There is a really interesting app that we at ENA have come across the other day at the suggestion of Prof Mike Stephenson of the British Geological Survey. It is called the UK Energy Watch App and it takes data from National Grid every five minutes setting out where our electricity generation is coming from. It can become highly addictive.
Apart from being an interesting pastime for those who possess smart phones it also contains within it a powerful policy message. For the pattern of generation is clear. Coal in the UK is still king with gas a powerful crown prince. The trend shows us that as of 20 February out of over 47000 MW nearly 20000 MW are coal, over 14000 MW is CCGT, over 8000 MW nuclear and 2,750 MW wind. The rest made up of mainly hydro, pump storage, and interconnectors. So when Ofgem Chief Executive Alistair Buchanan pointed out the energy challenges this week they should not have been any surprise to UK Energy App followers.
Writing in the Telegraph and at a lecture in Oxford on Tuesday 19 February the energy regulator tossed what will probably be one of his last salvos before his departure from Ofgem in June. He talked about the increasing reliance on gas for generation. Predicting it will reach 60-70% by 2020. He also said he did not believe the shale gas revolution in the US would lead to downward prices within that time frame.
With the phasing out of coal plant thanks to EU legislation agreed in the early part of the last decade we now face a big hole. He said on the Today Programme on Radio 4 that the Government of the time may not have been so keen to sign off this legislation – the Large Combustion Plant Directive had we foreseen the downturn in 2008. Powerful words. But the figures do point to a major challenge. It perhaps was no accident that Mr Buchanan should make his intervention in the week that the sustainability of nuclear funding was in the news. The Energy Bill ploughing its way through the Commons at the moment will implement a framework for Contracts for Difference that will allow the large upfront investment that nuclear requires. Not a subsidy as some have said but nevertheless a challenge.
So what of shale gas? Is Mr Buchanan unnecessarily pessimistic? He believed that the new energy source would be sucked up by a non nuclear Japan and increasing demand from China. Is this right? It is true that European extraction plans are closer to the starting pistol than many would have envisaged. With Poland the most likely European source of big shale deposits as Charles Hendry said recently all eyes are on that country. But ENA spoke to a Polish MEP recently who is a big fan of shale and even he was pessimistic. The problem he said was the regulatory framework slowing everything down and discouraging further exploration investment. So perhaps Mr Buchanan is right. However, the US shale extravaganza continues, even to the extent that some Chinese energy intensive users are moving to the US to set up shop. Could that impact?
There is no doubt that the Government is keen on the future role for gas and they don’t necessarily share the Energy Regulators belief that this will increase bills. Speaking last Friday on BBC’s Any Questions the philosophical Energy Minister John Hayes once again set out his commitment to the future role for gas. He also made clear his concerns about onshore wind and the planning system. Driving a coach and horses through the trilemmna he said “the first priority of Government was energy security”. This was essential for our “well being as well as our economy”. He said the best way of doing that was by having a “mix of kinds of generation.” He said that “continuing with gas to keep the lights on” was “essential”. Central to this was keeping costs down as well as keeping the lights on. He said competition was vital for this. On renewables the Government were “investing enthusiastically in renewable energy”. However, when the issue of the impact of local energy projects was brought up by Ruth Davis from Greenpeace he agreed that “particularly in relation to onshore wind” local communities had had projects “imposed on them”.
So gas generation is here to stay and with Mr Hayes backed up by the Treasury and his political brother in arms George Osborne. This is further underpinned by the approach of the Labour Opposition. Caroline Flint and her politically astute shadow team of Luciana Berger and Tom Greatrex have made voter friendly interventions on the impact of policies on the consumer. This all started with the “bills not bears” narrative that Ms Flint initiated at the beginning of her time as Shadow DECC Secretary. That will not change any time soon either.
Indeed the consumer led agenda has been echoed by the much respected former Energy Minister Charles Hendry. Mr Hendry has always been politically astute and his judgement that without the public on side policy ideas, no matter how laudable, cannot be sustained. Perhaps that comes from the politically sobering experience of losing a Parliamentary seat, picking yourself up and fighting your back to Parliament as he did. Therefore, it was no surprise that Mr Hendry was in the news following the Regulators intervention speaking up for the consumer. In particular he spoke as the champion for the fuel poor in his new capacity as President of National Energy Action. Mr Hendry is a realist and his long immersion in energy issues was shown in his acknowledgement of the need for infrastructure renewal. This had to be paid for but at the lowest cost to consumers. That was the point behind the Energy Bill – something he played a major part in creating. As he said in the pre-privatisation past general taxation played a major part in funding energy infrastructure but now the consumer paid. Although the taxpayer and consumer are to some extent one and the same the impact like a laser beam is far more focused and it is targeted at our political masters.
There is one thing that the UK Energy Watch App does not include the value of demand response measures that increase energy efficiency. Mr Hendry said that this was key and indeed it is. Mr Buchanan had said as much when he focused on the “key solution” to addressing our challenging energy future of “tapping energy demand reduction”. Two independent reports commission by ENA have shown that an integrated smart grid could save between £11-16bn out to 2030. The reports commissioned on behalf of DECC and carried out by Imperial College and EA Technology Ltd looked at how the deployment of smart technologies would save money for consumers. Messrs Hendry and Buchanan are right to highlight the concern of energy security and the role of demand reduction efforts to help that. Our work has clearly shown that delivering technologies to support a smarter network would benefit consumers and save money. This is at the heart of ENA smarter network activity. For without a smarter network there cannot be effective and bold energy efficiency. It can only be delivered by energy demand management ultimately. When talking about a focus on energy efficiency, an integrated smart grid is vital. It would go a long way to reducing the investment needed in infrastructure, supporting the growth of intermittent renewables and improving the use of small scale generation from our homes. Perhaps one day the UK Energy Watch App will include a figure for this. It is essential if we are to meet the challenge Mr Buchanan left us with at the beginning of this week.
The reports can be downloaded here.
Details of the Imperial College report are here.
Details of the EA Technology Ltd report are here.