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Is the UK ready for an energy transition?

Faced with an uncertain energy future, Britain’s businesses are voting with their feet.  As we have reported on this site in recent days, supermarket giant Sainsbury’s is planning to generate all of its own energy from biogas, while confectionery manufacturer, Mars aims to operate all 12 of its UK plants on renewable energy.  This, it turns out, is just the tip of an energy revolution iceberg according to George Ogleby at Edie:

“The Energy Entrepreneurs Report, which tracks independent renewable energy generation across the UK, reveals that 155 new on-site energy generation projects were developed last year, with a combined capacity of 99MW. This figure boosted the total number of UK sites generating their own energy to 728, accounting for 13% of all renewables projects and 6% of capacity.”

As more businesses and households opt to generate their own energy – usually feeding any surplus into the National Grid – so an increasing proportion of the cost of maintain the Grid has to fall on the shoulders of those who have not – or cannot – switch.  Obviously this doesn’t end well for the Grid, since increasing prices will force ever more households and businesses to generate their own as a means of keeping operating costs down.  Nor does it work well for the majority of households that (without state support) simply cannot afford to generate their own.  For the most part, this group will simple disconnect themselves and raise considerable political pressure to scrap standing charges; putting even more pressure on the grid.

There is a more intractable problem than the cost of supply, however.  This is that the current system of self-generation is based on financial alchemy rather than physical reality.  The Sainsbury’s approach, for example, involves selling surplus biogas energy into the system in order to buy it back when it is needed.  Most renewable energy generation has to follow some variant of this.  This means that these approaches do not really amount either to going off-Grid or to being wholly renewable.  They depend upon the prior existence of the centralised Grid and large nuclear and fossil fuel power stations to feed surplus energy into in order to buy it back later.

This brings us to the key discussion that we keep ignoring.  The energy infrastructure that we are likely to need in future is very different to the one we inherited.  Back in the days when we had access to cheap (to produce) fossil fuels, and when we had less of an inkling of the damage we were doing to the environment, we developed the current system.  The Grid that we inherited is based on a small number of very big power plants and a web of long-distance transmission lines and plants.  The system we are moving to is more diffuse.

It goes without saying that this vision of millions of small and medium scale generators operating within a diffuse system is completely at odds with the government’s vision of the future.  In that future, an even more centralised system – linked to other European Grids – will draw power from around 40 gas fired and nuclear power stations – the gas coming from thousands of hydraulically fractured shale gas wells dotted across the British countryside.  In order to build this system, government intends to guarantee generators prices around double what we pay today… the naïve assumption being that neither businesses nor households will do what they are already doing, and simply opt out.

The problem with the government vision is that the economics do not stack up.  When it comes to energy infrastructure plans, outside the decommissioning of the oldest nuclear plants, not much is happening because government refuses to raise capital directly.  This is deliberately hidden by categorising projects like the Hinkley Point C nuclear plant – which is nowhere near the construction stage – as “active” and then combining these with those where construction has begun.  This presents a much more favourable picture of the UK’s energy infrastructure than is actually the case.  As Energy expert Dieter Helm notes:

“The consequence of the ’project wish list’ approach rather than an integrated plan is not just that many things don’t get done, but that the costs tend to be much higher.”

In 2014, the Institution of Civil Engineers presented a gloomy report into the state of UK infrastructure:

“ICE’s overall view is that the approach to delivering and maintaining infrastructure requires attention. If we are to compete in the global economy the UK cannot afford to settle for infrastructure which does not meet the challenges we are now encountering. Increasingly extreme climactic conditions compounded by demands from a growing population mean that we can no longer provide and operate infrastructure to the standard required.

“ICE’s findings indicate that three sectors – energy, flood management and local transport – are of particular concern. A narrowing gap between capacity to supply energy and demand; inadequate resilience to flooding, and the decline in maintenance of local roads and flooding assets due to investment cuts have all contributed to the current grades.”

In ICE’s A-D grading system, UK energy infrastructure was given a “C-“.  And while this was slightly up on the “D” given in 2010, ICE warned of trouble ahead:

“Significant quantities of the UK’s existing electricity generation capacity are expected to be retired soon, with major implications for security of supply unless the conditions to attract investment in new generation are provided. This situation is expected to be further exacerbated as the use of electricity for transport and residential heat increases demand. We must also increase the intensity of efforts to maximise energy efficiency and reduce demand.”

Since the ICE report, we have seen the early closure of several of the UKs large coal power stations.  Energy companies have also pulled out of projects to build new gas power stations because of current economic uncertainties in the energy sector.  Nor has construction started on any of the planned large nuclear plants.  This suggests that the UK infrastructure is falling behind and may soon be inadequate.

Unfortunately, the dash for (shale) gas (which assumes commercial production is possible) together with the new nuclear plants is being developed ahead of a new diffuse system that increasing numbers of us are voting for with our feet.  As a result, Britain looks likely to end up with the worst of all worlds – an inadequate and unaffordable centralised system, but no development of infrastructure to support local renewable energy systems.

Perhaps it is only when our businesses close or relocate to parts of the world that are more forward thinking that British politicians will finally have the energy debate that we should have started back in 1999 when the North Sea peaked.

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