Talking to Lord Jenkin the other day I was reminded of my earliest memory of him as the Minister who had take the political flak over the 1974 miners strike. As the first Minister of Energy he was sent into the lion’s den. That oft quoted mantra that as far as keeping the lights on the buck stops with the Energy Minister was never more resonant for Patrick Jenkin. Clearly I wasn’t the only one with these memories for only a couple of days later Lord Jenkin’s successor Ed Davey was evoking similar memories.
He described how one of his “early memories of childhood in the 1970s is being allowed to light the household candles during one of the power cuts that were much more common then”. The three day week, the oil price rise, cleaning your teeth in the dark and William Woollard and John Noakes explaining how not filling your bath up so much could save the country, such was the zeitgeist of the time. Then came North Sea gas and oil and a period of energy proficiency unseen since the dawn of the industrial revolution. Following that the energy industry was privatised and a new era of cheap gas and electricity was upon us. That is over now and the Secretary of State for Energy and Climate Change for whom the buck stops knows it. “The blackouts that I, as a child, found so exciting had, of course, serious consequences for the country” he said in the same speech this week. He went even further quoting Time magazine of "Britons bundled up in sweaters inside their chill homes and offices scurrying at night through streets in a curiously darkened country".
But this was in the past, he said. Unfortunately the headlines this week painted a different picture. Thanks to effective management by National Grid and resilient and efficient distribution networks the reliability of the system remains well above 99%. Try telling an American that and he will say “I should be so lucky”.
However, complacency is not permissible. We do have a challenge - indeed a term has been created to sum it up – a trilemma. That is the challenge of delivering low carbon secure energy at an affordable cost. But how will this be addressed? It has become abundantly clear that the answer lies within the realm of the energy networks. This will be through a combination of technical solutions and a change in the behaviour of consumers. This week talking to Lord Jenkin at the launch of Smarter Networks Portal, the first of its kind, it illustrated in stark relief the new solutions a smarter network offers to solve the problems that Patrick Jenkin had to grapple with all those years ago. Let us not underestimate its impact - it brought down a government back then.
Mr Davey knows this. He knows that 20% of generation will be going off line in the next decade. He also acknowledged this week that energy is the largest infrastructure programme across government, nearly half the infrastructure investment in the UK, 30% greater than that for transport. As he observed the capital costs will be the equivalent of building 10 more tunnels to France. This will require £110bn of capital investment this decade alone.
To help deliver this he announced that DECC was being “restructured and refocused". The Consumers and Households directorate will deal with energy efficiency, through the Green Deal, through smart meters, through new approaches to heat and industrial use. It will also deal with fuel poverty. The Markets and Infrastructure Directorate will cover renewables, nuclear, and oil and gas, both conventional and unconventional. The International Directorate will focus on international energy development and international climate change action. The science and innovation team will work within this directorate as will nuclear decommissioning, resilience and assurance work. The restructuring of the Department will completed by the Autumn.
It was interesting to note that the Energy Secretary said that whilst the “Electricity Market Reform is ultimately a market-based approach “it does not and cannot exclude the State”. He said “the statist approach has been rejected in the power sector since the 1980s and rightly so”. But the State “has always retained direct interest, particularly when issues such as energy security and decarbonisation cannot be entrusted to the market alone”. “Only the State can structure the market” he said, adding that “only State involvement can leverage the huge capital infrastructure investment in timescale needed” by, of course, “providing the right incentives”. Therefore the announcement this week from the Chief Secretary to the Treasury Danny Alexander highlighted unprecedented funding plans for low carbon generation out to 2020, providing up to £7.6 billion in real terms.
But he did more than that for he also heralded what could be a new North Sea gas extravaganza as the Government announced the findings from the first independent study conducted by the British Geological Survey, of the potential volume of shale gas in the Bowland Basin and beyond, which covers 11 counties in the North of England. Estimates on a central scenario show there is likely to be some 40 trillion cubic metres (1,300 trillion cubic feet) of shale gas in the ground in this area, with only 10% recoverable this could deliver our gas demand for the next 40 years. The industry estimates that it will have to drill 20 to 40 wells over the next 2 years in order to establish the commercial viability of extracting shale gas. At the same time modelling by DECC for the Gas Generation Strategy suggests that up to 26 GW of new gas plant could be required by 2030. Should the Government decide to revise up the fourth carbon budget, which sets limits on greenhouse gas emissions between 2023 and 2027, then as much as 37GW of new power generation capacity could be required.
Is the state the solution? What will really make that difference? Energy policy is about demand and that changes according to usage and economic activity. It is the psychological and the technical. We need to integrate low carbon diverse new generation sources, large and small, remote and close to home. But lowering carbon can also underpin energy security. However it also creates energy security challenges. How we manage the network will need to change to address this. To take account of the increasing electrification of our society will mean doubling the load placed on our electricity networks. The simple way to deal with this is to put more copper into the network infrastructure.
But there is a smarter way and the DECC/Ofgem Low Carbon Networks Fund (LCNF) has helped drive this forward. This £500 million of customer money was designed to allow network operators to think in a different way about their network. At the heart of this was delivering more for less. So far 500 projects are under way across our network companies and they are looking at how we deliver low carbon secure energy but cost effectively. A good example is one project where integrating new wind generation conventionally onto the network would have cost £30 million in new infrastructure. However a solution looking at technology differently delivered a project that cost just £500,000. Therein lies the key to consumer engagement and a change of behaviour.
Smarter networks can save the customer billions. Across the projects being delivered under the LCNF there are savings for the consumer, some of them in multiples of ten. If this was implemented across the networks and in the light of the challenges we face this could see savings of £11 billion over the coming decades. This was confirmed in the report, ‘Assessing the impact of Low Carbon Technologies on Great Britain’s Power Distribution Networks’, commissioned by ENA and published last year.
To achieve this, network operators will work in partnership with the consumer. It is clear that solving the energy and low carbon challenge in a cost effective way will require the active engagement of the consumer. That will only be delivered by both showing clear benefits for them and making it easier for them to engage. As we embark on the greatest energy intervention into people’s homes since the dawn of mass electricity consumption with the smart metering roll-out we need to grasp the opportunity this presents to engage with the consumer. Talking to 34 million homes will be the key to making this behaviour change. This is what we call demand response. It has been recognised as critically important by the Government by including amendments on it in the Energy Bill.
Critically, for networks this means smoothing the peaks of demand by shifting consumption through such active and passive measures. This is essential to ensure the networks function in an affordable and sustainable way that best benefits a cost effective and low carbon energy future. Many new technologies such as heat pumps, plug-in vehicles and distributed generation will each play a role in introducing challenges for the networks. Demand response can help to try and overcome those challenges.
So this is not an abstract concept but a practical way to empower the consumer to help themselves. By managing our network more smartly we save money on copper and other infrastructure but we also provide a technical platform for the public to manage their energy usage more smartly as well. This is not just about consumers monitoring their energy usage and adapting it but using remote technical interventions that seamlessly save the consumer money without affecting their quality of supply and therefore lifestyle. We need to make delivering our low carbon future attractive to the public, doing that will need a smarter grid. That smarter grid will deliver this demand response.
We must not forget the role for gas in this smarter energy world. The prospects for Shale gas alone show us this. The gas pipes in the UK deliver almost three times more energy than the electricity system. Government policy still seems to be that by 2050 gas will no longer be used. That policy will need to change, it maybe already be doing so. That is why the portal and the new RIIO framework is about both gas and electricity network operators.
Already major projects are under way in gas that will deliver great benefits for the customer. Some of this innovation is focused on delivering green gas from waste through anaerobic digestion thus addressing two major challenges at once. It is also about devising new more efficient heating systems. At the same time we are looking at how excess electricity from wind generators can be used to create hydrogen which could then be injected into the network. We need to go with the groove of public opinion and preference and not against it and they want gas to continue to play the key role in heating.
So a smarter network is a tool that combines understanding the consumer with technical solutions. It is about melding technology with behaviour. We also need to remember this is about the energy system as a whole and not just electricity.
Smarter networks are not about big brother and giving up control they are about allowing technology to empower the public and save them money at the same time. The history of scientific progress and the advance of technology in its wake have shown us that the world we live in is shaped by complex networks that far from controlling put us all in control.
Yes we are reliant on others and sometimes we delegate control to technical platforms that in return give us benefits. But then if you think about it we did that the first time we moved away from a nomadic lifestyle and devised the plough.