Written evidence submitted by Energy Systems Catapult (CGE0029)

Introduction

The Energy Systems Catapult (ESC) was set up to help navigate the transformation of the UK’s energy system. We work across the energy sector to ensure businesses and consumers grasp the opportunities of the shift to a low carbon economy. The ESC is an independent centre of excellence that bridges the gap between business, government, academia and research. We take a whole-systems view of energy markets, helping us to identify and address innovation priorities and market barriers, in order to accelerate the decarbonisation of the energy system at the lowest cost.

Key Points

The Energy System Catapult team recently updated to its 2050 scenario work to the Energy Technologies Institute (ETI); Clockwork & Patchwork – UK Energy System scenarios[1]. This work found that ‘a balanced multi-vector approach can deliver an affordable, low carbon UK energy transition, with costs rising to around 1% of GDP by 2050’. What is likely to become more important is taking a whole-systems view. This means understanding how the traditional silos between heat, power and transport are breaking down as a result of new technologies, including digitalisation. It also means understanding that how the consumer responds is an essential part of the future energy system. This becomes more important as consumer-facing technologies like heating and transport undergo significant change.

Our modelling identifies a few key technologies that can have the most significant impact on reducing the cost of decarbonisation:

• Carbon Capture and Storage (CCS) offers a versatile solution with applications across power, industry and hydrogen production. Without CCS, UK carbon abatement costs could be double by 2050.
• Sustainably grown biomass also has the potential to become a critical resource for the UK energy system. It can be burned directly for heat and power or converted into low carbon gases and liquid fuels to decarbonise hard-to-treat sectors.
• Bioenergy and CCS are especially valuable in combination. Together, they offer the potential for negative emissions to counterbalance the continued use of fossil fuels in difficult sectors like aviation.
• Storage of electricity, heat and gas (including hydrogen) will all have a role to play, along with backup generation in power and hybrid systems for heat.
• Low carbon heat solutions will require powerful consumer propositions that match, if not exceed, current experiences.
• Electrification of transport can begin to deliver significant carbon reductions from 2020 onwards. A strategic network of charging infrastructure is essential to making electric vehicles the logical choice for individuals and businesses looking to buy their next car. The UK needs a clear strategy for EV roll-out in the coming years - this strategy should include ‘managed’ charging and the incorporation of renewable power and energy storage systems to reduce the impact on the electricity grid.

Detailed Response to Questions:

The appropriateness of the Clean Growth Strategy in meeting emissions reductions targets

1.         The Strategy lists four key areas where progress is planned:

• ‘Improving Our Homes’;
• ‘Accelerating the Shift to Low Carbon Transport’;
• ‘Delivering Clean, Smart, Flexible Power’; and
• ‘Enhancing the Benefits and Value of Our Natural Resources’. 

2.         The ESC believes that progress is required in each of these four areas. Each of these areas is important and without action in all of them, the 2050 targets are unlikely to be delivered. A number of options need to be developed across different sectors rather than targeting a single blueprint, given the inevitable implementation risks. We provide support services to the current BEIS Energy Innovation Needs Assessment (EINA) process as a way of identifying where best to target any innovation spend.

3.        New policy frameworks and business models that promote an integrated, multi-vector approach to low carbon energy are needed to optimise the combination of low carbon energy sources, heat and power supply, flexibility, retrofit, microgeneration and storage in delivering energy services to consumers.

4.        Local authorities, driven by statutory requirements, and a desire to deliver socio-economic benefits associated with energy related schemes, are increasingly involved in local energy planning. The problem they face is how to decide which options are most appropriate for their local area and in what order they should be prioritised. The ESC believes that this can be best achieved through local strategic energy system planning, building coherent transition plans that meet government targets, rather than just opportunistic projects. We believe that coordinated local energy plans can lead to a significant reduction in carbon emissions from heat in buildings, and that local authorities, working with commercial partners, are best-paced to take on responsibility for local area strategic planning.

5.        Progressing the development and deployment of Carbon Capture and Storage (CCS) remains of high strategic value to UK decarbonisation. A renewed strategy, including for deployment in the power sector and possibly hydrogen production, should be developed urgently, drawing on the lessons from cost reduction achieved in offshore wind resulting from sustained policy support.

6.         Good progress has been made to date on meeting carbon budget targets with areas such as electricity generation seeing significant reductions due to the increase in wind generation and solar PV. More progress is needed going forward in a number of areas such as heat, transport, electricity generation, bioenergy and CCS.

7.         The UK’s carbon targets imply the elimination of natural gas used for domestic heating. This will require asset changes within and around homes such as heat pumps, fabric retrofit and heat networks.

8.         The low carbon transition raises a range of broader co-ordination issues, within and across network infrastructures which may not be capable of resolution through familiar market mechanisms. This includes handling integration and interactions with CCS, hydrogen and vehicle charging demands and infrastructure.

9.         Such a significant transition will call for appropriate technical solutions and close co-ordination between many different stakeholders, including local and national government, network operators, energy providers, local communities and businesses as well as individual consumers.

10.     To build on the progress in a number of areas, there is a need to demonstrate new technologies/approaches at scale. This includes the technical and commercial viability of low carbon heat, CCS and hydrogen plus Small Modular Nuclear Reactors (SMRs).

11.     There is some uncertainty in future technologies’ contribution to emissions reductions, but this can be best managed by developing and testing a number of options across different sectors. The potential for innovation across a range of technologies means we cannot be prescriptive about the precise mix over the next thirty-year period. Developing a basket of the most promising solutions offers strategic flexibility, as opportunities and barriers become clearer.

12.     Many of the solutions needed to meet the UK’s emissions targets already exist but there is a need to drive cost reduction and performance improvement. There are number of critical options that have been trialled or proven outside the UK but not yet deployed in the UK (e.g. CCS) – without these the system choices change significantly and abatement costs will increase. Large-scale testing and demonstration of new and existing technologies is a critical component of meeting the 2050 targets.

13.     There is the possibility that carbon budgets may have to be significantly revised to align with the UK’s commitments under the Paris agreement. This may require greater ambition across all of the four areas covered in the CGS and mean that there can be no slippage in key areas such as the transition to low carbon heat.

How the development and deployment of technology can best be supported, and the extent to which the Government should support specific technologies or pursue a ‘technology neutral’ approach.

14.     The ESC supports a ‘whole systems’ approach to the low carbon transition. The existing UK energy system is already complex but will become substantially more so as it evolves. This complexity is proving to be a significant barrier for innovators, so we are working alongside industry to develop whole systems capability. This will mean that innovators can understand how their new product or service fits into the transition of the energy system as a whole and how commercial opportunities can be exploited. Innovation, and creating the right circumstances for it to flourish, are key to meeting the future challenges we face in the energy market. Innovation in technology, business models, value propositions, policy and regulation will be needed to meet the 2050 targets.

15.     The complexity of integrating new products into the energy system is a real barrier to innovators and is therefore one of the key areas of capability that must be addressed. ‘System integration’ is the discipline of connecting together all of the necessary components (whether they be market mechanisms, price incentives, regulation, technologies, devices, data, communications, methodologies, processes or business models) that between them make up the energy system and ensure that they work efficiently together. For new products and services to make it into the existing energy market they need to seamlessly connect to and interoperate with the components that are already part of the energy system.

16.     Given the complexity of the challenge to decarbonise energy and transport, it may be difficult to deliver genuine technology neutrality. Some technologies, such as CCS and nuclear, may need support to become commercially viable. To deliver a low-cost energy transition, it will be necessary to remove market barriers preventing the development and deployment of the low carbon solutions. This will require new market frameworks that facilitate the development of technologies such as CCS, bio-energy, electrification of heat, EVs and possibly hydrogen.

17.    The ESC is exploring how open, flexible market arrangements and governance that allow secondary trading within and outside the electricity market e.g. in converging markets for low carbon heat and transport energy, can best deliver the low carbon transition. By adding carbon reduction incentives on consumers or suppliers, decarbonisation of buildings moves from being a ‘stand-alone’ issue to one at the heart of energy retail.

18.    The potential opportunities offered by hydrogen for heat should be explored by the Government, with policy focusing on evidence gathering in this area. A substantial live trial (or trials) of existing, occupied homes would be necessary before a widespread rollout of hydrogen in the gas grid. It is unclear precisely what a comprehensive live trial(s) for the large-scale deployment of hydrogen might look like and what components are necessary or merely desirable, but such a trial(s) probably needs to take place by the early 2020s and could build on existing projects like the H21 Leeds project. Consensus is needed to ensure a live trial(s) adequately provides sufficient information to enable Government to make a decision on hydrogen no later than the mid-2020’s.

The relative priority that should be attached to developing new technologies compared to deploying existing technologies, including consideration of the costs and pollution involved in the decommissioning of technologies or infrastructure.

19.     There is a balance to be struck between developing new technologies compared to deploying existing technologies. The ETI’s UK Energy System scenarios discussed above show that a mix of existing and new technologies will be required to meet the 2050 climate change targets. Serious consideration also needs to be given to the legacy energy system: should this be based largely on fossil fuel i.e. hydrogen produced from methane, or a system that uses new assets to gain efficiencies and reduce dependence on future energy resources?

20.     Existing technologies such as offshore wind, heat pumps, district heat etc are already being deployed where they can make a valuable contribution. New technologies such as CCS, nuclear SMRs, new battery technologies and hydrogen need to be tested and demonstrated at scale and this should be done well before 2030 otherwise the 2050 climate change targets are unlikely to be met.

21.     The development of heat networks, especially those using heat from ambient sources and industrial processes, could play an important part in meeting local energy needs and achieving decarbonisation targets. A key facet of the SSH Programme is working with local authorities to produce local area strategies to decarbonise the existing housing stock, including the identification of zones where district heating is a viable alternative.

22.     The UK seems particularly well-placed to benefit from CCS, with relatively good access to depleted offshore gas and oil fields. The development of CCS could allow the UK to use existing and new (fracking) gas resources to complement renewable and nuclear generation and improve security and stability of supply. CCS could also potentially utilise redundant gas pipelines and depleted gas fields.

Examples of specific technologies whose development and deployment have been effectively supported so far, as well as those that show particular promise for meeting the Government’s carbon emissions targets or supporting the UK’s economy, or which would benefit from specific Government action, in the future

23.     Specific technologies whose development and deployment has been successfully supported so far include offshore wind, where deployment subsidies, in combination with targeted innovation support and increased competition, have helped to support the development of the technology to an extent where build costs are competitive with other forms of generation. Support for solar PV was also very effective in stimulating uptake until the costs of solar panels fell.

24.     Evidence gathered and analysed by the ETI[2] suggests that UK nuclear new build has very significant cost reduction potential. The ETI report concludes that a carefully designed programme that engages all of the key stakeholders with a shared vision and focus on the key characteristics of low cost, high quality construction can start the UK down the path to affordable nuclear power. The report identifies the potential for a step-reduction in the cost of advanced reactor technologies and SMRs. Whilst such technologies are not yet licensed, nor construction-ready, the report provides further evidence in support of early testing of design claims by regulators, and the examination of cost reduction strategies by potential investors.

25.     In addition to nuclear, storage of electricity, heat and gas (including hydrogen) can also have a role to play, along with backup generation in power and hybrid systems for heat. Electrification of transport can begin to deliver significant carbon reductions from 2020 onwards. The wide-scale deployment of smart meters and Home Energy Management Systems can also lead to a significant reduction in carbon emissions.

26.     Innovation, and creating the right circumstances for it to flourish, are key to meeting the future challenges we face in the energy market. Innovation in technology, business models, value propositions, policy and regulation will be needed to meet the 2050 targets. It is clear that, while innovation in energy systems needs to be supported, it must be recognised that the fundamental technologies available in say 5 or 10 years are likely to be similar to those around today – so it makes sense to support existing technologies now.

October 2018