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UK Industrial Strategy – the energy dimension

By Dave Elliott

The government’s new long-term Industrial Strategy’ green paper is about growth, exports, competition and the development of new technology, to be achieved by upgrading skills and infrastructure, improving supply chains and increasing investment in research and innovation – with £4.7 bn by 2020-21 in R&D funding. The new Industrial Strategy Challenge Fund could support smart and clean energy technologies, such as storage and demand-response grid technologies. Nuclear also gets a mention – SMRs and even fusion. That’s along with robotics/artificial intelligence, biotech, digital technologies and 5G mobile networks and the like.

In the energy sector, it wants to ‘deliver affordable energy and clean growth’. The aim seems to be for the UK to lead in the global race to dominate clean technology markets, getting costs down, and supporting a transition to a low-carbon, resource-efficient economy: The Government will set out a long-term roadmap in 2017 to minimize business energy costs. This will be informed by a review, commissioned by the Government, of the opportunities to reduce the cost of achieving our decarbonisation goals in the power and industrial sectors. The review will cover how best to support greater energy efficiency, the scope to use existing instruments to support further reductions in the cost of offshore wind once current commitments have been delivered, and how Government can best work with the regulator Ofgem to ensure markets and networks operate as efficiently as possible in a low-carbon system.’

It goes on ‘We will also review the opportunities for growth from the energy sector and the opportunities for the UK. We are already testing the use of new grid technologies in various locations around the country in preparation for the shift to electric vehicles. To ensure that new energy technologies are developed here – and the UK benefits from global investment in this area – we have doubled support for energy innovation, and are already investing over £600m in support to accelerate the transition to ultra low emission vehicles. At the Autumn Statement 2016 additional funding of £270m was announced’.

That all sounds fine in theory, and it got a quite good press, with The Telegraph focusing on the cost-saving aim: ‘Households will see cheaper energy bills under Government plans to slash green subsidies for projects such as wind and solar farms amid concerns that they are too expensive’. The BEIS had said that ‘Subsidies and other forms of state support have played an important role in creating markets for new technologies and driving down their costs. But it is important that we move steadily to an operating model in which competitive markets deliver the energy on which our country depends.’

However, there were inevitable concerns that, in reality, the cuts in support for some renewables belied the positive message:  on shore wind and PV solar were not mentioned – presumably they are now meant to sink or swim in the marketplace. As the green paper says ‘While there is a clear role for the Government in energy policy, markets also are crucial in inventing and spreading new techniques for saving energy, new and more efficient means of energy generation and storage, and new ways to enhance clean technologies. It is the private sector that will ultimately be the driving force behind our low carbon economy’.

As for other energy technologies, and the ‘smart power’ ideas especially, what really matters is the detail. Some of that may be provided by a new Ofgem report on the practical steps that need to be taken, including to remove barriers to storage and Demand-Side Response (DSR) and improve price signals so these technologies can be used fully. Certainly new technologies can enable electricity networks to operate more efficiently, reducing demand and the need for costly back-up power, and complementing the integration of renewable energy into the system – including home and grid level battery storage and DSR. But, as PRASEG (the All-Party Parliamentary Group for Renewable and Sustainable Energy) has pointed out, to be able to see the benefits of these new technologies, there needs to be a fundamental shift in the way our energy system is managed. In particular, the role of District Network Operators (DNOs) is changing in response to the rise in decentralised generation. PRASEG says ‘DNOs will be integral managing multiple new actors in the energy system through DSR and storage solutions at a local level, in partnership with innovators in the public and private sectors. Research from Imperial College has shown that there is a potential saving of £8bn to be made from upgrading to a smarter and more flexible energy system, benefiting consumers and smoothing the transition to a low carbon system’. We await the Ofgem report. We also await the next round of the CfD and the development of a longer-term plan for renewables. But there’s a £9m smart energy project competition to be going on with, for storage, P2G etc.

That is part of a new £28m R&D/energy innovation effort, announced after the green paper, which offers a bit more substance. BEIS says The funding boost of £28m will be invested in smart systems, industrial energy reduction and offshore wind, demonstrating our commitment to building a low carbon, low cost future. This forms part of the government’s commitment to double support for energy innovation, up to £400 m per year in 2021’.

Under the plan, up to £9m will be bid for via a competition to reduce the cost of energy storage, including electricity, thermal, and power-to-gas storage and up to £600,000 for feasibility studies for projects that can store energy on a large scale. Up to £7.6 m will also be available for advancing energy DSR technologies to help both private and public sector organisations reduce energy use in peak times. And to reduce energy costs for industry, the government will invest around £9m in an ‘industrial energy efficiency accelerator’ programme, to find new industry-specific options for a low carbon future.

That’s not bad as a smallish R&D start but, for storage especially, more is needed at the system entry level. The new BEIS select committee had called on the government to examine whether price support for storage is needed to ‘accelerate deployment given (its) importance to unlocking the full potential of renewable energy’. So it should be quite pleased with parts of the new plan. In its ‘Energy revolution and future challenges for UK energy and climate change policy’ report, the committee reiterated its recommendation to address regulatory barriers faced by storage ‘as a matter of urgency’. Changes proposed included introducing a clear definition for storage, an end to double-charging of levies for import and export, and a separate asset class for grid-level electricity storage. The report also called for a ‘high-level public commitment’ to making the UK a world leader in storage and the setting of a storage procurement target for 2020. It also wanted capacity market rules in relation to storage, including increasing the contract length and addressing restrictions on stacking of revenues for storage projects. Read the report and the government’s reply.

Next we await the Budget announcement – will anything more be added by way of support for the new energy programme? And will it back the Swansea tidal lagoon? But meanwhile, while we wait for that and the Emission Reduction Plan, in our wonderful new post-fact world, it’s amusing to see that there are evidently cases now where new offshore wind projects are cheaper than some older on-shore wind projects!




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