Big and dumb or small and smart? UK energy and climate policy at a crossroads once more

Energy efficiency is of central importance in meeting a raft of the UK’s infrastructure demands, as well as its climate targets. Ambitious energy efficiency implementation minimises the cost and maximises the benefits of decarbonisation. It addresses fuel poverty, enhances productivity and competitiveness, creates and supports quality jobs, improves energy security and boosts GDP, and can render potential ‘white elephant’ investments on the supply side unnecessary.

Energy efficiency’s track record speaks for itself. In homes, gas and electricity demand has fallen by 21% and 13% respectively since the peak of 2004. This despite there being over two million more households, higher indoor temperatures, and more lamps and appliances in each home. Thanks to insulation, efficient boilers and appliances, energy bills were £500 lower in 2017 than they would have been without energy efficiency improvements since 2004. With residential energy efficiency policy having slowed to a crawl in 2015, and the rate of insulation down 95% compared to 2012, there is now a real risk that these trends reverse. This risk must be overcome, and energy efficiency’s enormous remaining potential – which could slash household energy demand by 50% – realised.

Given energy efficiency’s central importance, the Government’s ambition for home energy renovation in its Clean Growth Strategy – for all homes to achieve an Energy Performance Certificate rating of C (on the A to G scale) by 2035 – is a good start. However, policy and investment to achieve it is severely lacking. The annual investment needed from public and private sources to 2035 is £5.2 billion. Public investment in 2017/18 was £0.7 billion. This draws in little to no private investment and there are no plans to change this amount or the way in which it is invested, leaving an annual gap of £4.5 billion.

Thought and practice on how to effectively drive greater demand for energy efficient renovation – including by harnessing the £27.6 billion market for housing repair and maintenance – is well established and needs to be acted on in the UK. In a new report out today, case studies of peer countries France, Germany and the Netherlands – and a case study of Scotland owing to its own advanced approach – demonstrate combinations of policies and public investment that are far more effective at raising renovation rates and unlocking more private investment.

Considering the UK has substantial energy efficiency policy capability and experience spanning decades, these case studies inspire the belief that the UK must be capable of doing better. But it will require a greater commitment of public capital investment and better-organised delivery to achieve.

Now is an important time to capitalise on momentum for greater ambition. Some incremental policy steps are being taken by Government following the Clean Growth Strategy’s publication last October. In March, the retail finance sector, through the Green Finance Taskforce, made strong recommendations to Government that would enable it to mainstream the financing of home energy improvements.

Crucially, the National Infrastructure Commission, having established energy efficiency as one of its priorities, has a unique opportunity to make big picture recommendations for greater energy efficiency investment as part of its first five-yearly National Infrastructure Assessment to be published on July 10th, 2018.

It must inspire Government to follow up with a more coherent and ambitious approach that treats energy efficiency as a national infrastructure priority and weaves in those steps the Government is already taking, including in response to the Green Finance Taskforce’s work. This encompasses:

1. Confirming energy efficiency as a national infrastructure priority, with clear governance arrangements, targets, a long-term action plan and funding, as in Scotland;
2. Additional public capital investment of £1 billion per year to 2035 – much of it supporting low income households – that can help unlock £3.5 billion of private investment, closing the £4.5 billion gap;
3. Adequate incentives for ‘able to pay’ homeowners and landlords, such as lower Stamp Duty for more energy efficient homes and 0% interest loans;
4. Robust regulation, strengthening over time towards an EPC rating of C, that requires some homeowners to take action and inspires others to plan and invest for the future;
5. A long-term approach to delivery in which local authorities play a core role in tackling fuel poverty, creating demand and growing local supply chains;
6. Strong advice provision and quality assurance and safety standards.

What is the prize, aside from meeting our climate targets in the most cost-effective way, of doing so? Everyone gets to live in a safer, more comfortable home that is cheaper to run: quintessentially ‘no regrets’.

Pedro Guertler is a Senior Policy Adviser at E3G, an independent climate change think tank. You can read the full report here.

The views expressed in the article are those of the author, not necessarily those of Bright Blue.

Connecting HGVs to the UK’s green energy journey: the future of gas is green and the future for HGVs is gas

For the past 200 years, gas has been a fuel that has offered the UK flexibility – be it for street lighting, industrial processes, power generation, or heat demand. During this time, the UK has built the world’s leading gas grid infrastructure, which today directly supplies the energy used to heat 85% of British homes. Faced with the challenge of climate change, the next stage in its evolution will be low-carbon or ‘green gas’.

Gas currently accounts nearly 50% of non-transport UK primary energy needs – primarily for power generation and heat. But it also offers an option to help decarbonise parts of the transport sector, particularly for vehicles like HGVs, where large powertrains are needed.

In addition to tackling carbon dioxide (CO2) emissions, the Government has recently come under real public pressure to toughen up its plans to tackle illegal levels of airborne pollutants in our towns and cities, most notably nitrous oxides (NOX) and particulate matter (PM) which cause and exacerbate a raft of debilitating health conditions. Action on the twin challenge of CO2 and air quality must permeate every level of government, and every department of government.

There are approximately 39 million vehicles on the roads in the UK and HGVs, buses and coaches make up less than 2% of that total. In total, a staggering 324 billion vehicle miles were travelled in the UK last year, with HGVs, buses and coaches contributing 6% of that total. This relatively small number of vehicles emit 20% of the UK transport’s greenhouse gases. A recent report by Element Energy showed that just 18 months on from its opening, a compressed natural gas (CNG) filling station at Leyland in Lancashire is cutting CO2 emissions from the HGVs that use it by 84%, thanks to its exclusive usage of renewable biomethane. These are not marginal gains, they represent transformation potential for a sector that is notoriously difficult to decarbonise. Forward-thinking companies like Waitrose, who use Leyland, are at the forefront of this transformation.

But there’s a by-product too, what economists would call a positive externality. Those 2% of vehicles, travelling just 6% of the miles in the UK, also emit 43% of road side nitrogen oxides. Given that there were an estimated 40,000 early deaths last year as a result of poor air quality, then it should be a cause for concern. Low-carbon vehicle trials showed NO2 emissions down 74% when using gas not diesel; NOx down 41% whilst Iveco (who make diesel and gas trucks) reckon a EuroVI gas HGV produces 96% fewer particulate matter emissions compared to its diesel counterpart.

There has been some action in London around ultra clean air zones, but wholesale switching from diesel to gas HGVs, whilst economically rational (with 30% savings on a pence/mile basis) has been too slow. Yes, there is a need for another 150 or so, strategically located gas-filling stations to give fleet operators a real choice, but the Government could do more to signal their support for the switch. And sadly, Conservative MPs are lagging behind Labour in support for regulation to encourage the switch from diesel (52% versus 73% support according to a Dods survey on behalf of EUA).

It will also need joined-up government, too. The Department of Transport is responsible for greenhouse gas emissions from HGVs; Defra have responsibility for air quality; BEIS look after energy policy; the Department for Health pay the bill for NHS treatment for those affected by poor air quality. It’s easy to see the flaws in this structure. Let’s hope there is leadership on this to deliver.

Mike Foster is the Chief Executive of the Energy and Utilities Alliance, a not-for-profit trade association that provides a leading industry voice to help shape the future policy direction within the energy sector

The views expressed in the article are those of the author, not necessarily those of Bright Blue

Diamond in the rough: why Scotland has a key role to play in the UK's clean growth

Carbon capture and storage (CCS) has a troubled history with the Conservative Party. Two failed competitions, two National Audit Office inquiries, and millions of pounds spent without a single operational large-scale project to show for it is hardly an endearing track record for any new Minister to inherit. But with the publication of the Clean Growth Strategy, Ministers across government have signalled renewed, albeit cautious, enthusiasm for CCS as part of new plans to decarbonise and grow the UK economy.

“It is very much a personal commitment and something I strongly believe is exceptionally important”, Claire Perry MP, Minister for Climate Change and Industry, told a Westminster Hall debate back in October 2017. “We want the prize of global leadership in this area: we want to be the people who break the deadlock, deploy CCS in the UK and capture the export opportunities”. Strong statements, considering the rocky history.

Newfound enthusiasm for CCS in the Conservative Party however doesn’t come without its caveats. “Costs must come down” has been the go-to line for Energy Ministers since the ill-fated CCS commercialisation programme was brought to an abrupt conclusion in November 2015. But as Offshore Wind Week has so aptly demonstrated, cost reduction for low-carbon technologies is as much within the gift of governments as it is of the private sector and research communities.

Consider how relative policy certainty and clear commitments to offshore wind, for example, have made the UK a global leader in the field; and then contrast that to the indecision and sporadic flip-flopping that has characterised political appetite for CCS in the UK. That’s the scale of the challenge facing Claire Perry, and overcoming it will require much more than £100 million worth of research and development and a CCUS (carbon capture, utilisation and storage) pilot.

The UK isn’t the only country grappling with the ‘how to do CCS’ question though. At the vanguard of international efforts on CCS is the International Energy Agency (IEA), who recently hosted a high-level roundtable with Ministers and CEOs from some of the world’s largest energy companies. The IEA’s Executive Director, Fatih Birol, described it as the “highest level of industry and government engagement that we have seen on CCUS”. (Unfortunately, the UK chose not to send a Minister.)

New IEA analysis published that day shows that global capital investment in large-scale CCUS projects has now surpassed $10 billion. A huge amount of money no doubt; but not when compared against investments in other low-carbon technologies, which came close to $850 billion during the last year alone.

“Without CCS, the challenge [of meeting global climate goals] will be infinitely greater”, said a joint statement from Birol and US Energy Secretary, Rick Perry, adding, “we know this is essentially a policy question”. Part of the problem with CCS policy (and politics) though is that perceptions of costs continue to dominate the discourse, often before any discussion around the benefits has even begun.

Robust policy development requires a proper understanding of the costs and benefits of different investments and different technological pathways. In the UK to date though, CCS policy has been based predominantly around cost and risk management. In its review of the second CCS Competition, the National Audit Office found that the responsible department (the Department for Energy and Climate Change, at the time) hadn’t even fully assessed the benefits of the programme.

That’s why a new study from Summit Power, a US project developer with a portfolio including both traditional and alternative forms of electricity generation, has started to turn heads.

In the aftermath of the November 2015 cancellation of the CCS commercialisation programme, Summit quietly began developing options for a new gas CCS project at the Grangemouth industrial site in Scotland. With an anchor power project helping to de-risk investments in CO2 transport and storage infrastructure, industrial emitters in the region would be able to access an affordable solution for reducing their CO2 emissions.

Working with a range of academics, consultants and other CCS organisations (including the Teesside Massive, sorry, Collective), Summit has turned the typical CCS cost debate on its head. Instead of focussing only on what CCS might cost, its first-of-a-kind analysis has also shown the economic benefits that it might bring.

Based on Committee on Climate Change (CCC) analysis and guidance from the HM Treasury Green Book, Summit found that CCS could deliver £169 billion in benefits to the UK economy between now and 2060, compared to total costs of £34 billion.

A significant portion of the benefits identified derive from avoiding CO2 emissions, but by working with the University of Strathclyde to assess ‘linked economies’, the analysis found that the project could deliver £5 billion worth of health/wellbeing benefits and a colossal £54 billion increase in domestic economic activity. Between now and 2060, the analysis estimated that more than 225,000 jobs could be created or retained as a result of investing in CCS.  

Aside from costs, the other main hurdle that CCS has struggled to overcome in the UK is the scale of commitment required. Summit’s approach, again, tackles this challenge head-on and illustrates how a UK CCS programme could be structured so that each individual phase would make sense in its own right.

Far from requiring government to commit to an endless roll-out of projects in order to justify initial investments in infrastructure, Summit’s analysis shows that a decision to invest in just two initial phases of CCS between now and 2025 could provide £8.1 billion in economic benefits to the UK in return for a total investment of £3.8 billion. What’s more, that initial investment then provides optionality for the future: invest further if more CCS is needed; don’t bother if it’s not. Nothing lost.

The coming weeks will see the first meeting of the new CCS Cost Challenge Task Force and the Ministerial CCUS Council. It’s not yet clear what impact Summit’s analysis will have on the direction of future CCS policy, but one would at least hope that it helps shift a conversation dominated by costs to one that also recognises the substantial benefit that CCS could bring to the UK. As David Cameron once said:

"This isn't a distant dream. CCS is truly within our grasp. And we in Britain have got what it takes to make that a reality. We've got an army of experts who have worked for decades in the energy sector. We've got a manufacturing and energy industry that wants to invest and get things going. What's more, we've got the depleted oil and gas fields in the North Sea in which to store the carbon.”

Theo Mitchell is Director of Enerfair Engagement, a policy and communications consultancy dedicated to industrial decarbonisation and the energy transition. Previously, he was Head of Office and Energy Policy advisor to Lord Ian Duncan in the European Parliament and Policy Manager at the Carbon Capture and Storage Association

The views expressed in the article are those of the author, not necessarily those of Bright Blue

Reflections on Bright Blue's Green conservatism conference

On Wednesday 1st November, Bright Blue hosted its inaugural Green conservatism conference – a day-long event of panel discussions and keynote speeches, all feeding in to some of the most pressing debates currently taking place in the environmental sphere. Specifically, we endeavoured to examine four distinct areas of interest: agriculture, conservation, the role of markets in energy, and energy security.

The day began with a keynote speech from the Minister of State for Climate Change and Industry, Claire Perry MP. She struck an optimistic tone about the economic and industrial opportunities the UK has going forward as a cleaner and more environmentally sustainable nation – citing the Government’s work in pioneering the Contracts for Difference reverse auctions which have led to a blossoming, and ever cheaper low-carbon power sector, and unprecedented investment in renewables like solar and wind since 2010. Perhaps most interestingly of all, the Minister acknowledged that current policy does not allow onshore wind projects to bid for low-carbon contracts, and that this inconsistency is something the Government is actively seeking to address.

Agriculture and CAP reform

The first panel of the day sought to explore the current and future status of agriculture in Britain, particularly in the context of Brexit. A vigorous debate ensued, with the panel divided as to what the future status of rural payments to landowners and farmers ought to be in the coming years.

Arguments were advanced both for and against maintaining large-scale state support for the agricultural sector. Those backing a continuation of payments made their case for doing so largely on the basis of food security and food standards, as well as to remunerate farmers for the various aspects of environmental stewardship they provide.

On the other side of the argument, however, the contradictory nature of CAP payments vis-à-vis environmental sustainability was advanced, along with the economic inefficiency which some believe they have encouraged in Britain’s agricultural sector. Regarding the stewardship role of farmers, it was argued that this could still be retained, albeit through a more targeted system of commissioning public ecosystem services where they are demanded.

The future of conservation

There was consensus on our second panel about the need to be doing a good deal more conserving. Each panellist, however, contributed a unique perspective on just what, exactly, the focus of conservation ought to be. Suggestions ranged from raw materials to soil quality, and ancient woodland to native species of flora and fauna.

One point of contention among the speakers was over the use of targets within conservation policy. Arguing against targets, some vocalised how they can give conservation efforts ever narrower focuses, whereas it can be more effective to examine issues of this kind holistically. The risk that a plurality of targets can quickly become contradictory of each other was also raised.

Nonetheless, other panellists defended this approach, largely on the basis that targets can serve as a spur to much needed action – for example, as we have seen with the phase out of petrol and diesel cars, or recycling rates. Furthermore, it was argued that targets may also usher in better data collection which can be crucial to understanding what elements of conservation policy are going right, or, importantly, wrong.

The panel also touched upon question of rewilding. Again, all broadly agreed that a degree of rewilding could be agreeable, yet there was debate around how far it should go. Some favoured the reintroduction of species like the lynx and beaver, but others drew the line at restoring native habitats, such as rewetting peatlands and reforesting upland woodlands which have been lost to agriculture, for instance.

Strengthening the role of markets in energy

Among the third panel of the day (and the first on energy), there was a general recognition that markets can and should be strengthened to deliver better outcomes for consumers. Different panellists highlighted the role that different technologies could play in revolutionising how we consume energy, such as big data, blockchain, connectivity, interconnection, and also demand flexibility services. As these cost-effective technologies develop and expand in the market, there will be greater scope for reducing government intervention.

Whilst there was broad praise for the Contracts for Difference reverse auctions which the Government has been conducting to drive down the costs of low-carbon power subsidies, the panel was split on the efficacy of large-scale nuclear projects like Hinkley Point C backed by now seemingly exorbitant strike prices. Some saw them as a necessary price to pay to ensure a secure supply of low-carbon energy, others as overly expensive and incompatible with a more decentralised, flexible electricity grid.

Energy security in the UK and Europe

Much in the same way as some members of the first panel on agriculture questioned the need for food security, so too was there scepticism on our fourth panel about the idea that the UK should be worried about energy security. Indeed, the panellists drew an important, under-appreciated distinction between self-sufficiency, which means that all energy is produced and generated domestically, and security, which means that energy supplies are secure through having diverse and reliable sources.

The panel was quite clear that we should not overstate the importance of Russian energy imports in the context of UK and European energy security, citing the maxim that “Russia needs Europe more than Europe needs Russia”. There was also significant optimism that improvements in renewables like wind energy will make domestic production easier, while new technologies such as electric vehicles and advancements in batteries will also help to bolster our storage capacity.

If there was one outstanding note of caution raised by the panel, it was that as our energy networks become increasingly interconnected and convergent, the potential danger of a successful cyber-attack on the system escalates. This, more so than conventional energy security fears, seemed to be where the panel thought resilience in our energy sector would be most needed.

Conclusion

The final two speeches were delivered by two former Environment Secretaries from the Major Government. While divided on the question of the UK’s membership of the EU, they are united on the imperative of protecting our environment.

First, the Rt Hon Lord Deben, Chair of the Committee on Climate Change, spoke of how business needs to assume a greater responsibility for tackling climate change, especially now that the science so clearly supports anthropogenic climate change. He stressed the idea of doing more to internalise hitherto externalised costs of pollution associated with consumption – in basic accordance with the ‘polluter pays’ principle. Furthermore, he highlighted how much more energy efficient everyday living has become as a result of EU regulations.

Second was the former Leader of the Conservative Party, the Rt Hon Lord Howard. Speaking with reference to his role as Secretary of State for the Environment during the Rio Summit of 1992, Lord Howard raised how, contrary to popular assumption, rising living standards and decarbonisation need not be antithetical – citing evidence that the UK has witnessed both the greatest decline in carbon emissions and greatest rise in per capita economic growth of all G7 countries over the past 25 years. He argued that Brexit would allow the UK to become even more environmentally friendly than it currently is.

In summary, the Green conservatism conference successfully brought together a range of policymakers, experts, and practitioners, particularly on the centre-right, with the shared ambition to realise a greener, more sustainable world, yet with different perspectives on how to achieve that desire. The debates which took place were testimony to the long-standing, but underacknowledged conservative commitment to environmental stewardship and conservation.    

Eamonn Ives is a Researcher at Bright Blue

Hotting up: the potential of heat networks

Heating is one of the most difficult sectors of our economy to decarbonise. This is largely because gas provides 90% of our domestic heating demand, and so infrastructure to deliver gas to homes represents a big sunk cost. In addition, gas boilers are much cheaper than low-carbon heating technologies. For instance, the £2,600 cost of a condensing gas boiler compares unfavourably with £6,500 for an an air-source heat pump.

In our recent report, Better homes, we found that of the different microgeneration technologies that produce renewable heating, heat pumps, had the greatest potential to be deployed at scale. Private investment by individual households in heat pumps and other home energy improvements should be encouraged through new Help to Improve loans and ISAs.

However, there are alternative approaches to heat decarbonisation. For instance, ‘green gas’ (biomethane) can be injected into the gas grid, the gas grid can be converted to use hydrogen, or new ‘heat networks’ can be constructed.

This blog will examine the potential of heat networks in particular, and the barriers to greater deployment.

Heat networks trends

Heat networks are a distribution mechanism for heating. In a heat network, heating is generated centrally and then transported through insulated pipes to homes for space and water heating. The energy comes from a range of sources, including gas, waste heat from power and industry sectors, energy from waste plants, and large-scale electric heat pumps. District heat networks can be delivered by partnerships of energy companies, government, housing associations, businesses, and local authorities.

There are currently 2,000 heat networks in the UK, supplying heat to around 200,000 homes. Heat networks provide around 2% of the UK’s heating. Heat networks are very common in other European countries, such as in Denmark where over 61% of customers receive their heating from a heat network.

In the 2013 heating strategy, DECC modelling suggested that up to 20% of UK heating demand could be met by heat networks by 2030. The Government has allocated £320 million of public capital for heat networks over the course of this Parliament. It has created a new programme, the Heat Network Investment Project, to distribute the funding, leverage private finance, and deliver the infrastructure. It believes the pipeline of proposed projects over the next 10 years will require £2 billion of private investment.

Barriers to heat network deployment

There are a number of barriers to further deployment of heat networks. First, in order to enable carbon reduction targets to be met, the energy sources of heat networks must be low-carbon. At the moment, the majority of the energy used in district heat networks comes from natural gas. There are still carbon savings from switching to this more efficient heating system away from individual gas boilers, but it does not constitute low-carbon heat. Existing heat networks need to be converted over time to low-carbon energy sources, such as waste heat from power and industry sectors, or large-scale electric heat pumps.

Second, financing mechanisms for heat networks must be further developed to give operators more certainty while protecting consumers. This was one of the key recommendations in Policy Exchange’s recent report on the heat sector. Consumers are naturally unwilling to contract with a heating provider which isn’t yet operational. Yet to give investors the certainty they need to construct the heat network, a basic level of demand must be guaranteed. The Association for Decentralised Energy has called for a new capital guarantee scheme from government to de-risk heat network investment. It is vital that reducing risk for developers does not damage consumers, who will in effect be contracting with monopoly providers.

Third, not all types of properties in the UK will suit the heat network model. They require a dense heating demand profile in order to be economical and minimise capital costs, and as such will mostly be installed in highly populated urban areas. They are also more expensive to retrofit into existing properties than to install in new developments. In the right conditions, however, savings for the consumer are possible. DECC analysis suggest that heating costs for a flat supplied by a heat network can be 30% lower than the equivalent property heated by a gas boiler.

Conclusion 

Heat networks could certainly play a key role in cost-effectively decarbonising the heating sector. It is a great opportunity to utilise low-carbon waste heat sources, particularly in urban areas. The barriers identified above can be overcome by policymakers. However, given the scale of the transition away from gas boilers, it is likely that a combination of heating solutions will be required, also including energy efficiency measures, heat pumps, and green gas. Heat networks should be part of that mix.

Sam Hall is a researcher at Bright Blue