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


To you the Brexiter: Have you been asked the wrong question?

Here are some better questions for you to see if you can answer and still vote OUT with a conscience.

Until the Conservative Party decided to put the referendum question to you would you have been actively pursuing an exit from Europe today? If NO then read on, if YES then you have probably made up your mind. I would guess that over 66% of my connections on social media would answer ‘No they would not have been bothered by the European Union on 23rd June this year’, possibly over 90%.

So you have been asked to answer a question IN or OUT (Black or White), this is quite clearly the wrong question. Neither side has been able to make a crystal clear case for/or against as the issues are very complex and require a much more careful analysis.

A downturn affects the poorest first; have you considered the Country or your own situation regarding the economy?  With immigration are you sure it’s not a different point, the Orlando bomber was a US citizen not a migrant etc., we have millions of second and third generation migrants that are 100% British (like me)? Does the essential nature of our sovereignty really change because we are in Europe?  Are you sure that Westminster is such a great law maker? We have clean beaches now thanks to EU law FYI. Can you name a single European Law that is not fair? Have you really taken the time to consider all the other bits and bobs? Does Scotland leave the British Union? What visa requirements will I need to pop across the channel? What Health care rights will I have in the EU? Without the UK what kind of Europe will our neighbours become?

So I put it to you that you have the following backdrop to being asked this dangerous an ill-conceived question;

  1. On 23rd of June had the Conservatives not placed this in their manifesto would you be bothered by the European Union on 23rd June 2016? In reality would you have been doing something else quite happily?
  2. Are you being led astray by some half-baked careerist politicians who are playing on deep routed suspicions about the role of immigration in the development of our fantastic tolerant community and the idea of a ‘Little Britain’ telling the World what to do?
  3. This is in any case the wrong question a more realistic question would be; ‘We have listened to the demands of the British people and we have documented them in the ‘Why we are Leaving Europe Manifesto’ that outlines in detail the issues we need resolving and how we will deal with the same issues when we leave’ this cross party manifesto needs yous support; Do you support the Leave Manifesto? That is a question (given a year’s preparation) you could answer.

You have three choices on 23rd June IN/OUT/NO VOTE I put it to you that a NO VOTE is the same as a OUT vote (as you are currently IN the EU and the only outturn that results in a change is an OUT result). So you must vote and you must pick IN or OUT Black or White.

For me to make my mind up I have reduced the issues down to four points that I believe have equal weight, I put it to you that unless you are 100% sure you can vote OUT against MORE than two of these points then you should Vote IN=REMAIN.  We are IN Europe now a vote to change that should be much more than a 50%/50% voting maths in the referendum for me it should be 60%/40%. This in itself would probably answer the question with an IN=REMAIN. Here are my takes and the four issues;

  1. Economy – It seems clear that an OUT vote is a leap into the dark
  2. Immigration – Genuine and justifiable concern led by death from small boats, Calais, terror etc. However, the problem is much more complex and doesn’t change much with an OUT vote, 3/7ths of net migration is from outside the EU in any case
  3. Sovereignty – Each of Italy, Germany, Ireland, France, Spain, Netherlands etc. are all independent sovereign states that choose to pool some issues to gain better global traction, that’s good for them and good for us. It’s two sides of the same coin independent and interdependent.
  4. Bits and Bobs – There is a long list of side shows and not so side shows e.g. will Scotland leave GB, will we need visas?, what about health care when in Europe?

If you believe in democracy and can place you hand on your heart and say that 3 or all of these issues leads you to vote OUT then go ahead, because I believe in democracy too, but if its only 2 of them then you should do your duty to your Country and vote IN= REMAIN and join me in taking a much more active stance on this issue in future.

We need a new energy Trilemma … like a hole in the head! (Part 2)

Having dispatched Trilemma1 to Room 101 let me now try and place a finger in the dyke of Trilemma2 recently proposed by Mr Marchant before it is taken seriously by anyone and a dam wall breaks flooding regulators with confusion and obfuscation that is not required.

Trilemma2 has raised three related but simple issues;

  • Flexibility (… time of use in old money)
  • Meeting of needs
  • Affordability (… price in old money).

Let me dismantle these one by one. Flexibility, and the need for the energy system to turn up and down to meet customer demand, has been with us for years, works fine and has been a spectacular feat of engineering … at least cost.  Yes, in the future, we may all own solar panels and electric vehicles but it is not going to happen overnight and the system can support a great deal of this already.

Ask yourself the question what happens if the industry doesn’t meet customers’ needs?’ and you have my problem with this second suggestion. The industry by and large meets current customer needs; some may want more tech and control in their lives but are being offered this already. The market is responding.

At last we arrive at the key issue of price. Customers, quite understandably, believe they are getting a raw deal. Regulators are dispatched on 5 yearly cycles to investigate, and come back with the same answer: they are not getting a raw deal on price. However any industry that languishes 43rd-45th out of 45 home services rated and purchased by Joe Voter is likely to be bashed and so it is. What the industry has failed to do is publish the value in the products of gas and power, i.e. how good we are at keeping lights on and delivering least cost energy system that, almost without the customer noticing, is transitioning to a low carbon world. The industry is also failing to provide an infrastructure that allows an ‘internet of energy’ to develop. Just compare your meter/bill and your smartphone … notice any difference? I’m afraid the new smart meter roll out is only going 1/10th of the distance needed.

Here is a new plan:

  • Agree as society, absent political yo-yoing, what our carbon budget is and transmit that to the world to get their OK (whilst also noting what everyone else is doing)
  • Interconnect like there is no tomorrow
  • Plan to develop an energy system through some form of Energy System Architect (Central Bank of Energy, if you will) at LEAST COST
  • Allow Tech City folk to educate the old brigade at the not-so-smart-meter-central what they could do if they could only get access to the meter cupboard.
  • Enjoy the smiling faces of the customers as they bathe in an abundant, low cost and transitioning energy system.

I’ll get my coat…


We need a new energy trilemma

We need a new energy trilemma … like a hole in the head!

Ian Marchant, ex CEO of SSE and ex IE President, has suggested we need a second Trilemma (see below). However, as the first Trilemma achieved nothing, the second is surely a step in the wrong direction.

The first trilemma was a brain teaser that the power industry created where it was befuddled into doing very little as it had three problems it needed to solve and couldn’t. They were (in case somehow you managed to avoid them):

  • Security of supply
  • Decarbonisation
  • Affordability (price…. in old money)

If I had a penny for every CEO of the major energy companies who has a slide with these three issues on it, I would retire.

The trilemma came to an abrupt end some 10 years after its birth when HM Treasury slapped a Levy Control Framework on the industry – in effect a cap on spending, or in economic terms a price limit.  The Treasury’s realisation was that we can only do what we can afford to do., Planning to achieve something other than that should be a crime (alongside banking crime).

The lost billions as the industry sent itself around the trilemma merry-go-round could have been usefully aimed at the problem which is, and always has been, delivering power at the least possible cost.

Least Cost Energy Planning (as it was known prior to when the fated trilemma invention took hold) is a lost art. It does not take place without the other two key issues and never has done. Environmental limits have been part of the power industry challenge since the dawn of time. The fact that they are now more stringent is no surprise.

Security of supply has also always been part of the industry. Until recently, we’ve paid for it with a capacity charge – a concept now belatedly making a comeback as the Capacity Mechanism –  and in gas, a bigger pipe.

Let’s take Hinkley Point C. This is a new nuclear station that, when built, will replace an old nuclear station or two  – no trilemma here, just a least cost planning need. Let’s take a less well publicised topic  – interconnectors with Europe. Brexit or not the drive to interconnect has and always will be strong as it’s cheap. As gas and power interconnection capacity grows, so does security of supply. Approximately 7,000 MW of new interconnection is planned in the UK, twice as much as Hickley Point C – by the way, as yet, this is hardly mentioned in the press.

We need a referendum on carbon, which in my view poses a much simpler question than the Brexit issue.   Possible topics include :Do you think that the United Kingdom should deliver on its commitment (to the world) to decarbonise our energy system by 80% by 2050?

The Intended Nationally Determined Contributions (INDCs) agreed in Paris are the sign that, referendum or not, the world is moving towards carbon budgets. Our INDC (either inside or outside of the EU) will be discussed with us by our global trade partners such as USA, India, South Korea and China (amongst others). They may take a dim view of anything other than a plan to deliver.

So we have a carbon budget (no, we do), we are energy secure as it is abundant (check the oil price) and why should we pay more? Our industry needs to bury trilemma1, man up and get back to some good old fashioned least cost energy planning.


In part 2 I commit the second demand side trilemma to room 101.



We need a new energy trilemma

The Heat is On

Apart from being one of Gloria Gaynor’s better known hits, it also signifies that, as of today (Friday 15 October), the heat in our home will be on. Many of you will have had your heat on since the cold snap in September or so National Grid tells us from daily demand for gas. This evening, my wife will raise a glass to the start of our heating season, picked to match the Soviet Union (more of that later…).

To quote Ed Davey (who? Energy Minister in 2014):

‘… there has been a historic failure to get to grips with one enormous part of the energy jigsaw; the supply of low carbon heat… We have, however, inherited a big hole where there should be policy for finding alternatives to fossil fuel for the supply of heat. In a country like ours, and for obvious reasons, we require a lot of heat: a consequence of our geography, our housing stock and the scale of our industrial activity. As a country, we spend £32 billion a year on heating. It accounts for around a third of our greenhouse gas emissions. Without changing the way we produce and consume heat, we will not meet our long-term climate change target. To get there, we are going to have to change the way we generate, distribute and use heat in buildings and industry. And we are going to need those changes to take place in an orderly, cost-effective way that ensures a vibrant, low carbon economy and a supply of affordable energy for all consumers.’

Very well said, sir!

Now how are we going to do that? This was a topic for debate at yesterday’s Energy Research Partnership (ERP) event in London. There are currently three runners and riders and each has strong benefits but equally significant challenges:

  • Air source heat pumps
  • District heat networks
  • Hydrogen economy.

These are three exciting prospects if you are, as I am, an engineer who likes to help fund innovative companies. However, they are going to be very expensive, take a great deal of planning, need talented people from a wide range of disciplines and take a decade or two to deliver.

Air source heat pumps

Let’s just say heat pumps in any form, as they can also work on sunshine, river water and Earth amongst other heat sources. These devices are measured on a coefficient of performance of around 2.5 to 3.0 (so three units of heat out for each unit of power in). They are not totally decarbonised as the input power usually comes from the grid. They have the advantage of being hung on the side of houses but that creates issues for blocks of flats. There is also a concern about noise and a question as to whether in the depths of winter they can produce enough heat for our leaky homes…


District heat networks

90% of the former Soviet Union uses surplus heat from power generation to fuel a massive hot water distribution system for domestic heating. These systems are normally activated on 15 October each year. However, in terms of applicability elsewhere, consider the well-known joke about a tourist in Ireland who asks one of the locals for directions to Dublin. The Irishman replies: ‘Well sir, if I were you, I wouldn’t start from here’. Soviet cities are designed around their heat systems, whereas we will need to design our heat systems around our cities. Where we build new towns there is an obvious opportunity, one that we are only partly taking up.

Hydrogen economy

OK, I would not have included this in my list before attending the excellent ERP workshop. Hydrogen could be the answer, if for no other reason than it can be done. As you will have seen from walking down the road, we are replacing all of our low pressure cast iron gas mains with bright yellow plastic pipes. It turns out that these pipes can carry H2, so we can supply slightly modified boilers that run on natural gas or hydrogen. All we need is a lot of H2 and a good PR department. If that sounds far-fetched, remember that, 60 years ago, Town Gas was 52% hydrogen. I for one will be getting up to speed on low cost hydrogen production; essentially it’s power and water which doesn’t sound too bad …

So, next time you place your hand on a warm radiator, ask yourself:

  • Should this be on? (If it’s past 15 October, when the Soviets turn the heat on, then you’re ok)
  • How will we do this in 2050?


Enjoy the heating season !


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.