors which may be a fifth to a quarter of the size of Hinkley and stand a sporting chance of being connected with words not normally associated with nuclear power; ‘on time and on budget’.
The market share of the big energy suppliers has been in steep decline recently and we have seen the emergence of a range of smaller competitors with different business models as well as the growth of collective and mutual owned energy suppliers. I suspect that this trend is going to be a consistent feature of the market.

The challenge for the energy industry will be how it copes with the disruption that is bound to occur as we move from a bigger is better world to one where small is beautiful and diversity of scale is a strength.

Diversity and convergence: the 2016 Energy Barometer

Professor Jim Skea CBE
EI President

Energy professionals are a pretty diverse lot: engineers, managers, planners, finance people, lawyers and others. Lots of different perspectives but some remarkably convergent views have emerged from the 2016 Energy Barometer survey of 438 members of the Energy Institute. And the points on which they agree could be seen as some of the most contentious.

On Brexit, an overwhelming majority of contributors foresee negative effects on the UK energy system, especially in relation to securing energy supplies, renewable energy development, climate change and sustainability, and air quality. On the biggest challenges facing the energy sector, lack of continuity in energy policy, closely linked to investment obstacles, came out easily as the number one concern.

Scepticism that politicians’ appetite for ambitious climate targets is matched by their capacity and/or willingness to deliver marks a third area of striking consensus. More than 70% believed the world would warm by more than 2°C, regardless of the even more ambitious Paris agreement. And more than half thought the UK would fall “significantly” short of its own 80% emissions reduction target by 2050. Closer to the present day, there was also scepticism about the UK’s ability to meet its 3^rd, 4^th and 5^th carbon budgets. However, my personal view (and I was one of the randomly selected Barometer participants) is that the UK will easily meet the 3^rd carbon budget through Alice in Wonderland net carbon accounting and interactions with the EU Emissions Trading Scheme (should we remain part of it).

A final area of consensus, and one close to the Energy Institute, lies in the perceived shortage of skilled workers across all parts of the energy sector except North Sea oil and gas and fossil fuel electricity generation. Nuclear is seen as having the greatest shortage in skilled workers, both today and in five years’ time.

It is not all consensus of course and, if there were, the value of the Barometer would be diminished. For example, there is a range of views about prospects for gas and electricity prices, with more of a balance between those who thought prices would rise, those who thought prices would fall and those who thought they would stay roughly the same. But there is a tendency for more respondents to foresee electricity rather than gas prices rising as a result of investment needs for infrastructure and low carbon supply.

So what have we learned as an institute from conducting the survey? First, our members are enthusiastic and ready to contribute their expertise to the public debate. Second, that government and other stakeholders are ready to listen. We are launching this year’s report as part of the Energy Systems conference, organised with our partners at Elsevier. The 2016 Energy Barometer project, led by Dr Joanne Wade FEI, Chair of the Energy Advisory Panel, looks like a big success that builds on the 2015 launch of the Barometer. Who know what will happen in the next year (or even on the next 10 days)? But the world will listen if Energy Institute members voice their views again in 2017.

Joining the dots is a big ask…

Louise Kingham, Chief Executive, Energy Institute

But it is not an impossible one in my view. Those of us that spend time working on it know only too well that energy policy is complicated. A book I have just finished reading illustrates it from the perspective of a former Secretary of State for Energy, which in itself was illuminating (for someone like me who has not worked in politics or the machinery of Government). But it wasn’t that that caused me to turn the pages, it was his central message that caught my attention because it’s something I have also been thinking about.

How do we get beyond the politics and other influences around ‘energy decisions’ so that we can actively evolve a system where traditional and new forms of energy sit alongside each other acceptably – increasing capacity and reinforcing the security of the system – which is not for a lack of fuel sources and, at the same time, drive energy efficiency, reduce energy intensity and carbon emissions in a connected and planned way? How do we do this rather than pitch options against each other when in reality all that does is make the macro outcomes – security of supply, emissions reduction and affordability – all the more difficult to achieve. Indeed some would go further and say energy decisions thus far have put us back, not moved us forward – a view shared by the author of the book I refer to.

If the answer were simple and didn’t require great bravery, as well as ingenuity, then we would already be there. But, in the meantime, the EI has a responsibility to raise the debate and try to move the conversation forward. I hope a couple of forthcoming events and the publication of the EI’s second Energy Barometer report will help to do that. Firstly, our partnership with Elsevier brings you the Energy Systems conference on 14-15 June at the QEII Centre in London. At breakfast on the 15 June we will launch the second Energy Barometer report at the same venue and, later in the month, on 28 June in London, Sir David King HonFEI will receive the EI’s Melchett Award and give a lecture about the energy transition as he sees it. I’d commend all these events to you and encourage your participation to help move the conversation forward. I am also considering other events later in the year that we can host to debate specific aspects of our evolving energy system so if you have ideas to share with me on that then please feel free to get in touch – lkingham@energyinst.org

Standing out from the crowd

Louise Kingham

Sadly another bright light in the energy world went out recently with the passing of Professor Sir David MacKay, physicist, mathematician, Cambridge professor and former DECC chief scientist. As a recipient of the EI’s Melchett Award, one of its most prestigious, I had the pleasure of spending a little time with David then and was touched as many have been reading his most recent blog posts written from his hospital bed, where still he promoted energy efficiency and sustainability in his rational and pragmatic way. Many will also have read his books, most notably Sustainable Energy: Without the Hot Air which he made freely available – my copy is well thumbed. A modest, gentle humoured and very clever man in business company, he was not the obvious candidate to shout from the rooftops but his commitment and passion for getting on with sustainable energy transformation made him stand out and for that I hope he is long remembered.

Making people stand out for their achievements in the quest for energy excellence is simply the right thing to do. Celebrating success, recognising the talented and diverse brains that rise to our energy challenge and showcasing the dynamic, innovative and exciting world of energy we serve is essential. How else can we improve the energy literacy of our stakeholders and attract talented people who can innovate to solve one of the world’s greatest challenges? It’s simply right to recognise the good we do.

So my plea, in David’s memory, is step up to be recognised for the part you and your team is playing and be recognised for the excellent work you do. We must lead so others can follow. Our Awards competition celebrates the best in the industry, and we hope to count you among the winners.

We need a new energy trilemma

Ian Marchant FEI Immediate Past President

The biggest energy policy issue facing us is not the so called energy trilemma but the various perspectives and drivers of the demand and supply of energy. The demand side involves decisions by millions of different people and businesses all over the country, whereas there are probably only a hundred or so companies involved in the supply side. The scale of decision is also different, ranging from hundreds of pounds to hundreds of millions. Just consider your personal decision about whether to replace your gas boiler and your corporate decision whether to replace your gas-fired power station.

For all these reasons and, because supply side energy assets are interesting and give good photo opportunities, it dominates the policy agenda. The supply side is like a black hole which sucks all the life from the energy policy debate into it. The three issues of affordability, security of supply and sustainability are a useful framework for a policy discussion, but it’s invariably a supply side discussion with occasional lip service to the demand side. Electricity policy debates quickly descend into who should build what power station, using what technology, where and when.

The supply side trilemma is important. But it is only half the story. We need a demand side trilemma. In conjunction with the Centre for Energy Policy at Strathclyde University, here are some suggestions. I ask you to weigh them up and think what yours would be.

1. Flexibility
2. Meetings of needs
3. Affordability

I think that policy on energy demand needs to balance these three forces and policymakers have to give equal emphasis to the two trilemmas. Let me explain a bit more what I mean about each force.

Flexibility
Firstly, flexibility. Our current energy system is actually remarkably flexible but in an oddly constrained way. When we flick the switch, the light comes on; when we turn up the thermostat, the boiler fires up; and when we get in the car it starts, usually. But the constraint is economic in that the cost of providing that flexibility varies enormously over the day and the year – but we are completely unaware of that variable cost. For example, the variable cost of producing electricity can range from effectively zero to hundreds of pounds per MWh, but our tariff is fixed regardless. However, as users we still want flexibility and in fact we want more. We want to be able to control our central heating and lights from wherever we are. As businesses and consumers, we increasingly want to be able to match our own generation with our own demand. So as a consumer, I want more flexibility and more control.

However, it isn’t that simple. The electricity industry also wants to increase flexibility and control but for its own purposes. There are two. The network operators want to use flexibility and control to manage their networks more efficiently and to avoid expensive, asset-heavy reinforcement. Imagine if every car on the street was a plug-in hybrid and they all plugged in at the same time. The local substation fuses would all blow and the street would be plunged into darkness until an engineer arrived to fix the fuses and switch the circuits back on, when they would all blow again. This is why network operators are exploring what they call smart grids. They want to know what’s happening on a real-time basis and try to create flexibility in demand. But their needs might be different from those of the other part of the electricity industry: the supply side.

In both its generation and retail forms, the supply side wants to make sure that demand knows the economic cost of the choices it makes, which means much more flexible pricing than we are used to. The industry jargon is “time of day” pricing, but what that really means is that you will pay a variable amount for your energy depending on its cost of production. This bit of the industry wants you to run your dishwasher when it’s windy, charge your car when it’s sunny and sit in the dark when it’s a still, clear night. The better the price signals, the more efficient the despatch of generation and the lower the overall cost.

From this brief description you can see how these three demands for flexibility and control can pull in different directions. The network wants you to delay charging your electric car, the generator wants you to charge it now and you want to know how much the different choices will cost and then make your own decision. Demand side policy has to address this flexibility trilemma but there are two other factors.

Meeting of needs
I don’t know about you, but I don’t actually want a kWh of electricity or a therm of gas and can’t actually visualise what they are. What I want is my phone charged, my lights on, my house warm and my shower hot. The trouble is that I don’t directly pay for these things or know how much they cost; I just get an estimated bill covering a few months. Smart metering will clearly help but I still won’t know what I’m spending money on, just when I’m spending it. Because we don’t know what is happening we overcompensate by using more energy that we need to make 100% sure that our needs are met. The setting of central heating time clocks is the best example here. I wonder what percentage of time your heating will be on this month when no one is at home? Demand side policy needs to put actual needs in the foreground, not just consumption.

Affordability
The third leg of the demand side trilemma is the same as for supply: affordability, but this time with a difference. The supply side addresses the unit cost of energy but the demand side looks at unit consumption. One times the other gives you your bill. This is often referred to as energy efficiency and that is a key part of making energy affordable but we mustn’t simply be wasting energy more efficiently. It’s no good if my car has a good fuel efficiency if I drive it when I should be using video conferencing.

In looking at the affordability of energy, it will be increasingly important to look at the three bills: power, heat and fuel in aggregate. If I switch to an electric car, then my power bill goes up but that doesn’t mean I’m more likely to be in fuel poverty as I’m saving even more at the petrol pump. For most people, the cost of filling their car each year is about the same as their annual power and gas bill combined, so let’s start looking at all three together.

Conclusion
The two energy trilemmas need to sit alongside each other in the policy debate and be given equal weight. We also need to recognise that the two sides of the energy industry are fully interconnected and when a lever is pulled on one side it has consequences on the other. Policymakers, and those who seek to influence them, need to be aware of this full picture as an over aggressive focus on one trilemma or a point on a trilemma will only be counterproductive and potentially damaging. The biggest shift we need is to remember the demand side. On the supply side, policymakers and indeed engineers often like big “binary solutions” like nuclear/carbon capture etc and this “centralised supply side thinking” needs to change. We have seen the democratisation of intelligence in the computer industry from large mainframes through to PCs and smartphones. The same needs to happen in energy and I believe that a new demand trilemma of flexibility, meeting of needs and affordability should help to achieve that refocus.

Renewable energy: an uncomfortable position

Ian Marchant FEI, Immediate Past President

I have been looking at how the UK is doing against its EU renewable energy targets. These set us a target of having 15% of all energy from renewable sources by 2020. The government would have us believe that all is well. It’s most recent report (published in January) took great delight in saying that we comfortably met the interim target up to 2013/14. But is that really the right measure? Interim targets are just that: interim, and it’s always tempting for them to be made easy to push trouble down the road to someone else’s term of office. So let’s look at where we actually are in terms of our final target, against the rest of Europe and against long-term requirements. As you might expect, this gives a far from rosy picture.

Firstly, let’s look at how we have done. The baseline for the new targets was 2004 and in that year we achieved a pathetic 1.2% of energy from renewables. After ten years and by 2014 it was 7%. Some simple maths puts this into context. We needed an increase of 13.8% in 16 years and we have managed 5.8% in ten years. In over 60% of the time, we have managed 42% of the target. If we carry on at the same rate, we will only hit 10.5% from renewables. In fact, according to leaked internal government correspondence, they privately think we may only get to 11.5%. I have seen some analysis looking sector by sector and technology by technology which gives a range of 10% to 11.5%. That doesn’t look at all comfortable.

Secondly, let’s see if the international picture gives any comfort. The EU actually has an overall renewable energy target of 20% and has agreed country by country targets within this, with the UK having a lower than average figure of 15%. The EU have recently published a progress report and nine countries have already achieved their final target (no interim target nonsense for them) and we are third furthest away from the end goal (only France and the Netherlands are further away). Despite the government’s trumpeting, our 7% only ranks us 24th out of 27. Outside of Europe we are behind most other countries including Canada, Mexico, Switzerland and even the US. We are level with Australia and ahead of Japan and Russia. Being near the bottom of international league tables doesn’t feel comfortable.

Thirdly, let’s think about where we are against the long term. I hear DECC ministers talking gleefully about the deal they secured in Paris. Leaving aside the UK’s role in securing anything, by 2020 we will be one third of the way from 2004 to the 2050 deadline by which time the global leaders expect the energy industry to be largely carbon free. I can’t see how that can be achieved without renewables contributing over 50% to the energy mix and, at the current rate of progress, even if it is maintained for another 34 years, that suggests we will only get to around a quarter. So the long term doesn’t provide much comfort either.

All three perspectives feel uncomfortable and whilst progress in 2015 may be quite good, this was before the current government’s attacks on onshore wind and solar. One final bit of analysis – it is possible to turn the UK’s likely shortfall into the electricity output measures of TWhours. On this basis, the shortfall will be between 50 and 70TWh (to provide context, the UK annual electricity demand is usually just over 300TWh ). There are obviously choices as to how the gap could be filled but the UK government has ruled out using more onshore wind and solar and expects to boost heat and offshore wind. Given the UK’s track record on heat (in 2014 we were bottom of the heat pile in Europe), I’m not optimistic and offshore wind, although it’s getting cheaper, will always be more expensive than onshore. I’ve calculated that for every 1GW of onshore wind that isn’t built but is replaced by offshore wind, it will cost the UK £100m every year (that’s 2.5TWh of output at a £40 per MWh cost differential). There’s probably another 6 to 10GW that could be built so the total cost could get to as high as a billion a year.

So we aren’t in a comfortable position at all, however you look at it, and we seem to be making things more expensive and difficult than they need to be. A classic case of not accepting the short term headlines.

Pressing home the message

Professor Jim Skea CBE
EI President

By now, many of the EI’s members will have received an invitation to join the EI College and help the Energy Institute project the views of its professional members to Government and beyond through its annual Energy Barometer report. Please do not ignore this invitation. This is probably one of the most effective ways that an EI member can participate in the public debate about energy, influence policy and help shape messages for society at large.

This year’s Energy Barometer survey, to which all College members are invited to contribute, comes at crucial time – just eight months after the General Election and two months after the Secretary of State for Energy and Climate Change’s much anticipated “reset” speech. Last year, College members told us that policy continuity was essential for reducing investment risk, promoting the better use of existing technology and increasing innovation. They also told us that investment risk had risen over the previous 12 months in almost all parts of the energy system. Read the Energy Barometer 2015 report.

What will you tell us and policymakers this year? It has certainly been a roller-coaster ride in the UK over the last few months, with major policy changes on renewables, energy efficiency and carbon capture and storage. Oil prices have fallen below $30/barrel with potential implications for investment in fossil and non-fossil energy alike. On the other hand, climate negotiators surprised the world (and perhaps themselves) by reaching an ambitious agreement at COP21 in Paris at the beginning of December, aiming to hold global temperature increases to well below 2 °C. Now every one of the 195 countries that have signed up is faced with the task of turning ambitious emission pledges into reality on the ground.

At no point in the last 25 years have the professional insights and skills of energy industry professionals been of more importance in helping the world to face up to both a longer term transition and shorter-term volatility.

Energy is a strategic business and the industry needs to work hand-in-hand with governments to deliver secure, affordable supplies of energy to consumers in a sustainable way. This requires trust and continuing dialogue between all parties. The EI College and the Energy Barometer are a crucial part of that dialogue. Government will listen when members of the professional body for the energy industry speak. The fact that the EI covers all parts of the energy sector – renewable and non-renewable, supply-side and demand-side, engineering as well as other professions such as law and finance – gives added weight. By taking an active part and responding to the Energy Barometer survey, EI members will help to ensure that government, society and the industry itself can make their plans based on the best professional advice. If you have received an invitation to participate, do please accept.

Invitations to join the EI College have been issued by email and the deadline for response was 15 January. The EI Energy Barometer survey will be circulated to participants online w/c 25 January 2016. If you are interested in contributing to this year’s research but haven’t yet responded, you can still RSVP through the email invitation you received up until the end of January.

Shaping the energy policy conversation

Dr Joanne Wade

The EI’s Energy Barometer 2015 was an undoubted success. A high proportion (63%) of EI members in our College responded to the survey. Their comments provided us with strong, unified messages about policy continuity, investor confidence and innovation support, skills needed for the future, and the need to improve the way we communicate energy matters and engage with the public.

The Barometer was well received by the EI membership: the opportunity to participate was welcomed and the final report was impressive. There was great coverage of its key messages in the trade press, and policymakers also gave the report a positive reception. The EI now has regular meetings with DECC officials and advisors, including invitations for them to feed in to question development for future Barometer surveys. But this is just the beginning – we must build on this excellent start in 2016.

We want greater participation from EI members and will be expanding the College, inviting an additional 2,000 FEI, MEI and GradEIs to join. We also have plans to engage more frequently with College members throughout the year, seeking their contribution to potential mini-surveys, deep-dive interviews and policy consultations. We are aiming for continued involvement from policymakers, asking them to tell us what they want to know from the report as we cover new topics, including the outcomes from COP21, and with an eye to future policy events such as the EU referendum.

2016 will be just one important step on the road to developing the EI’s Energy Barometer into a powerful tool. We will develop a picture of key trends on issues such as prices, drawn from repeated questions in successive surveys. And, as the EI works to anticipate major policy events, the Barometer will provide the information we need to respond rapidly to energy stories in the news and be a relevant and reliable source of timely information for Government and the media.

The success of the Energy Barometer lies with the EI’s members. Their collective knowledge, diverse opinions, and first-hand insight are the real value inherent in the project. All members are welcome to contribute to the development of future Barometer surveys: send us your ideas for questions now. College tenure runs for two years, enabling all members to actively participate on a rolling basis. If you are invited this year, please give us the benefit of your insight: accept the invitation and then, when the time comes, respond to the survey so that your views help to shape the energy policy conversation.

Dr Joanne Wade FEI chairs the EI’s Energy Advisory Panel.

Behind the scenes at COP21

Professor Jim Skea CBE
EI President

You’d think that being at COP21 would allow you to have your finger on the pulse and provide deep insight into what’s going on. That, I think, is why I’ve been encouraged to blog on COP21.

I’m here exactly half way through, having been here for five days. There’s certainly the buzz, but an intelligent look at the media and UNFCCC websites would probably tell you just about all that there is to know.
I’m one of 40,000 people who have established a small temporary town at the Le Bourget site on the edge of Paris. The ‘blue zone’, accessible to people like me who have got an observer pass, consists of six giant aircraft hangar size halls – two hold country ‘pavilions’ where an endless stream of side events (workshops, discussions) is taking place, one contains meeting rooms and exhibits for observers, one for the media, one with meeting rooms for delegations and one containing offices for UN bodies and the French Presidency plus the all-important plenary negotiating rooms. It took me 24 hours just to figure out the geography.

That being said, the buzz here is actually very good, although there are still major issues to be addressed. The ADP (Ad Hoc Working Group on the Durban Platform for Enhanced Action) has produced a text to kick off the second week’s negotiations. The second week is the high-level segment where ministers turn up to drive things along. Amber Rudd, the UK’s Secretary of State, arrived at the weekend and will be here throughout the week.

A key issue for many Energy Institute members will be the implications for business. The big players are all here and are taking the outcome seriously. I was in a meeting earlier today with one of the Europe-based oil companies which is devoting a lot of senior time to the event. ExxonMobil has announced that it ‘strongly supports effort toward a successful outcome’ and that ‘putting a price on greenhouse gas emissions is the best option to meet Paris climate goals’.

Some companies have boldly gone further: the ‘B-team’ group of companies – including Virgin and Unilever – have been calling for zero emissions by 2050 and some have backed calls for a 1.5 degrees global warming target, never mind the 2 degrees already agreed under the Convention. At the time of writing, there is a proposal that IPCC should produce a special report on 1.5 degrees. As one of the new IPCC Working Group co-chairs this affects me.

Finally, it’s great place for celebrity-spotting. Yesterday I was at an event on the Arctic addressed by Ban Ki-Moon, Segolene Royal and the Norwegian Prime Minister (plus four Norwegian teenagers who’d skied to the North Pole). Al Gore has been prowling the halls and came to give IPCC a pep talk at our first meeting. And Leonardo de Caprio has been adding his voice. If Arctic sea ice melts what would have sunk the Titanic?

On 15 December, Professor Skea will speak at an EI event in London entitled ‘UN Climate Change Conference COP21: where next for energy policy?’. Visit the EI website for more details.

Gearing up for the EI’s 2016 Energy Barometer

Louise Kingham OBE
Chief Executive

Although we only published the first Energy Barometer this year, it has already become a widely recognised and understood report by those that help to shape the energy world we, as energy professionals, work to sustain and develop.

From its launch in the Palace of Westminster to the desks of CEOs, to the offices of Ministers and senior civil servants to the national, local and trade media, the Barometer has travelled far and wide, encouraging debate and development of the discussion around knowledge transfer, innovation in energy developments, investment in energy technologies and engagement with customers. The EI has also begun work to address solutions to some of the challenges members raised.

Now it is time to develop the 2016 report. In 2015 we invited some members to form a College. We will soon be sending out invitations to some existing College members and, as we promised, extending membership of the College to new participants to balance continuity with the opportunity for wider participation among the Fellowship and Graduate members in particular. We hope you will want to contribute to this important work.

Officials within the Department of Energy and Climate Change (DECC) are also getting involved this time around to enhance the direct effectiveness of the useful resource that the Barometer has already become. The Barometer is an essential conduit for the energy professionals’ evidence to be heard – I hope you will add your voice to it.

Energy Institute blog

Creating a better energy future

department of energy and climate change

Small is beautiful

Diversity and convergence: the 2016 Energy Barometer

Joining the dots is a big ask…

Standing out from the crowd

We need a new energy trilemma

Renewable energy: an uncomfortable position

Pressing home the message

Shaping the energy policy conversation

Behind the scenes at COP21

Gearing up for the EI’s 2016 Energy Barometer

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