Time to leave energy ‘evolution’ behind and lead the revolution

I’ve heard government and industry talk about ‘evolution, not revolution’ so often in the energy and electricity industries. It’s time to admit it is the other way around.

I think the ‘evolution’ idea is intended to make sure investors are not spooked by the idea that these industries are changing. But the problem with the ‘evolution not revolution’ idea is that now it is clear that it is wrong.

You still hear people talking about the future shape of the electricity industry in terms of a slightly different mix of gas, coal, renewables and nuclear (set your least favourite to zero) than we had before. But that’s just a small part of the industry when it comes to its real framework. A more comprehensive examination might talk about imports, commercial PPAs, user-produced power, flexibility services and interchange with other energy vectors (hydrogen, heat), and much more, as well as those traditional forms of wholesale market generation.  The wholesale power market, it turns out, is going to be just one part of a larger market where the buying competes against those very different options.

The disconnect has created a number of problems. Two stand out.

It has made the shift to renewables – and the financial support for the transition – seem like an optional extra. So the costs seem like an indulgence, instead of the necessary investment in a new industry.  It also means no-one can quite believe we will take action like shutting down coal plants, so policy instruments are less effective.

And it makes distributed generation and demand response seem like a sideshow and an emergency measure, rather than a major part of the industry. So demand response is still ‘rationing’, when it should be a no-brainer for anyone with the wit to book a train ticket off-peak. And distributed generation is still an addition to new gas-fired plant, and a cause to crank up the capacity market price, rather than real change in the market participants that should be managed to incentivise clean power, rather than just cheap power.

It’s not that we won’t have some central generation. But given our legally binding climate targets, the world of data, and the drive for customers to take control, we should make it clear that is now just a part of a much broader industry.

We can’t stop it; and why should we? In the same way we want to be a leader in the digital economy, we should aim to be a leader in the new energy economy  - as we have been in the old energy economy. As it happens we are in pole position. With our dash for renewables – including over 850,000 PV roofs, more than in the USA – and low level of interconnection we are facing grid management issues a decade ahead of the rest of Europe. It tests our ingenuity but it can make us a leader in managing the smart grid.

Time for change

Let’s turn a negative into a positive. Government and industry are at a real ‘sweet spot’ for change at the moment. Despite the ‘clear the air’ CMA investigation, the energy industry is still everyone’s favourite punchbag, so an ‘industry revolution’ narrative could be hugely attractive. And not only is there an opportunity: it is one we have seen before. There are still many people around who have lived through a revolution in the telecoms industry, from 2p-in-the-slot public telephones to smartphones and data on demand. For them, revolution is clearly possible without the equivalent of the ‘lights going out’ – there was never a time, during the comms revolution, that they couldn’t pick up a phone of one kind or another and get the call answered at the other end.

There may be some uncertainty (even among investors) but I suspect that will be more than counterbalanced by having a common purpose. We can all see where we are going -  a low-carbon, data-driven energy system with some central generation but lots of other players and some interesting local action opportunities.

Acknowledging that we are in a revolution will help the emerging industry but it will also help the existing industry. That’s because we can think seriously about how to finance the large generation like CCGTs we will still need – albeit fewer – and the grid we will still need –  albeit less used – within the new industry.

Under the bonnet we desperately need to update the governance framework. iGov has done some important work on this  - all the details on its website here – and will take that forward over the next couple of years in iGov 2.

Above and beyond that, instead of gloomy warnings about ‘keeping the lights on’, we need some government enthusiasm about what could be a huge opportunity. And even a few decent buzzwords: surely a new energy industry can do better than ‘silicon roundabout’? The digital energy revolution may be the only one where we really do get to ‘take back control’.

 

 

 

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