How is the UK government going to achieve its net zero carbon targets?
That was the question we posed to Laura Sandys CBE at our recent AEEC conference concentrating on decarbonising the heat we use in our homes and businesses and transportation. Laura a non-executive director of SGN, a former Member of Parliament and a policy and business advisor. Laura provided real food for thought on this critical topic.
Time for Real Change
What is very clear is that governments, including our own, have been very keen to publish ambitious targets to help us achieve net zero carbon emissions by 2050 but we are now at a tipping point where the focus has to switch from publishing targets to actually delivering change.
It is increasingly apparent that the future needs to look very different from the past – the future has to be consumer focussed and the substantial costs to achieve those ambitious targets are likely to be system costs rather than energy costs. It could be that we even end up with a situation where the energy we all consume is virtually free – but the system will not be.
However, to move us to a position where we have a system fit for purpose with the stability to meet our ever greater demands, there needs to be a radical overhaul of the energy generation and distribution sector for the UK – one which is likely to take us from 400 key players to in excess of 100m actions and assets – a fully integrated and digitised sector and much of that delivered at a local level.
But what does Net Zero actually mean? What needs to be done?
The energy system needs to change fundamentally from a consumption model to an optimisation model where the best possible solution is found to meet the problems and challenges faced by the sector.
We need to concentrate on the 5 Cs:
- Drive out Carbon
- Reward Customers
- Unlock Capital
- Maximise Capacity
- Reduce whole systems Costs
All of which need to be designed around a fully costed system.
But how will government change policy?
A complex question and as a collective of energy and policy advisors we have pulled together what we believe are the key policy challenges and what needs to happen.
Everyone will be aware that there is a lot of unconscious bias towards fossil fuels and there will need to be a massive amount of investment to help us move away from these. The first steps here are to audit its use (and there is a lot of it), recognise it and clean it up. With regard to heat and transportation in particular this is going to be a complex job.
Another huge challenge for the government will be the deployment of these assets and actions, which we, as a nation we need to enable us to decarbonise, particularly in heating and transport. We are talking about a significant amount of money that consumers are going to have to pay to participate in these initiatives. Perhaps the government will pay?
A significant and fundamental system change is needed - at the moment we are trying to squeeze a new capital intensive system into a fossil fuel shaped hole/system.
And of course, there are massive governance changes that are required. With a system potentially consisting of over 100 million assets and actions, if the government tries to regulate through process, as it currently does, it will undoubtedly fall over.
Making a difference
One of the biggest hurdles to achieving net zero is getting these assets into people’s homes and businesses and a huge constraint to this happening is the lack of liquidity in the market. For the UK to decarbonise successfully the whole market needs to have access to these assets and actions and if this does not happen then the market could fragment into those that have the funds to access and those that don’t. This needs to be a future for all.
But even with all of the above, it won’t deliver assets into people’s homes. It’s important that the market moves away from a commodity market to a services market which will bring huge benefits to the energy system we all need. None of this is ground breaking however and there are similar models that successfully deliver benefits to other sectors of the economy that can easily be seen.
And finally - there needs to be an energy design authority – but this will need to sit alongside and defer to political policy makers because there will be trade-offs that need to happen. Much cleaner system operation will be achieved with an independent system operator and with governance and regulation being much clearer around the risk assessor.
What does the future look like?
To summarise - what is clear is that we now need to see a serious commitment from the government to accelerate the process of decarbonisation and the outcomes we want and need to see are:
- A carbon busting review: driving out carbon in policy and regulation
- Whole System review – an acceptance that commodity price can no longer be proxy for whole system cost
- Demand equal to generation: equally rewarded, supported and fairly accessible
- New Service Agreements: Retail services, flexibility purchase agreements, capacity services, energy on demand services and commodity as generated
- Energy Design Authority: Knitting all the silos together into an integrated system.
The UK government last month enshrined in law new targets to reduce carbon emissions by 78% by 2035. To do this we need to accelerate change. As a sector, there is lots to push forward with and our vision on how we could and should meet our obligations for decarbonisation and energy demand in the future will require creative thinking, new policies and laws and additional players in the market. A challenge to us all but one that simply must happen.
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