Gatwick gone bonkers

Gatwick has become the first UK airport to announce that it will be Carbon Neutral: http://www.mediacentre.gatwickairport.com/press-releases/2017/gatwick-becomes-first-uk-airport-to-join-global-renewable-electricity-alliance.aspx.

I have never been a fan of the concept of Carbon Neutrality. The level of certification required to substantiate such a claim makes the Brexit negotiations look like a tea party. All we really want is to reduce emissions, not claim some isolated, innocent status by declaring ourselves Carbon Neutral. The government tried it with Zero Carbon Homes, a scheme now abandoned, but to declare that ‘Gatwick Airport is Carbon Neutral’ – now that is bonkers.

Gatwick Airport plays host to hundreds of thousands of cars, trains, trucks and planes every day; it is an epi-centre for the release into the atmosphere of vast quantities of carbon.. Whilst we need to decarbonise, air travel is an area that no one has a solution for at this time so Gatwick needs others to save carbon on its behalf because it is certainly NOT Carbon Neutral.

To pronounce that Gatwick will achieve this lofty aim by next spring produces a number of very unhelpful effects:

  1. Many people will think they mean the planes as well, thereby solving an impossible problem by next spring. We need folk to engage with this issue in an informed manner and this does not help.
  2. Even for those who do not fall for the above, travellers will feel very uncertain that any science is valid. How on earth can Gatwick be Carbon Neutral? It can’t unless you employ some very creative assumptions. For more insight on the dangers of green labels, I’d invite you to watch our recent TEDx talk: ‘Cleantech does not exist’ (see TEDxOxford.co.uk)
  3. It makes Gatwick look silly. This simply draws attention to a piece of corporate Group Think that expects everyone to believe that you are part of the solution when in fact you embody the problem. Better to acknowledge that you need people like me and the investors and entrepreneurs in New Energy to solve this issue for you. And I believe that we will, which is why I will continue to fly from Gatwick.

Please go ahead and buy some renewable electricity and replace oil with gas; that’s great and I’m all for it. You can put it in your CSR report and announce it all over the terminals. But, Carbon Neutral? No, thank you.

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TEDx Oxford -‘Cleantech does not exist’

My TEDx talk at the New Theatre Oxford on 5th February 2017 is online at;
https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwi5i460i7jSAhXlAcAKHcYtAvoQtwIIGjAA&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DIV4sE1hddxg&usg=AFQjCNEudrukSF8adzl_RfTa5QGBcSROlg&sig2=WFvoGIgW7nvC9rSDbNOgog&bvm=bv.148441817,d.d24.

Quite difficult to follow the online video without the slides so I have uploaded the slides here:

iamdave-final

 

In Retail Energy – More meddling is needed!

The CEO’s of major British energy challengers have called for an end to ministerial meddling in the UK energy market. I am acutely aware of the downsides handing back my licence for Open4Energy out of disgust at the Labour ‘Price Freeze’ proposed by Ed Milliband, a Herculean effort in meddling of the worst kind. I also understand the desire for stability for the current energy market participants. However, as Chairman of the Energy Research Partnership committee looking at the utility of 2050 and as an innovator and financier in energy my current concerns are for the long term.

We need much more meddling. The retail energy design is the way meters, distribution companies, wholesale energy, bills, suppliers and customers all interact and it is a relic of a previous era in computing when folk talked about ‘main frames’. Now we need a retail energy design that looks like Alexa, requires the same training as Spotify and is run by tech-centred companies that embrace technology rather than ignore it. Customers would buy energy when they wanted, from whom they wanted, at any time in any amounts, pay for it in advance with a simple bill delivered at the point of sale, with a sprinkle of complete trust and totally open.  This can be done now (in fact, it could have been done years back), would be cheaper to run than the current system and no one would need to miss out, we would all be on pre-payment.

So why has this not been actioned? Well, it’s a combination of political uncertainty (no party is in power long enough to take a long term view) and regulators (by their own admission) always playing catch up. Moreover, neither of these two are renowned for being a hive of innovation, rather more for a culture of procrastination.

Such a redesign of the way we buy energy is an essential step as we tackle the increasing pressure on our society and the global community to decarbonise not only power but also heat and transport.  The utility of 2050 will need to have such a simple customer-centric system and the earlier we set about designing it the better but currently no one is doing this.

A cross-party, cross-industry group should be set up to start this work now, with a clear mandate to redesign using modern digital designs to meet customer objectives and not to put a patch on a broken and fatally flawed design from 1994 that has long outlasted its welcome.

David Casale

Former CEO and co-founder of Utilita (2003-2009), Fellow of the IMECHE, Associate of Poyry and Chairman of the Energy Research Partnership Steering Committee looking at the #UTILITY2050.

 

Mind the Gaps – Hinkley is more like Trident

Extract from BBC Reality Check

The claim: The cost of Hinkley Point C to bill payers has risen from £6bn to about £30bn.

Reality Check verdict: The projected cost of guaranteeing the amount paid for electricity from Hinkley C has risen considerably because the government forecast for the wholesale price of electricity has fallen.

Another figure that is given in 2012 pounds is the government’s estimate that the cost of Hinkley C will add £10 per year to each household’s bill…. It’s a figure that Andrea Leadsom gave to a parliamentary committee in May. But the National Audit Office says that figure for project cost has risen to £29.7bn, and if you calculate that per household per year then you get to £25 per household per year.

The ‘Certaintists’ are certainly wrong

Sorry Andrea Leadsom, National Audit Office and BBC Reality check (‘Certaintists’) you are all WRONG.

We can all agree that the cost of Hinkley (and any CFD supported power plant) is calculated based on the difference between the strike price and the price of electrons in a wholesale market. We know the strike price £92.50 increased by inflation from 2012, we do not know the wholesale price of energy over the next 35 years. As with many energy projects the problems are in the assumptions.

The Certaintists have assumed that the Government is a good source of forecasting for power prices as if it is was the Government that sets them. Experience shows that forecasts of power prices over the long term are always wrong in a material way. No we have gaps and issues and I can summaries them here. Firstly here are some issues to consider;

  • No one (and I mean no one) has any idea what the future price of gas and oil will be
  • The only capacity being added to the power system today is sponsored through a subsidy provided by Government and has a zero or very low marginal cost and so can displace any other generator when it is available to generate
  • No one knows if we will desire to meet our stated aims in the Fifth Carbon Budget that legally (in theory) binds the UK to reduce pollutants
  • No one currently has a credible plan for how we will meet our stated aims of pollutant reduction in heat and transport but most agree that these will be significantly supported by substitution by power systems.

If a power system is in receipt of subsidised low marginal cost plant the price of power will not increase it will decrease and so therefore the fact that we wish to reduce pollutants in the next 35 years means that the cost as defined as the difference in price as above will rise if you use these fundamentally flawed assumptions.

Mind the Gaps

There are gaps in the approach to reducing levels of pollutants;

  • Enforcement gap; In the UK we have air quality standards but we do not meet them in many parts of London, if we have a change in heart sponsored by a public outcry to meet our pollutant targets led by informed younger people that might then apply to ALL pollutants and drive up the price of fossil fuels through carbon tax
  • Global Warming gap; There is a gap between predicted global warming if we all globally achieve our Paris pledges and the required path to 2 degrees or less of global warming.  That warming gap is as wide as say a gap of two meters between the tube and the platform, which is for most too wide to jump. If we committed in the next 10 years to actually make the gap say a mere 50 cm then the investment needed in power assets would be huge and non-fossil
  • Energy storage gap; we need to store the increasing levels of renewable power and industry is still working on these technologies and as yet we do not know what they cost

We need to reconcile these issues and gaps if we are to talk sensibly as society about how we transition to a low carbon economy, figures such as £10/customer etc. simply do not help and have so many assumptions attached as to be certainly wrong and more importantly worthless as a source of information for society.

A better way but unfortunately not quantified[1] would be to say; Government invests in Trident as it has determined that it is in the nation’s security interest, Government invests in Hinkley as it has determined that it is in the nation’s energy supply interest.

 

 

 

 

 

[1] The road to a quantifiable answer is only achieved once we have a global price for the pollutants as well as a limit on their use

Three reasons why Hinkley Point should be built

I work for Turquoise investing in and raising funds for Energy, Environment and Efficiency companies that in the main are in competition with Nuclear Power. In my previous career, I have never worked on nuclear projects. So why am I making a case for Hinkley?

Let’s start at the beginning. The UK has now adopted the Fifth Carbon Budget, limiting our emissions of pollutants such as CO2 to a level 57% less than that recorded in 1990 en route to a target of 80% reduction by 2050. We have, as the UK (note: not as the EU), made this the law of the land; in theory it would be an illegal act for any Government to fail to deliver on this commitment.

Science tells us that, during this century, we will probably need to stop using any form of fossil fuel in our heating, transport and power systems unless we capture the pollutants and store them.

So far we have met the early carbon targets because we have been lucky, not through any particularly brilliant and consistent energy policy intervention. Gas became cheaper than coal in the 1990’s, we have quietly become more energy efficient and the 2008 crash reduced industrial activity. All of this would have happened with or without a carbon budget. Of course, we have made significant progress in wind power and some other nascent areas but basically we have not really begun the task of decarbonisation in its own right in earnest.

The carbon budgets are for ALL energy use: heat, transport and electrical power. It is clear that in heat so far we have done nothing, in transport practically nothing and in power quite a lot. In most forecasts the power system will be the first (by miles) to become 100% decarbonised and that will be necessary to compensate for the lack of progress in the other two sectors. So, how are we going to do it?

Now we could build gas fired CCGT at a cost of £47/MWh but that assumes they run for 15 years or so and a lot of the time, as above we are not allowed that freedom by the simple fact that the fails in heat and transport require power to do all the heavy lifting. If you try and pay for a new CCGT in say a 5 year period to avoid this conundrum its cost of power goes up in a material way and certainly above the Hinkley price.

I’m Chair of the Energy Research Partnership Steering Group analysing how a utility might look in 2050 (we call it #Utility2050 – genius). If we wish to watch TV and drive our Teslas ‘whenever’ whilst not freezing ‘ever’, we need to balance a growing power demand with a shrinking power supply and to do that every 1/50th of a second (as is the grid requirement). Not an easy thing, so we look to energy storage and demand side management to help.

OK batteries are here and getting cheaper but the long term stated targets are $50/MWh all-in (compared to around $400/MWh for Tesla Powerwall currently) and then you have to add the cost of power itself on top of that so $50/MWh to store and £115/MWh to make (using wind) is an all in costs of say £141/MWh; are we sure it’s not cheaper to just dump abundant renewables if we can’t use them or ship them somewhere that can and use an old coal station converted to biomass use and revamped to cover the gaps? Demand side could make a huge difference but we have to explain that to consumers as it’s probably going to involve giving something up, most likely the ‘whenever’.  What seems clear from the initial #Utility2050 work is that we don’t know a lot more than we do know.

HMG is the buyer of all new capacity in the market, no one invests in what we used to call merchant power, and it is all CfD or Capacity market fed. So if you are the buyer of all new electricity capacity in the market what power would you buy on behalf of the nation?  Well here are three reasons why, given the above, you would buy from Hinkley:

  • Hinkley is cheap: forget all the baloney about the world’s most expensive power station, we are only paying for the power at £92.50/MWh (and if it doesn’t work we don’t pay). Compared to, say, intermittent offshore wind at £115/MWh (which by the way I think as an industry has a massive future, so relax if you’re in wind defence mode) it looks attractive. As mentioned long term and hard running gas CCGT is cheating on our carbon aims.

 

  • Hinkley is baseload: it runs all the time, can be turned up and down more than you think and I, for one, will sit eating a mince pie on December 25th in the mid-2020s at about 16:30 with the TV on hoping it is a dark crisp winter’s night outside and confident that Hinkley Point at least is blasting out electrons full tilt.

 

  • Hinkley is consistent: we have had 14 Energy Ministers since 1996, we have flipped and flopped from Carbon pricing ON/OFF to competition ON/OFF to state buyer models to feed in tariffs ON/OFF and ROCs ON/OFF and I don’t know what else. HMG has spent considerable time attracting investors into Hinkley and changing its mind for no good reason (and there are none) would be a very bad step for meeting the funding needs of an energy system in unprecedented state of transformation. Note that we are not increasing our nuclear fleet in the UK, just replacing old stations (something that good old engineers like me would have quietly done in the past without fanfare).

The energy industry needs to come together to explain to society how we are going to meet our decarbonisation targets in the medium and long term. It’s not Nuclear v Renewables or Low Carbon v Fossil; we will need all concerned working to a common goal to transform the system whilst keeping the lights on at a cost we can live with in 2050.

Hinkley should proceed with confidence from investors, owners and customers that it is a useful part of the bigger and harder-to-solve jigsaw puzzle. Politicians should man (or woman) up and say so.

 

Universal Prepayment – In the National Interest

Universal Prepayment – in the National Interest

This proposal recommends a radical redesign of the GB retail gas and power market.  The redesign has a number of material affects that are in the public interest and should be considered by Government;

  • Consumer engagement would be enhanced
  • Margins in retail energy could fall from 5% to 3% making energy cheaper
  • Consumers are able to purchase energy at any time from any licenced supplier
  • Consumers can make payment in any way they wish
  • there would be no differential price for the payment method chosen
  • Instantaneously the number of retail suppliers could increase in a material way

The redesign is actually a relatively minor change in the current smart meter roll out plans and does not require the existing legacy systems to be altered in fact the entire technical functionality could probably be delivered by the Data and Communications Company. The proposal would be rolled out with smart meters. The Big 6 may not be unsupportive of this proposal and this would need to be tested in the evaluation.

Proposal in detail

The current smart meter roll out envisages meters operating in prepayment and credit mode.  The specification should be modified to only operate in prepayment mode (“Universal Prepayment”) and each prepayment converted at a single price to a number of kWh of fuel delivered by any licenced supplier. The first point is straight forward the second two points are a radical departure from current market design.  All three parts are required for the operation of a Universal Prepayment system.

Each prepayment made by a consumer can be considered as a bag of sugar on a supermarket shelf this Energy Delivery can be supplied by any licenced supplier; independently of which supplier is responsible for the meter point within settlement. The Energy Delivery can have clearly defined characteristics of time of use and renewable, local, nuclear supply etc.  There would be no confusion and billing would be trivial, no different to a bag of sugar in a supermarket and indeed we would expect Energy Deliveries to be sold by many retail outlets including supermarkets.

The stock of energy would be visible on the In Home Display and smart meters as a residual store of kWh of energy as currently planned.  A web and mobile platform would be made available by Energy Delivery suppliers to show purchase history and any auto top ups etc.; not dissimilar to the Oyster Card system.

There is no public interest benefit in allowing the release of energy at the point of sale for free; credit deliveries should be eliminated in any case. Meters that were designed in an age of energy being ‘practically too cheap to meter’ are not suitable for an age where 4.5 million households (and rising) are in fuel poverty; energy is cash.  Operating in credit mode where energy is effectively freely released at the point of use, energy debts rise causing a natural tension between industry and the consumer. Short lettings, student accommodation, even at the extreme cannabis growers, all demonstrate how the supplier model is at a major disadvantage from the requirement to ‘find’ a customer after the product has been delivered.  Universal Prepayment would reduce supplier costs through eliminating bad debt, simpler supplier back office; a single Universal Prepayment process.

Energy Deliveries will enable consumers to purchase energy in a fixed quantity in advance, these Energy Deliveries can be purchased from a fully liquid market where a switching process is unnecessary; vastly increasing the competitive market in itself.  Each Energy Delivery would be bar coded with the supplier identity. Like petrol, suppliers will attract customers to take deliveries from them on a variety of offers around a fully transparent and RMR compliant price offer. Unit Rate energy would be in Energy Deliveries and the meter point supplier would bill for Standing Charges. Wholesale liquidity will be transformed as no supplier would own a customer and volumes will be fluid causing active and inclusive trading in the wholesale market; a very useful backdrop to the setting of CfD strike prices.

Universal Prepayment does not affect the payment method of choice in a smart world.  Receiving energy supplies form a Universal Prepayment smart meter would not preclude customers from paying by monthly Direct Debit or quarterly by cash and cheque but it would require such payment to be in advance of delivery.  Customers would need to manage their energy purchasing as they do with sugar and petrol; unlike sugar but as with petrol, technology can feed back to them when their stocks are low. Failure to purchase energy in advance, as for a motorist, results in service failure. Rather than a bad thing this is seen as a good discipline; typically motorists do not run out of fuel and we should expect the same in energy supply. By requiring a consumer to pay for energy in advance the energy efficiency behaviour changes in an obvious and meaningful way. The consumer has yet to consume the prepaid energy and so is in a position to become more efficient with its use.  A credit mode customer has consumed the energy and simply has the pain of paying for it. In a tightly constrained market where demand response is needed a Universal Prepayment system would be very handy.

The energy settlement systems operated by XOserve and Elexon would operate in the same way as they do now.  The new design would create an intra-supplier market where aggregated Energy Deliveries would be matched with supplier offers for delivery of the same volume of energy to the same meter points.  This clearing system would require suppliers that wished to balance (say half hourly electricity demand) to bid for groups of meter points that would be ‘switched’ to them to balance.  They would bid for these aggregated meter points in a quantity that matched their generation or PPA abilities alongside their strength in balancing and trading, no different to today.  This bidding process would enable a market to develop in Energy Deliveries. New entrants may or may not choose to participate in the Energy Deliveries clearing system.

Another way to consider the redesign of the market is that in effect it is a universal collective switching initiative where consumers exercise their right to purchase all the time.

Some £1-4 bn of cash (depending on consumer choice and season etc.) would be paid in advance by consumers and this needs to be put to good use.  The Green Investment Bank (or repalcememt) would be able to take ownership of this (or some other regulated body) and consumers would get an interest rate benefit from the aggregated sums.  There is a rationale for new suppliers having access to this credit source as they all have to purchase energy in advance of delivery and currently this is the most significant barrier to new entrants. Under a regulated system new entrants could be incubated into the market and allowed access to the consumer credit to meet their initial wholesale Mark-to-Market and credit support terms offered by the energy wholesale markets.   Careful structuring around the Supplier of Last Resort mechanism would protect consumers from any loss far better than the current systems do.

A Universal Prepayment world can operate in confidence for a consumer, they buy in advance and it’s up to them when they consume the delivery; if they want total anonymity in this they can have it.  Experience with prepayment customers is that they like their prepayment meters; in Northern Ireland they even write poetry about them. There is time for this design to be assessed within the smart meter programme and this proposal can only work alongside the roll out of smart meters. A Universal Prepayment can only be delivered by Government (not by new entrants) and would transform our industry.  Recent events show again that we have to be more innovative and ambitious if we are to reverse the cycle of mis-trust generated by displays of misunderstanding between legislators, companies and consumers, held in a public forum.

Consumers will benefit from lower costs, a transformation in competition with energy being fought over Energy Delivery by Energy Delivery (as with petrol and food) as well as the original objective of the 1998 laws to stimulate an active and diverse set of energy suppliers of all sizes.

I propose that a think tank session is established to review the pros and cons of this proposal ASAP and I am happy to do what I can to support that exercise.

 

 

David Casale

CEO and Founder, Open4Energy Limited