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.

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 ÂŁ100m every year (that’s 2.5TWh of output at a ÂŁ40 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.

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 ÂŁ50 to ÂŁ60 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.

Restless disposition in energy policy

Ian Marchant

Ian Marchant FEI Immediate Past President

In preparing for a conference on energy policy, I came across this quote from Walter Bagehot – ‘If you keep altering your house, it is a sign either that you have a bad house, or that you have an excessively restless disposition – there is something wrong somewhere’. As a constitutional expert, he was talking about the problems of Government in the 1800s but his comment is so true today.

It was the phrase ‘restless disposition’ that caught my eye, as it is theme that Professor Anthony King uses in his book, Who governs Britain, to describe one of the problems with 21st century politics.  All new ministers want to make an impact; want to be seen to be doing things; want to make announcements that attract headlines. They are always in a hurry.

Energy policy has been a notable victim of this syndrome. This century we have already had nine ministers with cabinet responsibility for energy (counting both DECC and the various forerunners to the Department for Business). It’s even worse at Minister of State level where we are on number 14.  All this change means that the new minister, who arrives with a restless disposition, is also in a tearing hurry as they only have one to two years to make their impact; less time than it takes to build any assets in the energy industry. This timescale precludes thoughtful consideration, proper consultation and assessment of the impact of any change on the whole energy system before action, and completely rules out any learning from the results of previous activity.

The civil service used to act as the brakeman to the ministerial bobsleigh but senior officials change almost as often as ministers and rarely build up expertise in one policy area, seeming to need to switch departments to get promotion. It is no wonder that we have such a patchwork of interventions and plethora of changes and amendments and no wonder that we do not have a joined up, robust energy policy. We are getting what the politicos system is designed to produce – ‘something wrong’ to quote Bagehot.

And EI members agree with me. The EI’s inaugural Energy Barometer  survey reports that EI members see policy continuity as an essential component to reduce investment risk and encourage a longer-term view.  In fact, EI members deem it to be one of the biggest challenges facing the energy industry in 2015. The complexities of the energy system require clearly communicated policies that are consistent over time and with each other.

If we are to have a thought through, robust and enduring energy policy we need a fundamental change to the governance and political arrangements that determine this policy. The stability, longevity and independence of the Governor of the Bank of England is the sort of role we need. And no; I am definitely not interested in doing that job!

 

Past, present and future

Ian Marchant

Ian Marchant FEI, President

All good things must come to an end and I am now handing over the Presidency of the Energy Institute (EI) having served two years. It has been a joy and a privilege to have the role and I hope I have been a good steward of our organisation. In reflecting on the two years, my thoughts are about the past, present and future.

We have just finished celebrating our one hundredth anniversary and that included a cake in the Palace of Westminster, a video from the Prince of Wales and numerous dinners and events up and down the country. It is good occasionally to look back and celebrate the achievements of the past, however that phase of EI’s life is over, probably for another 25 years. We have also launched the Energy Matrix, which makes available the accumulated knowledge of over 90,000 records and wisdom of our industry, in a modern digital form.

But enough of the past. We are all members of today’s energy industry and the EI continues to address today’s issues. During the last twelve months or so we have hosted the inaugural Energy Systems conference and our annual IP Week conference, which this year generated a lot of media interest, as well as another 90 events. A new addition to the EI calendar has been the autumn President’s event. In 2013, I hosted a debate and then in 2014 I gave a lecture which, as it was held in a function room at the Hard Rock Cafe, was full of song title puns. We have got involved in new initiatives such as POWERful Women and ESOS, and the first publication under the Energy Essentials banner has been issued. Our technical programme continues to go from strength to strength with the issue of 41 technical guidance documents, the publication of the first G9 offshore wind annual incident data report and further growth in the content of and access to The Journal of the Energy Institute. We have continued to drive up standards and build competencies for the future with the accreditation of 68 energy-related courses in 21 institutions throughout the world.

And talking of the future, as I hand over the reins to the very capable hands of Professor Jim Skea CBE FRSA FEI, I would highlight three foundation stones that have been laid recently. Firstly, we have started the refurbishment of our building to make it fit for the 21st century and to provide better member services. Secondly we have undertaken and launched our first Energy Barometer, which uses the knowledge and experience of our membership to gauge the state of the energy world and to inform policymakers and commentators. Thirdly, we introduced a new EI award category, the Young Energy Professional of the Year, to complement the work of our growing Young Professional Networks.

I believe that the group who met under the leadership of Sir Boverton Redwood a hundred years ago would be proud of what their creation continues to do and in its plans for the future.

A nice problem to have with awards

Ian Marchant

Ian Marchant FEI, President

I have never been a big fan of awards, probably because I never win any! However, last year I was one of the judges for the Energy Institute’s annual awards and this sort of changed my view. I had two, apparently conflicting, emotions. Firstly, I was really impressed with the calibre of many of the nominees and was struck by the obvious evidence of professionalism and achievement. However, the second emotion was that in a few of the categories I was disappointed with the depth of the field as I know from the various roles I have around the energy industry that there is a lot of really great stuff happening and lots of really talented and committed people.

I would single out two particular awards where I would have liked to see a lot more nominees. Firstly there is what is now called the ‘Energy Champion‘ award which is for an individual who has made a significant contribution to our industry. I suspect that one reason for a small field is that people don’t feel they should nominate themselves. I totally agree with this so why not nominate a colleague or contact who has gone above and beyond the call of duty. They could be your energy hero or they could be a rising star, it doesn’t matter; what matters is the impact they have had.

The second award where I would like to see a deluge of nominees is for safety. This is a topic close to my heart and I know that, for most companies in our sector, it is the number one priority or core value. Lots of good stuff is happening, every day, to improve processes, change behaviour and reduce risks. Let’s celebrate this and use the awards to showcase what can be done to inspire others to raise their game too.

So my plea is that we make the job of this year’s judging panel much more difficult by swamping them with loads of examples of the good things that are happening in our industry. This would be a nice problem to have.

The EI Awards are free to enter and the deadline for submissions is 29 June 2015.
For more information, please visit www.energyinst.org/ei-awards