All change please…

Louise Kingham

Louise Kingham OBE FEI,         Chief Executive, Energy Institute

 

 

 

In the last few months I’ve been involved in various settings – apparently co-incidentally- discussing how the energy industry is set to change and in some cases why it needs to, as well as what those drivers for change might be. For me this obviously directly leads to discussion about how the EI as a professional body and learned society with a unique proposition promoting and advancing energy knowledge, skills and good practice should prepare. The fora for these discussions have been varied – workshops about the role of a 21st century Institute; our own Brexit and Energy debate, listening to a keynote speaker talking about the outcomes of the CMA report, taking part in discussions promoting diversity of thought and better balance in energy companies, engagement in a review of how the engineering community is organised and of course the EI’s own consultation process with members and other key stakeholders about its future strategy. These are conversations I relish because they make you think and challenge the status quo. Some would say I like them too much but I think it’s what keeps you relevant and ready to adapt when it’s right to do so. They also challenge your creativity.

But it’s important to recognise that many fear change – in quite a natural way because it’s a fear of the unknown and a disruption to a comfort they understand. But for the energy industry, I believe there are some real challenges which mean there are opportunities to harness. Whether it’s putting the customer at the heart of the electricity system in a way which is ‘smart’ and makes best use of technology, or whether it’s new lower carbon business models for organisations heavily invested in fossil fuels. And there are many more I could mention. The point I leave you with is that the EI thinks long term, sees the opportunities and is ready to support energy professionals and their organisations on their journey.

P.S. Change can also bring frustration so if you have downloaded the latest apple operating system on your iPhone and iPad and now find your email tricky to work with go to settings, mail and switch off ‘organised by thread’. Members I’ve shared that one with this week have been delighted!

 

The three S approach to uncertainty

Ian Marchant

Ian Marchant FEI, Immediate Past President

Life seems to be getting more and more uncertain. We are being warned about a Brexit rollercoaster and the oil price, at least in percentage terms, seems to be doing a good impersonation of an elevator; up one minute, down the next. All this uncertainty makes decision-making complex , especially when they concern long-life assets.

Against this background I have been thinking about the question of energy independence. Whilst, in my opinion, this isn’t necessarily a good goal at the national or even local level in its own right, I do believe that investing to reduce one’s dependence on and exposure to both the volatility of the global energy markets and the resilience of local energy distribution systems is something to be considered.

This is where, I believe, a combination of three Ss comes in: solar, storage and software. The cost of solar panels has come down enormously over the last ten years or so but the economics still depend upon support mechanisms, partly because of the profile of solar production. That problem will always be with us and that is where storage comes in.  Installing a suitably-sized lithium ion battery in the home or office allows much more of the solar power to be used on-site and this significantly improves the economics of the whole installation. The third leg is energy management software that can optimise on-site demand (which could include decisions on when to recharge a plug in an electric vehicle), to match the availability of locally produced or stored electricity. The same software can also be used to decide when electricity should be exported and when imported from the grid, an increasing source of value as we move to time of day pricing. Finally, the same software can work out when the stored energy can be used to provide support services such as frequency response to the local grid or through aggregation to the national grid. It really is the combination of the three that makes all this work.

Investing in solar, storage and software may not mean complete energy independence but it will certainly reduce exposure to energy uncertainty and will be an increasingly good investment in its own right. We are seeing commercial offerings starting to emerge in this space and I’m sure there will be more to come.

Small is beautiful

Ian Marchant

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.

  1. 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.
  2. 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.
  3. 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’.
  4. 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.

Joining the dots is a big ask…

Louise Kingham, EI Chief Executive

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

 

Renewable energy: an uncomfortable position

Ian Marchant

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.

Facing the future head on

Louise Kingham OBE FEI Chief Executive

Louise Kingham OBE
Chief Executive

Gloom and doom casts a shadow across headlines about the oil and gas industry as economic slowdown and the continuing falls in commodity prices wipes millions off the value of stock markets around the globe. These circumstances are forcing companies to reshape their businesses with the inevitable pain of the impact this has on jobs, productivity, progress in the shorter term and the wider social impact which can be much longer lasting.

Industry cycles are expected – as are the’ ups and downs’ we experience when we’re in them. Clearly it’s important to ride the down times as well as you can but, at the same time, good leadership always has an eye on the future. Making time to think and understand how things will be different going forward and what that means for our organisations and so, being able to reposition to embrace change is essential.

At the same time, worldwide pledges have been made to reduce greenhouse gas emissions as part of the COP21 commitment. This takes engagement from the oil and gas sector and so, while managing the downturn, the industry is also examining  the challenges and opportunities these environmental responsibilities present.

With that in mind, listening to the impressive line-up of leaders gearing up to speak at International Petroleum Week in London in less than two weeks’ time to tell us how they are facing the future head on will be time well spent. Bob Dudley FEI from BP, Patrick Pouyanne from Total, Ayman Asfari FREng FEI from Petrofac and Igor Sechin from Rosneft are among the many taking part in presentations and panel debates between 9-11 February. I’d suggest you can’t afford to miss it.

We don’t want energy storage

Ian Marchant

Ian Marchant FEI, Immediate Past President

Claiming that we don’t want energy storage seems like a provocative thing to say. For example, the Energy Institute (EI)’s 2015 Energy Barometer report, a survey of professionals in the energy industry, rated storage as the area most in need of innovation. My point isn’t that energy storage isn’t important; it is. My point is that, of itself, it’s not something we actually want. You don’t hear people say that what they want for Christmas is just some simple energy storage along with some socks and a chocolate orange!! In thinking about the technicalities of energy storage we should first think about what we actually want and I believe we want two things: RESILIENCE and FLEXIBILITY.

Let me illustrate with the energy storage that most of us are familiar with, even if we don’t recognise it as such; the fuel in the tank of our car. The typical fuel tank holds 50 to 60 litres of fuel that gives us both instant flexibility even on a cold morning (modern cars are so good at starting nowadays) and a couple of weeks worth of resilience assuming average mileage. Indeed, if we knew there was a supply crunch most of us could probably stretch that full tank for a month or so by car sharing, using public transport and the like.

So that unseen energy storage which comes free when you buy a car and only ties up £50 to £60 in fuel gives us a lot of resilience and flexibility in our mobility. The energy system that has evolved over the last hundred years or so has embedded within it quite a lot of hidden resilience and flexibility. As well as our car fuel tanks we have petrol and diesel at filling stations and tank farms, we have piles of coal at our diminishing number of coal-fired powers stations and we have natural gas in the network of pipes, in dedicated storage facilities like Rough and Hornsea and offshore where at some fields production can be ramped up quite quickly.

However, the energy world is changing. We need to decarbonise our electricity system and then the rest of our energy system. This second stage is likely to increase the role of electricity in meeting our heating and transport needs. The problems are that firstly our current electricity system only has embedded in it the resilience and flexibility that the current uses of electricity needs, and secondly what little already exists is in decline principally as old coal stations shut.  This is exacerbated by the fact that  low carbon forms of energy, be they renewables, nuclear or clean fossil fuels, are not currently known for their inherent flexibility or resilience. So we will be faced with less of what we need just when we start needing more. What will happen when our electric car battery needs to be recharged at the same time as our heat pump needs to work and we want all our lights and gadgets to function but it’s a still calm night?

This is the reason why so many energy professionals put energy storage at the top of their innovation agenda. In deciding on where that innovation should be targeted we need to think about what level in the electricity system we can best provide resilience and flexibility. There are four possible levels: the source of demand (our home for example); the local area (think of the transformer at the end of your street); the generator itself; or the grid as a whole. The answer may be a combination of all four levels and, importantly, may be different for resilience than it is for flexibility. It will be determined by things like economies of scale, the efficiency of sharing the capabilities with others (we don’t all need to meet our own maximum flexibility – if we can pool with others then the flexibility needs of the system will be less than the sum of all the individual needs) and the value of providing security close to demand. I have a hunch that the answer may involve local or even domestic level resilience and generator or grid level flexibility but time will tell.

Debate about energy storage tends to get dominated right from the start about technology, be it batteries, phase change material or pumped storage hydro. However, we need to separately assess our current and future needs for resilience and flexibility, then decide at what level in the system that need can be most efficiently met and only then determine the choice of technology. We have to put needs before technology.