Energy industry must embrace '3D transition' to sustainable future, say former Big Six bosses
Britain's 'Bix Six' utility companies must rapidly adapt and find a new role in an energy system which is undergoing the "3D transition" of decarbonisation, digitisation and decentralisation, a new report by industry experts has concluded.
The likes of Centrica, E.ON and EDF Energy must decide whether they are going to attempt to embrace or block the disruptive forces they are facing within the UK energy system, which is undergoing change at a pace not seen since the dawn of the Industrial Revolution.
But the latter approach would be “a fool’s errand”, according to the ‘Wise Minds’ report developed by sustainability non-profit organisation Forum for the Future – especially in light of the increased uptake of renewable power, energy storage and electric vehicles.
“It’s important that the large energy companies that have dominated for so long are playing their part to the full so we don’t lose the expertise and valuable assets they have built up,” said Forum for the Future’s associate director for energy and climate and lead author of the report Will Dawson. “That means rapidly making decentralised, community and smart energy systems their core business, not innovation trials on the side.”
The 30-page report, released today (3 August), was developed with the input of six ‘Wise Minds’ – senior industry and political leaders who have recently left the established energy sector, including former Energy Ministers Sir Ed Davey and Charles Hendry, the ex-National Grid chief executive Steve Holliday, and former RWE npower boss Volker Beckers.
The Wise Minds claim that there are fewer opportunities for gas and coal generators to make profits at times of supply constraints, as an ever-increasing number of households and businesses begin to source power from their own renewables, while demand flexibility and energy storage systems are smoothing out spikes in demand. There is therfore an urgent need for investors, regulators and sector leaders to engage proactively to ensure the tranexperts claim.
The report lists multiple drivers that are driving change in the UK energy sector. Top of the list: the rapidly improving economics of renewable power, supported by the growing prospect of cost-effective energy storage and the emergence of electric vehicles.
Indeed, the number of British homes, communities and businesses now generating their own renewable power has risen to over 900,000, and the report’s Wise Minds allude to the “hugely underestimated growth” in solar PV systems, as costs fell far faster than predicted and policymakers failed to account for increased consumer demand.
The cost profile of energy storage has become “strikingly similar” to that of solar PV, the report states, with lithium-ion battery prices falling four-fold in six years. “Solar plus storage could very well be a complete gamechanger,” says former Minister Davey within the report. It comes a week after the UK Government announced details of the first phase of a four-year £246m investment into battery technology as part of a drive towards a low-carbon industrial strategy
Coincidentally, the report has been published in the same week that furniture retailer Ikea announced that it has partnered with renewable energy firm Solarcentury to launch a new domestic energy storage solution that could help to double the amount of solar energy used by UK households and reduce electricity bills by 70%, further highlighting the speed of the transition.
The report goes on to note that the huge cost reduction in energy storage is, in turn, enabling exponential growth in electric vehicles. Again, this conclusion is well-timed, considering that the UK Government last week unveiled a new plan to ban all new petrol and diesel cars and vans from 2040, with consumers and businesses being pushed towards the electric vehicle market.
These low-carbon innovations are being joined by an “explosion of decentralised energy generation” through on-site renewables and community energy projects, according to the report. The UK energy system was previously supplied by just 80 power stations, but this has risen to more than 900,000 generating facilities across the country. As such, the Wise Minds say the national grid “will be used less and less, becoming more a backup source of power”.
The report goes on to note that momentum behind the UK’s low-carbon transition has been “dented” by the recent reductions in policy support and the “uncertainty this has created”. But the Wise Minds are clear that the increasingly favourable economics, in tandem with digitisation, have overtaken policy in importance.
Former National Grid boss Holliday said: “energy policy can either speed up or slow down the rise of renewables, storage and electrification of heat and transport, but it cannot stop it.”