As we transition to a smarter, more flexible energy system – and start to embrace major challenges such as decarbonising heat – businesses will face big changes as well as opportunities. We ask Caroline Bragg from the ADE to share her thoughts on what needs to happen to support businesses, and the UK, on the journey to successfully meeting the UK’s 2050 net zero target.
Q: Now the government has published its Energy White Paper, do you feel clearer about the role decentralised energy will play as the UK works towards a 2050 Net Zero target?
CB: Perhaps more than any other previous energy strategy from government, the Energy White Paper puts domestic and business users centre stage – across electricity, heat and efficiency. That said, the Energy White Paper is far more a commitment to consult on action, rather than a commitment to action itself. Therefore, we will need to see how the discussions and work this year pan out before we can be clear on its impact and direction.
Q: If not, what clarity do you think is still needed – and what form should this take?
CB: There remain significant choices to be made on how we will decarbonise our heating. The Energy White Paper and other strategy work from government (and indeed others) makes it clear that it will be a mix of heat networks, heat pumps and hydrogen. So far, so good. However, what’s not yet there are the clear, ambitious interventions to make heat electrification and heat networks take off in the 2020s. There are hints in the commitment to consult on ‘zoning’ (that is introducing a place-based strategy for siting big, even city-wide, low-carbon heat networks with incentives to connect to them by 2025) – and some of the statements talk about off-gas grid homes. But nothing to truly hang your hat on yet.
All eyes are now on the forthcoming publication of the Heat and Buildings Strategy to (hopefully) set out a roadmap and some concrete actions that businesses can invest against.
Q: For businesses, how important do you think introducing greater flexibility around energy use will be, as part of a strategy to reach Net Zero?
CB: There’s no way that the energy system can reach net zero without breaking the bank without becoming more flexible.
So, a smarter system is coming – what could that mean for businesses? Fortunately, we do our smarts here in the UK a little differently to how they do it in Texas (which recently suffered major power outages). As a business, being part of a smart system has the opportunity now to earn revenues from working with specialists to automatically flex your energy use, supporting our electricity’s system’s reserves and its operability. Going forward, those opportunities and the financial reward should increase, with local networks getting in on the action and more of our grid operability services opening up to businesses and even households.
Q: What other key factors should businesses be considering when looking at energy strategy over the next decade and beyond?
CB: Another key pillar is energy efficiency. If we’re serious about achieving net zero, we need to stop talking about how good energy efficiency is and start doing it. Lots of it.
We’ve already seen some glimpses of this through the Covid recovery, but this should only be the start of things to come. What we’re expecting are greater incentives for businesses to invest in energy efficiency, particularly SMEs. But also a firmer use of regulation to get businesses up to scratch. For example, through minimum energy efficiency standards and greater requirements on energy use reporting.
Finally, as we’ve talked about, heat remains uncertain – and difficult. But big changes need to come, and soon, if we are to hit our carbon budgets and net zero. We can see signs of where things might go:
A nationwide campaign to start talking to households and businesses about building decarbonisation.
The introduction on the ground of a place-based strategy for siting big, even city-wide low-carbon heat networks and incentives to connect to them by at least 2025.
Lifting the cost of gas to at least the equivalent or perhaps higher than current electricity retail prices (and expansion of fuel poverty schemes at the same time).
And clear government intentions around the business models to support green and blue hydrogen for industrial clusters.
Suffice to say, there are big decisions to be made and they need to be made this year.
Q: Do you think all this can be achieved without negatively impacting on the bottom line?
CB: It has to. We can’t get to net zero relying on goodwill and sustainability strategies, important as they are. Investing towards net zero needs to be a key part of business’ ability to keep costs down and remain competitive.
Clearly, we are not there yet. In particular, energy efficiency is too often beaten by other opportunities for capex. And heat decarbonisation doesn’t pay against the fossil alternatives. The strategic direction and the concrete decisions that we make this year need to change that.
Mark Carney of Bank of England fame talked recently about how the potential climate crisis we face could dwarf the Covid pandemic. He also spoke about the size of the investment opportunity that such a serious threat creates – trillions of pounds a year, every year, for 30 years across all areas of decarbonisation.
In the run-up to COP26 [the UN Climate Summit in Glasgow this November], and at a time when so many of us are reflecting on what truly matters, this is the year when we need to make it count.
Caroline leads the development of the Association’s policy and regulatory work, working closely with members and policymakers to promote the sustainable development of the decentralised energy sector in the UK.