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.

The Government’s first 100 days (…or thereabouts)

Professor Jim Skea CBE EI President

Professor Jim Skea CBE
EI President

Well, 125 days on my reckoning but the EI  is only slowly instilling some discipline into its new President.

Looking back at the Energy Barometer, which we published just after the UK General Election, the strongest message from EI Fellows and Members was the call for policy clarity. We’ve had a rapid sequence of announcements on renewables and energy efficiency since May, each of which is clear enough on its own. But taken together, the package has left a deepened sense of uncertainty about where things are going.  As I argued in a piece in the ENDS Report, we need a high-level clarification of what energy policy is trying to achieve. How are the three strands of energy policy – climate, affordability and security – woven together in the Government’s view?

The policy landscape had certainly become unnecessarily cluttered. Geological layers of policies that overlap, interact and contradict have accumulated. A spring cleaning of the policy cupboard is overdue, and some of the recent announcements make eminent sense in terms of good governance. Strictly zero-carbon homes are a mirage if realised through offsite “affordable solutions” that could have been better procured by other means (but don’t throw away the baby with the bathwater by weakening efficiency requirements!). Few will lament the passing of the financial model that underpinned the Green Deal. But there is a sense of confusion as to whether the Government is pursuing “better regulation” or rolling back the low-carbon agenda, the latter conclusion being the one that many may draw. Meanwhile, away from the domestic energy policy scene, the Government remains upbeat about its ambitions for this year’s Paris climate conference.

Perhaps the clearest message since May has been the unambiguous support for shale gas. Unfortunately, central government and local government are not singing from the same hymn-sheet, as Lancashire County Council demonstrated when they rejected Cuadrilla’s planning applications in June. Whatever central government says, this creates uncertainty for investors. And anyone could feel confused by the government’s approach to local energy decision-making – does central government have the last word (shale gas) or do local communities (wind)? Wise investors recognise that sociology as well as geology is an important development criterion. If anyone succeeds in taking forward shale in the UK, it is likely to be the company that chooses development sites in areas with an industrial heritage and businesses that can benefit from lower energy prices.

The pressing need is for the Government to articulate the overall aims and philosophy of its energy policy. And, as Steve Hodgson argues in his most recent Energy World editorial, it’s the ‘sustainable energy agenda’ – renewables and efficiency – that has been buffeted most by recent announcements. In building confidence, my own priority would be the management of the Levy Control Framework which caps subsidies for renewables and energy efficiency. Whether this constraint bites or not is hugely dependent on volatile wholesale energy prices. Clarity about how the government intends to respond to that volatility is top of my list. And a comment on Hinkley Point developments would also be good. “DECC says no fears of Hinkley delays, despite review” was the headline in Engineering and Technology Magazine last November.

The next best thing to knowing something is knowing where to find it ― Samuel Johnson

Louise Kingham OBE FEI EI Chief Executive

Louise Kingham OBE FEI
EI Chief Executive

Why is it that, in this information age we live in, the truth seems ever harder to get to? The facts often seem to either not exist or be buried ever deeper under layers of rhetoric and commentary . My views are probably a little tested after weeks of election campaigning in the UK, but nevertheless I think the point still stands.

So if we still think an evidence base is important – as I and other EI members do –  it’s essential that we step up and provide good quality, clear information that can be trusted. We also need to explain what the information was produced for and how we expect it might be used. This in turn reminds the recipients of the EI’s role as an independent professional society and source of trusted expertise – which is probably not called upon enough.

Two recent contributions from the EI have only just been published – the 2015  Retail Marketing Survey and the second G9 Incident Data Report for safety performance in the offshore wind industry.  Both reports contain a wealth of factual data as well as statistics;  both are designed to offer an evidence base for the state of play in two very different parts of the energy industry – one focusing on the health of a sector, the other on the health of the people within it.

So let me make a suggestion. If you are in need of trusted and useful information think about whether the EI could provide it for you.

The EI Knowledge Service provides a central resource for energy knowledge and information – find out more by visiting knowledge.energyinst.org

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

 

Energy Barometer – the role you can play

Prof. Jim Skea CBE FEI EI President Elect

Prof. Jim Skea CBE FEI
EI President Elect

This month sees the roll-out of the EI’s new Energy Barometer, which aims to ensure that the voice of the energy professional is heard by policy-makers and in the wider energy debate. The Barometer will be drawn from an annual survey among EI members.

Some of you will have already had an email from EI President, Ian Marchant FEI, inviting you to join the EI College which is at the heart of the Energy Barometer initiative. This means you had the good fortune to be randomly selected from among the professional and pre-professional membership to spearhead the Barometer project. If you have received an invitation, please accept at once. The EI Knowledge Team is waiting for your reply.

The team is currently preparing a questionnaire, which will be circulated to College members in early February. This involves researching questions, consulting industry experts and the EI’s Energy Advisory Panel, and fine-tuning the questions with the help of survey experts based at the University of Cardiff.  College members will be given two weeks to complete the questionnaire online, which should take no more than one hour. In March, the EI Knowledge Team will start to draw up a report developing a clear narrative from the conclusions and identify strong or surprising messages. The report will be reinforced with relevant industry statistics and will cross-reference energy policy proposals featuring in the party manifestos for the 2015 General Election. The report will then be published at a suitable time in the weeks following the election, and its findings will be communicated to EI members, government, and the public.

I can’t over-emphasise the importance of EI members’ participation in bringing credibility and prestige to the Barometer report. We are determined to ensure that the report picks up members’ views, 600 in all, right across the EI. In practice, this means that we’ve refined our random selection in two ways: first by making sure that we meet quotas for Fellow (FEI), Member (MEI) and Graduate (GradEI) members to ensure that the perspectives of both seasoned industry experts and future energy leaders are captured; second by ensuring that we get equal contributions from those who have elected to receive Energy World and those who have elected to receive Petroleum Review magazines.

If you have not received an invitation, you have not lost out. The College will have a two-year rolling membership with half the members replaced annually so that we combine an element of continuity with an opportunity for a wide range of EI members to contribute. This year’s invitations will be for a mixture of one-year and two-year memberships – in 2016 a further set of invitations will go out and you may well be on the list.

People who are not College members can also join activity on social media to discuss potential questions and important topics as well as debate the report findings – join in the conversation now @EnergyInstitute #EnergyBarometer to help form the questionnaire.

This is an exciting initiative in what will be a critical year for energy policy. Please join in and make your voice heard.