My Big Summer Takeaway Blog

Ok I’m going to start at the beginning, I joined Shell in 1985 as a young engineer because…. well why not and the pay was great. I have worked in the energy industry ever since and today I will not work for industries that develop new reserves of coal or oil as in my personal opinion (and by the way regarding what I do that’s Ok you know) there is already too much CO2 in our atmosphere for my grandchildren to deal with.

I have noticed that we have a new Government and in a frankly quite refreshing way they are dispensing with 150 page consultations (that arrive at their hypothesis anyway) and driving off in a new direction for energy where the focus is on the nation repaying a lot of its debt. It all started with that Levy Control Framework – sort of “yes be Green but only up to this much”. It really was like a parent controlling the hours of Call of Duty allowed.

So as we break for summer I thought I’d write a blog solving all the world’s (energy) problems in one go from a UK perspective and leave it with you to mull over.


I recently visited China for the first time and very much enjoyed it. It seems clear to me that we live in a converging world where those differences in our DNA that evolved over a few tens of thousands of years are disappearing in a few tens of years as we communicate at ever increasing speed and travel ever increasing distances and in larger numbers. Good Ok so to simplify things we can safely assume we all (Earthlings) want the same things; families, education, health, security, rights (a bit of variation here), land, enough wealth (still lots to do here).


That’s not what we have got, wealth is not evenly distributed and we have the developed and the developing countries (a developed countries concept), emerging markets, Africa and population migration from war torn and economic disaster areas. No we live in a dangerous world so we need to spend something significant in the UK on defence and security (it will only get worse). Outside of the security point the rapid advance of global economies means that we need to fight for our corner and fight hard, return to manufacturing for example.

Even at City level London is debating airports, what makes London a powerhouse in global terms? Is our city doing all it can to attract the top level of people needed to be the top dog? Is London going to remain competitive? These are the issues and quite rightly a decision on airports should not and is not being taken from a purely environmental perspective. So we need to work on cleaner more efficient and quieter planes (remember planes are already very very efficient on a CO2/100 person km basis).

Energy policy cannot ignore this competition point, the situation is simply this if you have wealth you have choices if you don’t you don’t. The UK is better off with wealth and then deploying that wealth to good use – it’s wealth first. Personally I find this an uplifting place to be as we can finally kill off the nonsense of the ‘Energy Trilemma’ where industry ‘professionals’ spout on about how jolly tricky it is dealing with three things at once (Price, Carbon, Security – if you have been locked in a cupboard for the last ten years). Sorry we have always done this and it’s called least cost energy planning, the clue is in the title (least cost = max wealth).

Good so having established that we want least cost energy why then contract with yourself to impose ‘carbon budgets’ administered by a ‘Committee on Climate Change’ no that’s madness we need international agreements to solve international problems and we don’t need another committee telling us what we already know – scrap them.


Right so we know what we are doing on energy policy now what about pollution, this is partly the responsibility of the Department of Energy and Climate Change right? No way you can’t make an organisation responsible for ‘Climate Change’ and take away the resources to do the job no lets refer to the above and rename the department er…The Department of Energy?

Pollution is a condition of the environment so the Department for the Environment needs to set the controls necessary for pollution control this is the way it was before ‘Climate Change’ took over and it worked fine. We need pollution and air quality limits set a long time in advance and not messed with on a regular basis (Office for Pollution like Bank of England outside of Gov.t). Not only do we need limits on emission of CO2 from power generation but also transport, where air is really poor (London Marylebone or Beijing) we need local limits that drive the problem away, I know for a fact engineers, companies and investors are ready to deliver the products needed.

We can set local limits in Marylebone and Beijing but we can’t set them for the world as a whole for that we need co-operation. It seems to me that in the debate around the level of CO2 in the Earth’s atmosphere we have a consensus – it’s way too high now and heading for unknown territory in the very near future (50 years). This fact is not being understood by the person on the Clapham Omnibus (A bus) and I believe two rather important points need to be made on that bus;

  • Pollution as measured by CO2 in the Earth’s atmosphere is rising by 2 ppm per year every year since way before we started building windmills and despite everything we are doing we are failing in a really dramatic way to make things any better and it seems unlikely at this point to see how this situation will be reversed
  • Global warming is the result and this and is not a problem for the planet. Yes let’s have a street party the planet is saved! Planet Earth will simply look more like planet Mars and as far as I’m aware the planet and its molecules are not that bothered about that, no what is in danger is the future of homo sapiens on this planet which means you or more specifically your grandchildren who we are going to receive the all-time worse hospital pass[1].

No we need all Earthlings to agree that as grown-ups we are not going to do this, we are going to set limits on the emissions of CO2 and we are going to do that in a sensible way. So we all travel to Paris in December 2015 with that objective and we get international agreement.

International Agreement

When it comes to CO2 emissions the concept of sovereignty is changed, it is replaced by the concept of good neighbours. CO2 emissions travel around the globe at will mixed by the winds and storms of our weather systems. This is an international problem and can only be addressed with an international agreement.

We have done this before it was called the Montreal Protocol and we got rid of the hole in the Ozone layer, the reasons for this were twofold;

  • Not solving the Ozone problem killed you not your grandchildren
  • It was actually technically quite easy to do so

Removing CO2 is a much harder technical nut to crack and that needs to be understood. The investment levels needed are significant and at a time when global financial markets are already stretched (the 2008 crisis was not solved it was averted). So we need a deal, a big deal, a deal cast in stone not quick sand a deal where failure to comply is not an option, a deal where we all recognise the issues and the consequences of failure to agree. Maybe Paris 2015 doesn’t quite get there but I believe at some point such an agreement will be made, simply because in scientific terms it has to.

The lack of a firm international deal on CO2 emissions is the single most important market failure in the energy industry and is preventing energy companies from delivering the products and services that consumers have enjoyed for decades now. All energy companies should collaborate to drive progress on international agreement, that is the same for all energy ‘chapters’ coal, oil, gas, shale, nuclear, renewables and energy efficiency, we would all benefit form a firm international deal. Ok some shareholders might take a hit depending on their investments but that’s a wealth distribution issue and anyone holding fossil stocks today is surely aware of that risk. However, my former employer Shell for example might well benefit from a firm climate deal as they have the cash, manpower and large project management experience to deliver the scale infrastructure energy system changes needed to reverse the upward CO2 trend. Taxing the pollution at source does not prevent it from being used, it does increase the price and so depending on substitution the higher priced product would no doubt have a market for a long time still.

So at the meeting of the IPCC in Paris 2015 there are three outcomes;

  • A firm binding international deal
  • A middle ground muddle
  • No change

What should the UK response be to this, what should we do?

A firm binding international deal should be index linked to the actual CO2 ppm recorded so that should the figure rise on say a five yearly cycle then the deal targets automatically tighten such that the mechanism delivers the result. What we don’t want is a deal that has a spreadsheet of pledges that when added up should reduce the atmospheric CO2 but the actual ppm concentration continues to rise, that would just prove that we are not very good accountants for carbon. This outcome would be cause for a street party the UK would embark on a firm least cost plan to meet the targets set.

For the other two the UK response should be the same, we should position ourselves to be delivering one molecule more CO2 reduction than anyone else, in other words to be at the front of the pack but not on a separate lap. In working out how and where we are in this regard we need an accounting system for CO2 emissions.

An accounting system for CO2 emissions

CO2 emissions largely come from the burning of fossil fuels and biomass. These are the areas where a firm deal needs to be struck, we can deal with other emissions as well but CO2 emissions are the ones we need to control right now as they are the largest by far. Each country would report its fossil fuel production and imports and exports which would be monitored by an international body set up for the job. It would account for the use of the fossil fuels by the burning efficiency of a list of power pants and engine types etc. and report a stock change as a result. A tax is then applied for all Carbon consumed on the assumption it all is converted to CO2 emissions, any CO2 capture can be reclaimed. The price of the carbon tax is linked to the actual recorded CO2 concentration in the Earth’s atmosphere. All revenues collected from this tax are to be used to invest in non-fossil fuel and energy efficiency projects by the taxed government in their own country. Any excess funds would be used in an internationally operated fund that invested in infrastructure in less developed countries.

This moves us all away from subsidies to pollution control which is obviously a better place to be if you want to develop energy infrastructure and innovative energy technology companies. For me it would be one energy industry meeting the needs of consumers not the polarised factious industry we currently have.

Problem Solved

Our destiny is the UK is largely dependent on an international deal, we achieve nothing by running out of gas some two laps ahead of the competition; they will simple run past us as the race is never ending. The UK needs to be Chris Froome – in the lead pushing the top guys along doing that little bit more than the rest. If such a lot resides on the politicians it is interesting to note that as the UK we cannot get a seat at the negotiating table, we are represented in Paris 2015 as a part of the European Delegation, remember that (at least as one consideration) when you vote on that future of the UK in the European Union.

We as an industry (all chapters) need to come together to be clear in our moral and ethical responsibilities to explain this problem truthfully, accept that we are all failing, show the pathway to a solution and urge consensus in international negotiations.

Or failing that to be ready for the consequences which look increasingly unpleasant – Calais and Tunisia are recent examples.

[1] A “Hospital pass” is a term used in several football codes to describe a pass that subjects the recipient to heavy contact, usually unavoidable, from an opposing player

End of Oil in Sight? – An article in Wind and Wave

Wind & Wave Connect

Renewables is the new black; the global investment story


With the price of oil halving in just six months, other fuel costs have similarly crashed. Although good news for hard-pressed motorists, homeowners and business managers, many commentators have questioned the impact this will have on renewables investment and deployment.


However, as oil prices for now at least seem to have stabilised, David Casale, director at cleantech merchant bank Turquoise International, explains how the relationship between the value of ‘black gold’ and investment in renewable technology is perhaps not as straightforward as you might first think.   


After months of falling prices, February saw a slight upturn in the value of a barrel of crude oil. This said, its international price is still 50% lower than last year’s peak, with many predicting that the situation is likely to stay this way for at least the medium term. By prompting big changes in the way in which organisations shape their exposure to the wider energy sector, this could have dramatic implications.


In the past few weeks alone, the big oil giants have announced large fourth quarter losses, cut investment plans and slowed down production to try to manage the supply/demand curve. There have also been plenty of headlines around potential job losses across the global oil and gas industries..


However, when it comes to the renewables sector, the relationship between established renewable energy sources – like solar and wind and oil prices is less clear – the latest figures from Bloomberg New Energy Finance demonstrate that renewable energy investments increased by 16% in 2014, reaching £205bn, the first growth since 2011 – and five times the figures recorded a decade ago. It could be argued, in fact, that the success of the renewable energy industry has actually contributed to recent oil price fluctuations by lessening demand, alongside shale gas and wider efficiency measures.


One potentially massive possibility is that those with large oil reserves have seen the end of the tunnel and are valuing their product with an eye on stranded assets – un-burnable reserves. If this were the case it would be the single biggest endorsement of low carbon energy of all time.


In the medium term we are yet to see the full impact oil price declines are to have on renewable investment, and that the true test will come after the election. Subsidy uncertainty aside, UK, European and global government support for renewables continues to make the sector relatively attractive for investors, who can see a direct return on their investment within a defined timeframe.


What’s more, climate change is still top of the global agenda, with a growing number of mandatory clean energy targets and carbon pricing policies, the increasing pressure to reduce reliance on fossil fuels and make the switch to more resilient and low carbon technologies providing comfort to those in the renewable sector. The need for a low carbon and diverse energy mix is not up for debate, how to achieve it at least cost is.


However, the way in which that energy portfolio comes together may well be impacted by the failing fortunes of the oil economy. For example, the resulting fall in the price of gas will bring gas-fired power stations back onto the horizon, while nuclear and CCS are still being debated as short to medium term solutions.


The costs of established technologies – like wind and solar – are coming down and remain on course to be at least in a headline sense cost-competitive with oil and gas. However, some of the newer, more innovative and niche technologies, may suffer in the short-term as they are not so resilient. This will be especially apparent if government subsidies are also pulled away and refocused elsewhere.


Taking the UK as a specific example, the upcoming General Election will see voters not make their decisions based on who can best balance the carbon budget, but instead on who can keep the price of power down. As such, we are likely to see an ‘affordability, affordability, affordability’ approach to energy policy; at least until a new government settles down and feels safe enough to change processes.


Lower power affect the government appetite to pay out on the current Contracts for Difference (CfD) regime as the market price reduction increases the effective subsidy to each unit of renewable electricity generated. As the Department for Energy and Climate Change (DECC) only updates its pricing forecasts once a year, this debate is probably waiting in the wings of Whitehall.


Looking at the big picture, while the current volatility in oil prices has sent some markets into panic stations, the reality is that this is nothing new. Fossil fuels have always fluctuated and that is part of the reason why global economies have already invested significantly in trying to rebalance this energy risk. From an investment point of view, while subsidies and pricing may impact on renewables in the short-term, the long-term game is clear.


To meet the needs of future generations and deliver lower carbon concentrations changes to our use and sources of energy will change. Renewables offer part of the solution and the investment risk is clearly manageable despite whatever sparkle has come off the black gold market.



The oil price is dropping is that good or bad news?

The oil price has dropped by roughly 50% in six months, the energy industry often has surprises and let no one deny this was a surprise.

The easy Good News is;

  • It is getting cheaper to buy fuel for the car
  • It is getting cheaper to buy gas and power for the home

The more complex Good News is;

  • This could be the major oil producers deciding that the end game for oil is within their sight (they look out 50 years) and so they are worried that their oil might get what is called ‘stranded’ a bit like having a lot of Kodak film just when the iphone6 comes out, its good stuff but no one wants it.  What might cause stranding of oil assets?; US shale oil, electric vehicles, air pollution standards, energy efficiency, solar energy, other renewable energy forms, its all pointing one way in the long term. So the complex Good News is that we are starting to move towards an oil free (or much reduced) energy system and that is good for the environment and is what we have now all agreed needs to happen.
  • Alaskan oil and Canadian tar sands might get scrapped

The easy Bad News is;

  • UK oil producers are going to find life tough and they employ a lot of people
  • The strike prices for renewable power will probably get lowered so slowing down the development of renewable power

The more complex Bad News is;

  • demand for oil will increase
  • the Middle East and Russia will have less income to pay for their social welfare costs

Ok so let me know what do you think, I believe its overall very good news as it marks the time the energy market’s catch up with the science of climate change – as Mark Carney say ‘only half the oil discovered by oil companies will ever be burnt’.