Three recent news stories which illustrate the continuing pressures and opportunities in the clean energy transition:
IKEA to sell solar panels from all UK stores
IKEA has started selling residential solar panels at its stores in Britain, the first step in its plan to bring renewable energy to the mainstream market worldwide.
Reuters, Monday 30 September
Also reported in The Times (Business).http://reut.rs/1fUvK1kShell CEO warns of energy crunch
Royal Dutch Shell Chief Executive Peter Voser will today call on the global energy industry to continue investing heavily in costly new production projects to avoid a return to record high oil prices weighing on global growth.
Emily Gosden and Andrew Crtichlow
The Daily Telegraph (Business), Tuesday 01 Octoberhttp://fw.to/WxjfGGCShell looks to offload US shale assets
Royal Dutch Shell is to sell its position in the Eagle Ford shale field in Texas, two months after announcing a big writedown on the value of its US shale assets.
Financial Times, Tuesday 01 October (£ subscription required)http://on.ft.com/1dRM551
courtesy of the wonderful news update published by the UK Energy Research Centre
Why so much excitement about electricity markets? Ed Miliband's pledge for a 20 month price freeze has met been siezed upon gleefully by the right-wing press as an opportunity to tar him a 'socialist'.
And yet only a few months ago David Cameron himself was pledging to force the electricity companies to offer the same fixed tarriff to all - apparently flattening electricity market competition.
This is clearly one of those issues where each poitical party is chasing the other in attempts to capture the popular support on the issue of rising energy bills. But the media coverage gets nowhere near the real issues - and it is not clear that either party's policy does either.
Behind Labour's "price freeze" sound-bite is a pledge to break up the big players and "reset" the electricity market. "The electricity market is not functioning competitively" we are told, and "the big six are price-gouging". There is certainly plenty of evidence that the market does not function well - as regulator Ofgem said in June 2013, "liquidity in the electricity wholesale market remains insufficient... poor liquidity acts as a barrier to entry and competition."
But I fear that the market changes currently being discussed will achieve little. Although many experts accept that more and more government intervention is likely, I wonder in contrast whether we need more market activity, not less - but in the context of a different market structure. My research is suggesting that the way to achieve a dynamic electricity market which can deliver innovation and cost efficiencies might be almost the polar opposite of what is being suggested.
There are two parts to the problem: where we get energy from, and how we use it. The truth is that there is little any government can do to change the global trends in fossil fuel energy prices. However we can act to continue to bring the cost of clean energy down - through continued incentives for deployment and R+D in clean energy. And critically, we can act to reduce the total need for primary energy as well as to reduce system peak demands, as both will have a major impact on the cost of the clean energy system.
It comes down to two main tractable factors: on the generation side, changes to reduce the cost of capital, and on the end-use side, changes to increase the productivity of energy as well making demand smarter and more responsive. But current wholesale and retail electricity markets are failing to deliver these things.
On the wholesale, generation side, the cost of capital has been driven up by weak and flip-flopping government policy (and is of course already greatly exacerbated by the increased risk-aversity of capital following the financial crisis). On the retail side, the current incentive for suppliers is to sell more kilowatt-hours, not less, rather than to innovate to overcome the transaction costs of measures to achieve higher energy efficiency. Radical changes to both sides are needed.
The market for provision of 'wholesale' electricity is rightly a market in capacity and security, not in energy - most zero-carbon energy has zero marginal cost, distorting the current marginal-cost market. A new market in the commissioning and availability of generation capacity needs somehow to be managed at arms length from government, with long-term objectives for decarbonisation and energy security set firmly in statute - which will reduce investor risk and the cost of capital.
Meanwhile the retail side of the market needs to be opened up to price variation, and to a different class of utilities altogether. Current electricity retailers add little value other than smoothing wholesale price variation into the single unit rate that customers see. But smart grid technology now allows the price to vary, incentivising demand response. The new utilities would follow a new business model based on the provision of energy services, aggregating efficiency measures while also using the 'internet of things' to maximise automatic demand response, and to integrate local generation with energy storage in the most cost-effective way - for example that from photovoltaics, whose price plunge promises to continue.
Such a market structure could drive a huge flowering of innovation in the smart grid and energy efficiency, including both products and services, and probably surprising combinations of the two. Such a market would tap the ocean of increased energy productivity which technology is making available, while on the generation side it would create the demand certainty and large-scale, long-term contracts required to drive down the cost of capital and the cost of technology.
For more formal and detailed explorations of what these ideas entail, watch this space.
At last week's conference of doctoral students in energy, hosted at Imperial College, "Artist in residence" Eleanor Beer did some brilliant sketches of the speakers. Here is her sketch of my talk:
I presented some initial results of a simulation of a zero-carbon electricity system, which I am using to ask how the market might best be structured to incentivise energy storage... Some of the conclusions are surprising - more detail to follow.
"This book will anger many environmentalists" says Fred Pearce in his careful review of Dieter Helm's book, The Carbon Crunch (Embracing shale gas may help cut emissions, New Scientist 14 November 2012, issue 2891). But it would be more accurate to say that the book will anger anybody with logic, as the arguments it makes are so nonsensical.
First, Helm says that current clean energy technology options are "expensive" and "uneconomic" and "largely ineffective" (and nuclear and CCS anyway dont have much prospect, he says) - so therefore we need to invest in R+D. But he presents no quantitative analysis whatsoever to justify his claims, which are plain wrong as a look at the numbers will demonstrate. Onshore wind and solar PV are already competitive with conventional energy in a growing number of markets, with costs falling further.
Secondly, he says that coal is the major culprit and shale gas will enable us to replace it. But even if we switched all of world coal-electricity to gas we would only save about 5Gt of CO2 per year, which is 15% of human fossil fuel emissions, and far from enough to have any hope of stopping dangerous climate change. The further problem is that using compressed natural gas for vehicles, as he advocates, only saves about 10% of greenhouse gas emissions, according to a study by Argonne National Laboratory.
By contrast, and as the academics on the Committee on Climate Change and many others have concluded from a large body of rigourous analysis, the only way to reduce emissions fast enough to make a dent in climate change is to first decarbonise electricity and secondly electrify vehicles and heating. Even without carbon-free electricity, the latter steps reduce emissions in those sectors by an astonishing 50%.
Helm holds out R+D as the answer, after shale. But solar and wind are by far the most abundant energy sources and current technology is already close to the thermodynamic limits. The best way to reduce costs further is through mass production and widespread deployment, with the competition and innovation that goes with it.
No-one would argue against more R+D investment in the energy sector, but a passing knowledge of physics demonstrates that game-changing developments in energy harvest are vanishingly unlikely, as Helm's flimsy chapter on this unintentionally demonstrates. New nuclear technologies like thorium do have vast potential, but will take decades to reach readiness, and in any case are not long-term options as they will indirectly warm the planet (Taking the long view on the worlds energy supplies, New Scientist Jan 30th 2012).
We need to work with what we have. Solar and wind are by far the most abundant energy sources, and current technology is already close to the thermodynamic limits. So the best way to reduce costs further is through mass production and widespread deployment, with the competition and innovation that goes with it.
Ultimately the only explanation for this distorted logic is ideology, and it is the ideology which has taken over the Tory party. This was perfectly demonstrated when new Environment Secretary Owen Patterson described subsidies for nuclear and renewables as "soviet-style". Shale gas by contrast is "god-given"... so hoorah for the free market, and god forbid that we should ever admit the role of governments in subsidising fossil fuels. Lets all board the train to a desert planet.
James Murray of Business Green writes in defence of “building a new environmentalism”, prompted by a critical article in the Guardian by Paul Kingsnorth.
Kingsnorth actually describes and attacks a ‘neo environmentalism’, which he claims that is essentially a corporatist and capitalist cover for ‘more of the same’. Murray is in contrast quite rightly proud of the achievements of a business-led approach, epitomised by his excellent Business Green site and his own writing, and he wonders whether we should proudly acclaim a “new environmentalism”. Murray has asked for responses, and so here is mine.
It is very tempting to go along with his argument, but I would actually go further. The whole problem with the word “environmentalism” is that it suggests people do not come first: how about simply “humanism”? We are people, and we are rightly and inevitably most concerned about people - and specifically the continued flourishing of our civilisation. There is no question that we can’t achieve that without switching to clean and abundant sources of energy, along with many other changes to how we do things - but let’s be honest about why we are doing it.
Kingsnorth has a bizarre set of values - he is actually a Doomster, an apocophile, who is actively celebrating the death of our civilisation with his Dark Mountain project. He says that he and many others find relief in accepting that “the planet is not dying; but our civilisation might be”, and in not needing to ‘go through the motions’ about saving the planet. I can well imagine such relief - but the majority of people in the world would be totally baffled by it, as they struggle to survive, and strive for a better life for their children and grandchildren. They would be shocked at the suggestion that we should give up. Giving up is not in our nature.
So if we need a label for a movement, let’s please not use “environmentalism” - apart from the issue of focus anyway it is tired and out of date. If you want something why not use ‘Green’, which is suitably loose and yet actually communicates directly and easily. Or why not use something more direct and positive: let’s “power the planet” with clean energy.
The UK press has gone mad over a new energy technology in recent days. I’ve been asked whether it is really as exciting as it seems?
“Exclusive: Pioneering scientists turn fresh air into petrol in massive boost in fight against energy crisis” ran the headline in the Independent on 19th October, and the story was picked up by the BBC on various channels. “we have been inundated here at AFS with requests for media interviews and comments from social media forums” says the home page of the company’s website - Air Fuel Synthesis.
So is it real? Well it certainly has a highly credible and solid technology foundation - the company was founded by Professor Tony Marmont, who has worked on aspects of renewable energy for many years.
Is it highly novel? Not really. The basic idea is that petrol, like all fossil fuels, is made of hydrocarbons - that is, long chains of hydrogen and carbon atoms. So if you use the right catalysts and processes, you can combine hydrogen and carbon to make fuel, which is what they do.
The hydrogen comes from the electrolysis of water and the carbon can come from the air - though the company speak about highly concentrated sources of CO2 like breweries, distilleries or aerobic digesters.
The problem is of course the question of how much energy is needed to run the whole process. The energy can come from renewable sources - and needs to, in order to keep it carbon-neutral - but the question is whether that energy is better used elsewhere, and more to the point, how much it costs to use it here.
I have seen statements for similar technology that it would require about 20 kWh to produce a litre of fuel. I very much doubt that this includes the energy which would be required if the carbon dioxide were to come from the air (concentrated sources are not that widespread). But even assuming that it does include this and is therefore extendable on a large scale, the problem is that that 20 kWh from a wind turbine or other clean energy source would power an electric car to travel about 60 km, whereas that litre of fuel (which will contain about 10 kWh) would power an internal combustion engined car only 15 km.
Let’s recap those numbers - they are surprisingly stark: we would get four times more mobility out of the primary energy if we used it in electric cars, than if we produced air fuel - at least four times, given the CO2 extraction energy issue and given the fact electric cars are still early stage technology. The difference expands to seven times if you take the efficiency of a Tesla Roadster.
About 13% of our transport fuel is used in applications which require liquid fuel - aviation and shipping - and this innovation has a great and potentially lucrative market there - but EVs are likely to be better for everyday use - and much cheaper to run.
I hate to splash even a few drops of cold water on new innovators’ work, as I’ve spent many years innovating myself - however I’ve also come to the conclusion that our media’s slightly hysterical obsession with the new new thing is destructive to the progress of clean energy. The fact is that the physics is quite simple, we have almost the technology we need already, and the main issue is not innovation, but deployment (and the incremental innovations and cost reductions that will follow from large scale deployment).
* The Numbers
Energy consumption of petrol car: 70 kWh/100 passenger-km (typical family car)
For electric car: 34 kWh/100p-km - Nissan Leaf, according to the US EPA.
For Tesla Roadster (2-seater sports car): 21 kWh/100p-km - EPA.
The Energy Shambles reminds us: we need to take the politics out of energy
This week’s chapter in what tweeters are calling the #EnergyShambles was indeed just like an episode of the Thick of It. What happened was this: at PMQs on Wednesday Cameron said that “we will be legislating so that energy companies have to give the lowest tariff to their customers.” But the announcement took the Department of Energy and Climate Change by surprise - apparently No 10 phoned someone at the Department at the weekend and had been advised that the policy would not work. Neverthless Mr C went ahead: one energy industry source described the announcement as “Number 10 freelancing”.
Of course the announcement makes no sense. If everyone is on the cheapest tariff, then that tariff would have to rise- it would immediately become the mediocre tariff instead of the cheapest. As price comparison provider USwitch said, “it had to be a slip of the tongue as it could be the death of competition.” If everyone is on the same tariff, you have no market - you might as well nationalise the whole system so politicans can do exactly what they want with it.
On Thursday, new energy minister John Hayes had to defend the announcement in Parliament, and earned laughter with the verve that he brought to the role. The new rules would help consumers “get the best deal” he said, while he failed to confirm that it would be the lowest price. Was DECC aware that the PM was planning this announcement, he was asked? “The Prime Minister comes to this House weekly to be scrutinised by this House. Does he give me notice of every answer, does he get notice of every question? The answer is no. But if he asks me whether the Department was considering these matters… the answer is a definitive yes.” In other words, No. There was laughter as he claimed that the PMs comments had been crystal clear, and he went on in a classic piece of political doublethink to say that: “The fundamental objective of the strategy I outlined is to bring clarity. Clarity is the prerequisite of certainty, certainty is the prerequisite of confidence and confidence is the prerequisite of investment..."
Meanwhile across town DECC Secretary of State Ed Davey was making a speech to the CBI on energy policy, and completely failed to mention Mr Cameron’s pledge. He did however get the chance to comment on politics, saying in response to a question, "believe me when I say that no one would be happier to see the politics taken out of energy policy. What could make life easier for the Energy and Climate Change Secretary than political consensus?”
The terrible irony is, of course, that clarity is exactly the opposite of what the current government is providing to the energy industry. “Government-induced policy risk is the single biggest deterrent to investment” as Nick Stern wrote in the Financial Times on Monday, and as we have also been hearing from the CBI, from big energy hardware and nuclear companies including Alstom and Mitsubishi, and from big company members of the Aldersgate Group recently.
On Tuesday Downing Street said that the “quad” - Cameron, Osborne, Clegg and Danny Alexander - were meeting with Ed Davey in an attempt to broker peace between Osborne’s anti-clean energy Treasury and DECC - but one senior source warned that it would be an “unholy war”, according to Fiona Harvey in the Guardian. “The PM wants to bring the Treasury and Decc on to the same page," another source told the Guardian, "the Treasury has to sign up to the renewable energy agenda, while DECC has to reassure on costs."
A likely deal would “give the chancellor more leeway on limiting subsidies via the Levy Control Framework... in return, Davey would get a new carbon target - to virtually eliminate emissions from electricity generation by 2030.” If true, that is good news on the carbon target, though in practice the levy restriction may make it impossible to meet, and will drive up costs by increasing uncertainty!
“Perhaps it's best David Cameron remains a hands-off PM", said political commentator James Kirkup in the Telegraph. And the truth might be that we need a hands-off government. Just as the Monetary Policy Committee of the Bank of England was liberated to set interest rates, the only way to create policy consistency in energy might be to take it away from the politicians.
Ultimately that is probably where we will end up, though we would first need a complete reform of the energy markets - the so-called “Electricity Market Reform” package in the current bill is not really a reform, but instead is yet more tweaking, adding to the dozens of accretive policy measures which have been piled on over the past few years. In fact energy policy in the UK resembles a Heath Robinson machine strapped on top of a woolly mammoth, with complex devices made of twigs and string in order to poke the mammoth in the vain attempt to get it to move.
The current electricity market is designed for dirty energy, and instead of tweaking it we need to replace it, with one designed for clean energy. Mind you, we might need to give the dirty stuff a few subsidies to get it through in the interim, but so be it.
More of our interesting times in the UK. Ofgem warns of power shortage,
ran the headlines on October 5th, which is old news but has been strangely quiet over recent years. Ofgem now predict capacity margins down from 14% to 4% in the winter of 2015-16, all adding pressure to the EMR legislation going through. http://goo.gl/uPfMn
The UKs energy market is Fast, cheap and out of control
said the Economist, though the article added little light to the problems.Leading businesses wrote to the Chancellor
, calling for a 2030 target for complete decarbonisation of electricity (which is what the Committee on Climate Change has been calling for for years). 50 large businesses including Asda, Sky and Pepsi wrote to Osborne under the aegis of the Aldersgate Group, a business membership organisation. http://goo.gl/08W7Q"Go Green or we quit Britain" said leading energy firms in yet another letter
to the Chancellor, this one from Siemens, Alsthom, Mitsubishi, Areva, Doosan, Gamesa and Vestas, "threatening to withdraw plans for hundreds of millions of pounds of future investment. http://goo.gl/RvQvA
Im still chuckling about Owen Paterson's comments - or am I sobbing? Wind and nuclear subsidies create a Soviet-style system, he said, whereas shale gas is god-given! This man is supposed to be Secretary of State for the Environment. http://goo.gl/OYdFe
Meanwhile, Osborne raised the prospect of tax breaks for shale gas, and the twitterverse enjoyed a series of tweets from Michael Liebreich stating the clear argument that, as all industry experts in Europe have said, shale gas is not going to change the game here (see below)
Finally, The story of plenty is yet to be realised
, said the FT
. The current narrative is that of plenty replacing scarcity, and yet there are some inconvenient truths, said the paper. "Yet there is one troubling wrinkle in this narrative of abundance: the price of oil.
The shale boom might have driven US natural gas prices down to 10-year lows, but despite the rise in North American oil production, prices remain high. It is no wonder, considering the bulk of the world’s crude continues to come from the volatile Middle East."
Sadad al-Husseini, a former head of exploration at Saudi Aramco, says “It isn’t an oil glut by 2020 that is keeping oil prices as high as they are. It is the reality that the oil sector has been pushed to the limit of its capabilities and that this difficult challenge will dominate energy markets for the rest of the decade.”"
Here are those Liebreich tweets:
In a whole series of bizarre policy U-turns creating huge uncertainty for the UK energy industry, George Osborne and the Treasury have succeeded over the past year in significantly reducing the UK's prospects for growth (and its ability to meet legislated targets). The energy industry is rightly dismayed about what's going on.
“Fears of political interference and a complex set of ill-defined market reforms are starting to scare investors from the UK,” said the FT in June. The so-called ‘Electricity Market Reform’ proposals were “a half-finished plan... with a dismaying lack of detail that was complex to the extent of being unworkable” according to the Select Committee on Energy and Climate Change, in August. A spokeman for RWE said “The proposals for the contract for difference have become increasingly complex and far removed from what we, the wider industry and the investor community, expected.” The strange thing is that there is no apparent rationale for this - they have been unable or unwilling to produce any evidence or coherent argument. They say they want to reduce consumer energy bills but what they are doing is likely instead to push bills up.
Tim Yeo Chairman of the Select Committee, said the
certain consequence of the plans were that “electricity companies will be forced to pay more to borrow.. electricity customers will end up paying the price.. all because of arcane theology about what constitutes government debt.” He also said “the levy cap the Treasury proposes to impose ... will achieve either less investment and capacity or increased costs for consumers”.They say they want to support economic growth but it is the green sector of the economy which has been growing in the last two years, and is now being damaged by policy uncertainty.
According to a report by Green Alliance
, the green sector of the economy now represents 9.3% of GSP, has grown at 4 to 5% each year since 2008, and employs 940,000 people - nearly twice as much as the car industry! Exports of low-carbon goods and services totalled nearly £12bn in value, including nearly £800m of sales to China in 2010-11. Interestingly this is double the amount bought from China in this sector in the period! Even the CBI has laid in criticism: “the choice between 'green or growth' is a false one”, said CBI Director General John Cridland. He said that the green economy provided one-third of economic growth in 2010 and could do more if government untangled the policy 'mess'.They seem to be in thrall to the shale gas industry, believing the industry’s claim that this will lead to cheaper energy - but almost all experts expect shale gas to have little impact in Europe.
Osborne said in a letter to the Committee on Climate Change that he wanted to make the UK a “gas hub”, and to extend the date whereby unabated gas (i.e. non-carbon-captured) would be allowed to operate in the UK. Why? The only explanation is that somehow he believes in the promise of shale gas, even while the rest of the market doesnt. EU energy commissioner Günther Oettinger says “Shale gas in the US totally changed the market. In Europe it can’t”. Sam Laidlaw, CEO of Centrica (owners of British Gas) said “It is an additional element, maybe 5-10 per cent,” and he wrote a post for the Guardian website subtitled: “Despite optimism over a shale 'glut', gas prices will remain high.” Meanwhile one broker’s best guess for European shale production in 2020 is 25bn cu m – only 5 per cent of today’s European Union gas demand.Isn't this a perfect example of blind ideology trumping reason? In the face of the arctic summer ice reaching its lowest ever levels for at least 1500 years, and much earlier than the climate models had predicted, climate change policy is being undermined - in other words public morality is being abandoned. In the face of a recession threatening to slide into stagnation and high youth unemployment, Osborne wants to damage the opportunities for growth. Why?
∞The good news is that many in Parliament are fighting back. But it seems highly unlikely that we will get proper energy policy from this government.
John Gummer, now Lord Deben is now Chair of the Committee on Climate Change, and has led the committee to write an open letter to Osborne
, pointing out that his proposals are likely to be in breach of the Climate Change Act and therefore illegal. (They also say that their discussions with investors have revealed that current policy uncertainty has created a "very poor" investment climate.)
In the last few days, Labour Leader Ed Milliband has
pledged to deliver a decarbonised electricity grid by 2030. Ed Davey, the Liberal Democrat Secretary of State for DECC says that the "Tory Tea Party tendency"
is putting green jobs at risk. Danny Alexander the Liberal Democrat chief secretary to the Treasury has just spoken out
about this also, saying "The thing that in this job and in this government I find most frustrating is what often feels like a constant war of attrition on green issues, on renewable energy and renewable investment which is so important to our economy."
But in the recent reshuffle Cameron stacked the cards against science. He appointed Owen Paterson as Environment Secretary
, who is suspected to deny climate science
, and to be anti-wind and pro-fracking (and is endorsed by the anti-science campaigner Lord Lawson). He also appointed John Hayes, an opponent of windfarms and "known climate sceptic", as a new energy minister, and sacked the much liked and highly knowledgeable Charles Hendry.
Other relevant links:
good piece by Damian Carrington
on the ideology and lack of openness behind the Treasury's stance. Excellent angry piece
by James Murray at Business Green, which suggested the title for my piece here.