We don't want energy storage

Claiming that we don't want energy storage seems like a provocative thing to say. For example the Energy Institute's 2015 barometer, a survey of professionals in the energy industry, rated storage as the area most in need of innovation. My point isn't that energy storage isn't important; it is. My point is that, of itself, it's not something we actually want. You don't hear people say that what they want for Christmas is just some simple energy storage along with some socks and a chocolate orange!! In thinking about the technicalities of energy storage we should first think about what we actually want and I believe we want two things; RESILIENCE and FLEXIBILITY.

Let me illustrate with the energy storage that most of us are familiar with, even if we don't recognise it as such; the fuel in the tank of our car! The typical fuel tank holds 50 to 60 litres of fuel that gives us both instant flexibility even on a cold morning (modern cars start so good at starting nowadays!) and a couple of weeks worth of resilience assuming average mileage. Indeed, if we knew there was a supply crunch most of us could probably stretch that full tank for a month or so by car sharing, using public transport and the like.

So that unseen energy storage which comes free when you buy a car and only ties up £50 to £60 in fuel gives us a lot of resilience and flexibility in our mobility. The energy system that has evolved over the last hundred years or so has embedded within it quite a lot of hidden resilience and flexibility. As well as our car fuel tanks we have petrol and diesel at filling stations and tank farms, we have piles of coal at our diminishing number of coal fired powers stations and we have natural gas in the network of pipes (the jargon for this is linepack), in dedicated storage facilities like Rough and Hornsea and offshore where at some fields production can be ramped up quite quickly. 

However, the energy world is changing. We need to decarbonise our electricity system and then the rest of our energy system. This second stage is likely to increase the role of electricity in meeting our heating and transport needs. The problems are that firstly our current electricity system only has embedded in it the resilience and flexibility that the current uses of electricity need and secondly what little already exists is in decline principally as old coal stations shut.  This is exacerbated by the fact that  low carbon forms of energy, be they renewables, nuclear or clean fossil fuels, are not currently known for their inherent flexibility or resilience. So we will be faced with less of what we need just when we start needing more. What will happen when our electric car battery needs to be recharged at the same time as our heat pump needs to work and we want all our lights and gadgets to function but it's a still calm night?

This is the reason why so many energy professionals put energy storage at the top of their innovation agenda. In deciding on where that innovation should be targeted we need to think about what level in the electricity system we can best provide resilience and flexibility. There are four possible levels, the source of demand (our home for example), the local area (think of the transformer at the end of your street), the generator itself or the grid as a whole. The answer may be a combination of all four levels and, importantly, may be different for resilience than it is for flexibility. It will be determined by things like economies of scale, the efficiency of sharing the capabilities with others (we don't all need to meet our own maximum flexibility, if we can pool with others the flexibility needs of the system will be less than the sum of all the indivdual needs) and the value of providing security close to demand. I have a hunch that the answer may involve local or even domestic level resilience but generator or grid level flexibility but time will tell.

Debate about energy storage tends to get dominated, right from the start, about technology be it batteries, phase change material or pumped storage hydro. However, we need to separately assess our current and future needs for resilience and flexibility, then decide at what level in the system that need can be most efficiently meet and only then determine the choice of technology. We have to put needs before technology. 

The Marchant 3i theory of Innovation

As we face the seismic shifts arising from climate change, demographic forces and the digital revolution the key to future well being will be innovation. This is true for individuals, organisations, businesses and indeed whole countries. There are lots of theories about innovation and what is needed to create an innovative environment but I thought I would add my own fairly simple theory which I have and continue to use to guide my approach to new ideas. 

I believe that any new idea or innovation has to go through 3i stages.

STAGE 1. INVENTION

Everything that is new starts with a spark that comes from a moment of inspiration or as a result of years of hard work. I call this the invention stage and it can occur as part of a plan, such as in a university or a man in a shed,  or it can be the result of serendipity or pure chance. However, some people are naturally good at coming up with new ideas. For example, in the case of one colleague I had to restrict them to 'an idea of the week' as they seemed to have a new idea every time I saw them. Inventors need to be nurtured and encouraged but this spark is not enough for true innovation.

STAGE 2. IMPROVEMENT 

Most inventions do not emerge fully formed but need to be worked on, tweaked and improved. I fall into this category. I can't help but take an idea and try and connect it with other ideas, look for other applications where it could be used or add features or functions to improve its value. I suspect that many leaders and managers fit this mould and indeed someone senior to the inventor may see connections, applications and features that the original inventor isn't aware of. But an improved invention is still just an idea.

STAGE 3 IMPLEMENTATION

It is obvious but surprisingly often overlooked that a good idea actually needs to deployed and rolled out and that requires implementation skills. Tablet computers would have been a concept in science fiction if Apple and the like hadn't manufactured, distributed and sold actual products. Implementation requires more tenacity and endurance than the first two steps and is all too often forgotten.

So three simple steps which I can remember because they all begin with the same letter. My experience is that most people are naturally stronger in one of the three area,  as I said I'm an improver, and the key to creating an innovative environment is to connect different people with the three strengths. This can apply in all walks of life not just business; there can be innovative schools, churches and the like but I believe that they all need these three stages to actual ally lead to an implemented, improved invention. 

Hinkley Point. 10 things I hate about you

The potential new nuclear power station at Hinkley Point seems to be edging closer to starting construction. I feel that I should record my views now so they can be examined by historians when the plant starts producing electricity. I have been inspired by a film title from 1999.

So what are my ten things.

1. PRICE

The headlines keep saying that will be paying £92.50 per MWh for the power from Hinkley but that is in 2012 prices and shows the PR skills of the nuclear industry. It was out of date when it was published and now after nearly four years it must be around £100MWh. That's more than double the current wholesale power price, nearly a third above the cost onshore wind (which the government hates) and is more than any other country seems to be paying for nuclear power. What's not to hate about this.

2. DELIVERY DATE

I remember being told by the CEO of EDF in the UK that I would be able to cook my Christmas dinner in 2017 with power from a new nuclear station. I'm not that keen on Brussels sprouts but certainly not ones that have been waiting to be cooked for many many years. The latest date I've heard is 2025 for first power but I suspect this is just a guess. Put it another way. It's not going to make a difference to the UKs current security of supply crunch.

3. DURATION

When the plant does eventually come on line we will then be forced to pay the inflated price for a total of 35 years which by my reckoning could be over £120Mwh at the start and by 2060 it will be about £200Mwh. We are being forced to take a 45 year bet on energy prices 

4. TECHNOLOGY 

My issue isn't with nuclear power itself, it is that we have chosen to build a technology that is based on 20th century ideas and which isn't exactly problem free. The first two stations of this variety being built in Finland and France are so late and over budget they make public sector projects look well run!

5. SIZE

The new units at Hinkley Point will be 1600MW each which to put into context is four times the size of one of the large coal units or a modern single Gas fired plant. It's 33% bigger than anything else on our electricity system which will cause the network operator some issues and therefore cost in making available sufficient back up reserve. It is interesting to note that the only real time that the transmission network struggled to maintain supply was when the current biggest power station failed.

6. OWNERSHIP

It is a point of note that after leading the world in electricity privatisation we are dependent on the largely state owned EDF and a wholly state owned Chinese company to build this station.

7. WASTE

When I challenged the Government's pursuit of new nuclear build 7 or 8 years ago, in response to one of my questions, I was assured that before we decided on any new plant we would have made the key decisions on handling our existing stockpile of radioactive material. I know proponents say that new nuclear doesn't generate that much waste but surely we shouldn't dig the hole a little deeper before we know what we are doing with the hole. And that metaphor illustrates the problem. We don't know where the hole is going to be and show no signs of making that decision.

8. TRANSPARENCY 

The deals being done to get this plant built will be extremely complex and impenetrable to all but the most expert of energy anoraks. For example, I understand that the contract to deal with the power price and output ( a so called CFD) is over 400 pages long and has never been subject to independent scrutiny and who knows what the terms of the 'sweetheart' financing deal that was done to get the Chinese on board. I do wonder what devil lies in the detail.

9. DECOMMISSIONING 

Whilst it is many years in the future and therefore conveniently ignored currently, at some point the mass of irradiated steel and concrete will need to be made safe. Unlike most other energy production facilities this is not a quick or low risk process and I am concerned that we aren't adequately pricing this future risk (or indeed the risk of an incident during the stations life).

10.  NEED

And finally, do we actually need it? In one sense you can argue that we do to reduce our carbon emissions but there is another perspective. The relentless drive for a new nuclear power station started back in 2006 when experts felt that peak electricity demand in 2015 would be around 65GW (that's a total of 40 Hinkley units for example). A combination of energy efficiency and economic drivers means that actual peak demand this year will only be 55GW (about six Hinkleys less) so even if we needed it then do we need it now?

I may not have convinced you on all ten points but the charge sheet is long and surely a guilty verdict on a few should be enough to make us think again. 

I firmly believe that we should not be building this enormous, expensive piece of old but curiously unproven technology but should pursue the emerging new generation of modular nuclear power stations that will, I believe be deployable in the new few years or so and will be quicker and cheaper to build at a scale that is appropriate to our electricity system. So it's not nuclear power that I hate; its this nuclear power. 

The Marchant theory of investing

Some of us, especially those in the 'second curve' of their careers, are fortunate to have two things they can invest: time and money. I have included both as they are both scarce resources and need to be thought about carefully. I have developed my own theory about investment which applies to both time and money. It draws on the triple bottom line theory which is usual applied to companies and governments but can, I believe, be adapted for personal use too. So what are my three criteria?

1. ECONOMIC 

This is the obvious one but it still worth thinking about. In deciding on the required rate of return on an investment, or indeed on the level of remuneration for a job it is important to think about the real risk attached to the income both in terms of fluctuations in levels, it's durability and any reputational risk that could come from being associated with an organisation. These factors generally explain why people look at investments from a portfolio point of view. So far, all predictable. The interesting part comes from looking at the trade off between an economic return and my next two criteria.

2. IMPACT

We all want to feel that what we do makes a difference and this applies to our use of time and how we invest and spend our money. This impact could be at the organisational level or societal. Let me explain. If you invest in small start up companies, as I have done, you can see clear direct impact through increased employment, product development and positive change in markets. If you give to a charity then you can see societal impacts such as the roll out of solar lights in Africa or increased activity at cancer centres. In many cases you can see both organisational and societal impact and of course there are potential negative impacts which gives rise to things like ethical investment funds or disinvestment movements. I find it helpful to be clear what impacts I would like to help develop and increase and those which I would want avoid and use this as a screen for my use of time and money.

3. INTEREST

I have come to realise the importance of being clear what activities you enjoy and therefore look forward to and those which you don't. I realise this is a luxury and am incredible lucky to be able to pick and choose what I do but I do think that many people in the latter stages of their careers can actively take this into account. It does involve being clear about what interests you and two tests I apply are; do I look forward to doing it and secondly, am I learning from the experience. This second point is really important. I am a big fan of the importance of continuing to learn and stretching yourself. I even came across a psychological term for this used by Carol Dweck, apparently it's called a 'growth mindset'. Education doesn't stop at leaving school or university and experience doesn't stop on leaving an executive career.

If I take these three criteria they can be applied to different types of 'investment'. I will explain three classic ones and then look at new one to me that hits all three criteria. Firstly, investing in quoted shares is primarily an economic decision although I believe that having a societal impact screen is also important, even if it's only a decision on what not to invest in. Secondly, support of charities obviously scores highly on the impact scale but I also think that it is important that you support charities that interest you and where your time or money can make a real impact on the cause. Thirdly, investing in start up companies (so called Angel investing) whilst primarily driven by a hope of an economic return is usually guided by the level of interest in the business area and technology of the new company and an assessment of the impact your investment and mentoring can have. This explains why over three quarters of the investments I have made are in the energy related space.

And so to the new 'investment' opportunity I have recently come across: support of social enterprises. These are organisations that are using business principles to maximise social impact rather than maximise profit. They are often called not for profit but an alternative way to look at it not for loss too.

Under a new government scheme there is tax relief for loans to some of these organisations which means that all three of my criteria can be met; a modest economic return for an impact on an organisation and an issue facing society in an market or place that interests you. What's not to like. I have just closed my first such 'investment' in a community bakery and hope to do more.

The real trick is to look across the portfolio of your investment in time and money and make sure there is a balance between all three criteria; economic, impact and interest so that personally your are achieving a good triple bottom line. 

An Energy Tipping Point

I have been thinking about the long term themes that are driving the UK electricity industry and started by looking back over the last thirty years and then considering what things might look like in thirty years time. I have identified six themes.

1. BIG TO SMALL.

Thirty years ago and indeed until a few years ago our electricity was produced by around 100 large plants, each one of which consisted of a few units of 400MW+. Now there are over half a million small electricity producers ranging from community wind turbines to roof top wind turbines along side a decreasing number of older, large ones. This trend will, I believe, inevitably continue as the developer of any new house, office or factory will be looking to include on site generation. In 30 years time we will have millions of mini power stations.

2. CENTRALLISED TO DISTRIBUTED.

One consequence of the industrial scale of our power plants is that the electricity system became incredibly centralised. A classic example was the concentration of power stations along the so called megawatt valley in Yorkshire. As a result control of scheduling and dispatch was concentrated in initial three, and now one, control room full of smart engineers. This will change as the whole electricity network shifts from an analogue mode to a digital one. The network of 30 years time will be multidirectional, self healing and fully distributed. The smart engineers will be replaced by a smart network. 

3. CARBON TO SILICON.

The industrial era electricity was successfully built on carbon, initially coal and latterly gas. This was largely completed before we realised the long term consequences of CO2 emissions and the link to climate change. The energy industry has been one of the major beneficiaries of the lack of a price of carbon. But this is changing. In the UK we are very very unlikely to see any new coal fired power stations built unless they have carbon capture technology fitted and the pace of new gas stations has slowed to a trickle. Renewables have filled the gap supplying 25.3% of our electricity in the second quarter of this year. The biggest shift in the very recent last has been the rise in solar where capicity is already over 8GW (that's twice the capacity of our largest coal station, Drax). The trend in solar panel prices and advances in technologies like this film solar suggest we are heading into the silicon age. 

4. SUPPLY TO DEMAND 

Energy policy, investment and technology has been focussed on the supply side of the industry. What shall we build, how and where? However, all the disruptive change is now happening on the demand side with home automation, energy management systems and active demand all figuring highly in the new business start up arena. More and more customers, be they large property owning landlords or owner occupiers, are now getting engaged with their energy demands. The new questions will be what  energy do I need, how will I manage it and where should I get it from. When customers take charge of an industry, Revolution happens. 

5. PRODUCTION TO STORAGE

The twentieth century electricity system used flexible production to manage the peaks and troughs of demand. This has lead to demand for services like spinning reserve and stand by generation. These use energy to be ready to supply energy which has always seem a bit odd. This production centric view also leads to the bizarre situation of effectively free marginal cost energy being wasted (wind farms and solar panels being left idle when demand is low). Now one of the biggest areas of energy research is in storage including batteries, phase change materials and physical storage systems. Storage can be at the home level, at the neighbourhood level or connected to the grid. 

6. PETROL TO ELECTRIC 

The internal combustion engine has revolutionised personal transport and petrol and diesel have dominated vehicle fuel. However, we are seeing more and more car manufacturers are releasing all electric and hybrid cars. They are clean, quiet and fast and the range is steadily increasing, especially in the hybrid mode. I now drive a BMW i3 around town and suspect that more and more city cars will be electric.

I believe that, right now, we are at the tipping point in all these themes and realised that a picture could paint a thousand words.

Why do I think it's a tipping point. Mainly because all of theses themes have becoming increasingly clear over the last few years and the changes in digital technology and  awareness of climate change are respectively an enabler and a driver of change. After ten years or so of fits and starts all these themes seem to be gathering pace and are chipping away at the forces of inertia that the old forces have built up. Exact tipping points can only been seen clearly in the rear view mirror but it does feel that, taking the long term view, the future will be a lot different than the past. 

The Future and how to survive it

As part of my monthly reading I catch up with the Harvard Business review and this month I found an article 'The Future and how to Survive it, by Richard Dobbs, Tim Koller and Sree Ramaswamy really interesting. Whilst is it focussed on big macro themes and the long term prospects of large multinational companies I think the responses they outline are equally valid for companies of all sizes so I thought I would set them out. 

1. BE PARANOID. Companies of all sizes tend to focussed internally or on their home market. However, current and future competitors frequently play by different rules. A lesson I have learned is never underestimate your competitor. Assume they are behaving rationally and know what they are doing. Assume they will get their act together quickly and will exploit your weaknesses like you try and exploit theirs.

2. SEEK OUT PATIENT CAPITAL.  My version of this is to make sure you focus on what sort of investor you want as not all money is equal. If your vision is to build a great company over ten years or so then don't get investment from a fund with a three to five year exit horizon. If you want to target capital growth then don't promise a running yield. If you want expertise as well as money seek out the people and funds that can give you the advice you need.

3. RADICALLY SELF-DISRUPT.  To quote "in this era of technology disruption, companies need to be willing to disrupt themselves before others do it to them". Large companies with legacy assets and vested interests find this difficult but small companies can be too wedded to their first idea or product when the market is saying it wants something different. 

4. BUILD NEW INTELLECTUAL ASSETS. Again a quote from the article to illustrate. "Half the world's most valuable brands are in idea intensive sectors......assets such as data, alogorithims and software are also becoming more valuable" I would add assets such as business model innovation, insight on customer behaviour and contact networks.

5. GO TO WAR FOR TALENT. This is true for businesses of all sizes and will lead to radical changes in organisational structures and patterns of working. Two specifics spring to mind. Firstly many small businesses suffer from a shortage of hard sales skills and should prioritise sorting this quickly. Secondly, as a society we need to get better at using the knowledge and experience of people engaged on their 'second career'. We will want or need to stay economically active for longer but business needs to think about how it uses people as they wind down their careers. We have graduate programmes and mentorships for the 20+ year olds. What do we need for the 60+ and 70+ people?

As the article concludes 'vigilance, agility and optimism have always been prized assets of successful companies' to which I would add innovation and forward planning. The future may be challenging but challenging is what brings out the best in the best businesses. 

Restless disposition in energy policy

In preparing for a conference on energy policy I came across this quote from Walter Bagehot. "If you keep altering your house, it is sign either that you have a bad house, or that you have an excessively restless disposition- there is something wrong somewhere" As a constitutional expert he was talking about the problems of Government in the 1800s but his comment is so true today. It was the phrase 'restless disposition' that caught my eye, as it is theme that Professor Anthony King uses in his book 'Who governs Britain' to describe one of the problems with 21sr century politics. All new minsters want to make an impact; want to be seen to be doing things; want to make announcements that attract headlines. They are always in a hurry. 

Energy policy has been a notable victim of this syndrome. This century we have already had 9 Ministers with cabinet responsibility for energy (counting both DECC and the various forerunners to The Department for Business). It's even worse at Minster of State level where we are on number 14. All this change means that the new minister who arrives with a restless disposition is also in a tearing hurry as they only have one to two years to make their impact; less time than it takes to build any assets in the energy industry. This timescale precludes thoughtful consideration, proper consultation and assessment of the impact of any change on the whole energy system before action and completely rules out any learning from the results of previous activity. The civil service used to act as the brakeman to the ministerial Bobsleigh but senior officials change almost as often as Ministers and rarely build up expertise in one policy area seeming to need to switch departments to get promotion. It is no wonder that we have such a patchwork of interventions and plethora of changes and amendments and no wonder that we do not have a joined up, robust energy policy. We are getting what the politicos system is designed to produce- 'something wrong' to quote Bagehot. 

If we are to have a thought through, robust and enduring energy policy we need a fundamental change to the governance and political arrangements that determine this policy. The stability, longevity and independence of the Governor of the Bank of England is the sort of role we need.  And no; I am definitely not interested in doing that job!

The importance of good design

I've been on the Board of the Maggies Centres cancer charity for quite a time now and over the years have come to appreciate that good design can make a real difference. For someone whose idea as a child of a Lego building was one of lots of straight lines using bricks of the same colour, this is a real progress. 

 Maggies uses well known architects such as Richard Rogers and Frank Gehry to design purpose built drop in centres based at cancer centres throughout the UK. These buildings are all deliberately created as a contrast to the medical institution they sit next too. They are all different and demonstrate creativity that is beyond an accountant like me. However, they all share some common characteristics; they are all set around the kitchen table, they are all loved by their local communities and they all facilitate the social, emotional and practical help that Maggies offers. It was well summed up when I visited the centre in Oxford. A group of ladies who had meet during their treatment for Breast cancer said that the new Maggies Centre 'made them feel well'.

The importance of design and architecture was brought home to me when I read about the history of the UK Houses of Parliament. Apparently, it's architecture and design is a matter of history as in 1547 King Edward VI gave parliament a disused chapel for use as their debating chamber. Although it has been rebuilt since then, the original design features were maintained. It means that we now have a chamber that is far too small for the number of MPs and one that deliberately encourages confrontation by sitting MPs from different parties directly facing each other across the aisle. It does not faciliate dialogue and debate but encourages aggression and confrontation. No wonder it is likened to a bear pit at times.  It also looks and feels old fashioned with the Speaker propped up on a platform that looks suspiciously likes an altar and where voting involves walking through a series of doors to reach the right room. No wonder people feel that politicans are out of touch. 

Maggies was founded by Charles Jencks and in his book Architecture of Hope he says "Architects have designed us good buildings that last, which sustain our staff and ethos. They have raised the fighting spirit of many patients, lifting their hearts at a time of desperation." In our efforts to bring a Maggies centre to other parts of the U.K we are continuing in this spirit with Norman Foster designing the centre in Manchester and Thomas Heatherwick working on the one in Leeds. As the UK parliament faces the challenge of repairing and refurbishing the Palace of Westminster I hope they take the opportunity of using great design and great architecture to produce a building fit for a 21st democracy. I am not hopeful. 

Why can't we get engaged?

I have spent over 25 years in the energy industry and the attitude of society to that industry has change over this time. Over the first period the industry was largely taken for granted. In fact, when I told friends I was joining the energy industry the general response was bewilderment because they thought it was boring. However, my experience has been the exact opposite. I have had a fulfilling and interesting career but that isn't my point. It's about how attitudes have changed.

Over the last ten years or so, I have found that people are generally much more interested in energy. They want to know about what is happening to prices, who owns the industry and what choices the industry is facing. There is a lot of debate nowadays. It could be whether we should build a new nuclear power station. It could be whether the UK should start fracking. Or it could be whether wind farms are a blot on the landscape or a modern and clean form of electricity production. 

However, there is a problem. The industry has struggled to engage in these debates in a meaningful and positive way and I have been wondering why that should be. I have not got a clear answer just a few theories. Is it because our industry is an essential commodity so we haven't had to really invest in branding and sales like the makers of shampoo, baked beans or summer holidays? Maybe it's because our industry is generally populated by engineers and accountants (guilty as charged)? Or maybe it's because we all have different views ourselves on what we think the right answers are to the choices we face, so society hears a cacophony of voices coming from our industry. Finally, I wonder whether the complicated and long term nature of many of our decisions don't play well in our 24 hour instant media world. What do you think?

Unburnable Carbon and the energy industry

For too long the issue of carbon has been the elephant in the oil and gas room but it has to be one of the mega trends facing the industry. Mega trends are ones that play out over two or three generations and not two or three years and the risk of stranded assets or unburnable carbon definitely fits that bill. 

 The science that underpins climate change is now well established and the fact that man made emissions of carbon, mainly from fossil fuel burning, are one of the principal causes is becoming increasingly accepted. On this basis there is a finite amount of carbon we can put into the atmosphere without triggering harmful and disruptive climate change. There is of course a lot of carbon embedded in fossil fuel. This means there is growing conflict between maximising the production of energy and minimising climate change.  For example, the UKs Energy Reserach Centre says that "a third of oil reserves, half of gas reserves and over 80% of current coal reserves globally should remain in the ground and not be used before 2050 if global warming is to stay below the 2 degreeC target agreed by policy makers". Or to turn it round we can only use two thirds of the oil, half the gas and 20% of the coal we have already found. 

If you are not convinced of the importance of this issue let me list for you the leading signals that have been apparent in just the last few months, the canaries in the Coalmine if you like.

1. The G7 group of leaders talked publicly about the end of fossil fuels by the end of this century with an almost carbon free electricity system by 2050. 

2. The Saudi oil minister said "one of these days, we are not going to need fossil fuels, I don't know when" but he then added the dates of 2040, 2050 which really surprised people. 

3. The IEA, the West's energy club, said "it is clear that the energy sector must play a critical role if efforts to reduce emissions are to succeed" 

4. A group of European oil companies have called for a carbon tax.

5. The IMF has proposed the ending of fossil fuel subsidies as a way of reducing demand and risk to the global economy.

6. Medical opinion has come out in favour of reducing fossil fuel use as an improvement in public health as illustrated by an article in the Launcet. 

7. Shareholder resolutions have been passed at both BP and Shell calling for more action and disclosure. 

8. The fossil fuel divestment campaign is gathering momentum.  The pressure is being applied initially to resource owning companies and even when there isn't divestment the question of unusable reserves is already a feature of many investment meetings.

If that isn't enough to get you thinking even the Pope and the Anglican Church weighed into the debate in June. The energy world has, is or will change. 

Every energy business needs to address the impact of this. All the recent signals suggest we will not be burning all the reserves of oil, gas and coal we have already found. It may be felt first in the exploration business; why look for more oil when we cannot use all we have found? The second impact could be on high cost production areas as economics rear their head. Thirdly, our use of fossil fuels will become, in effect, rationed by a combination of value to society and the ease of substitution with low or zero carbon alternatives. Finally, it could give opportunities in areas such as carbon capture, improved efficiency in energy usage and the development of alternative sources of energy and feedstock. 

We are being given clear notice that today's energy business will die. The issue isn't whether it will take 40 years or 80 years but what are you going to do in the next 40 months or 80 months.

Marchant's three laws of energy

We have probably all heard of the three laws of thermodynamics, Newton's three laws of motion and Azimov's three laws of robotics. Using the power of three as an inspiration  I have come up with my own three energy laws.

LAW 1 

The carbon intensity of electricity generation (as in grammes of CO2 per kWh) should halve every ten years. I have written more of this on earlier blogs. It would mean that electricity would be largely decarbonised by 2050. 

LAW 2

The energy intensity per unit of wellbeing should halve every ten years. I admit that this is a little vague but it is intended to focus on all energy and is about more than just GDP. As we improve living standards we need to reduce the energy taken to achieve these higher levels, hence the rule.

LAW 3

The longevity of energy policy should double every two years. Energy policy has been too fragmented, disjointed and short term for too long. The average duration of an initiative seems to be around a year but we need more stability and more certainty and predictability to stimulate the investment and innovation we need. 

Generation in 3D

One thing that I now have more time to do is to step back and think about some of longer term trends that might affect the energy industry. This time I have been pondering the future of electricity generation  and I have come up with 3Ds which I think will drive investment over the long term.

DECARBONISATION 

The science that underpins climate change is now well established and the fact that man made emissions of carbon, mainly from fossil fuel burning, are one of the principal causes is becoming increasingly accepted. This means there is growing conflict between maximising the production of energy and minimising climate change.  For example, the UKs Energy Reserach Centre says that "a third of oil reserves, half of gas reserves and over 80% of current coal reserves globally should remain in the ground and not be used before 2050 if global warming is to stay below the 2 degreeC target agreed by policy makers". This potential conflict is starting to have an impact through the policies of major investment firms. This pressure is being applied initially to resource owning companies. As well as resource owners this will also start to apply to resource users and electricity producers will be in the front line. 

We will, therefore, need to largely decarbonise electricity supply over the coming decades and this has been the focus of a number of disjointed policy instruments. However, electricity has some unique features as a kWh is the same the world. A gramme of carbon emissions is the same the world over. Taking these two factors means that the carbon intensity of generation (ie grammes of CO2 per kWh) is comparable over both time and space. That gives us a foundation for policy. Every country and every large geneator should halve their carbon intensity every ten years. In the UK it's typically around 500g now so by 2025 it would be 250g, by 2035 it would be 125g and so on. This is technology neutral and would allow nuclear, renewables and carbon capture to compete. It can be used as the basis of a global deal in the electricity sector. I have called this idea, modestly, MARCHANTS LAW.

 The key point is that we are moving from high carbon to low or no carbon generation. 

DECENTRALISED OR DISTRIBUTED 

That past investment also tended to be on an industrial scale, with large utilities exploiting economies of scale by building ever larger power plants. We created the era of 'big iron' with coal sets reaching 500MW by the 1960s and now, in China, units of 900MW are common. Nuclear power stations have also got bigger and bigger (and more and more expensive but that's another story) with the latest targeting 1600MW. These big stations also created the need for a big transmission grid. As a consequence most people became disconnected, physiologically, from their source of power when they became physically connected to the grid. I think this is one of the reasons why we waste so much energy; we are remote from its production.

In the future, and increasingly in the present, we are reconnecting with sources of power generation. We are seeing the emergence of farm scale anaerobic digestors, community owned and scaled wind farms and there are nearly a million solar roofs in the UK already. When we own the means of production we start to care about our usage. When the power is produced close to demand it improves security of supply. These new technologies are generally zero carbon and are displacing high carbon, grid based fossil generation. Distributed energy is making a contribution to all three aspects of the energy trilemna. 

It is not just in the developed world that decentralised and distributed energy is making a difference. In Africa the availability of solar lamps is transforming the lives of the 500 million people without access to grid power. It is improving health, increasing education levels, eliminating carbon emissions and reducing poverty. It is rapidly becoming a disruptive force for good.

We are moving from 'big iron' to 'small silicon'. 

DIGITAL 

As well as being big and dirty generation used to be dumb. There may have been smart controls in the station itself and in the centralised grid despatch centre but the relationship between the two was and generally still is, definitely analogue. I suspect despatch orders are now sent by email but only a few years ago it was still all done by fax! Whilst some generation was load following this usually applied to a few large coal plants and other plant were either on or off. Processes and systems were designed in the 1960s and applied largely unchanged. It also meant that in times of stress generation plant just tripped off the system to protect itself. Indeed, the cause of many large scale grid outages around the world has been put down to exactly this response. 

The expontential advances in technology over the last fifty years or so are only starting to be felt in the generation industry. In the next few years we will see augmented technology being increasingly used in system control and plant despatch, possibly even extending to full scale artificial intelligent systems. This means that as we move from hundreds of large generation sets to thousands and thousands the system will cope faster and better than it does now and will be self healing. The tremendous reduction in the cost of sensors and data storage combined with the advances in data analytics will change the processes used to operate and maintain the stations themselves. For example, with the Internet of things leading to billions of connected devices there will be an order of magnitude increase in pieces of kit in a power station being monitored real time leading to the elimation of unexpected plant failures and simple time based maintenance. Nanotechology, addative printing and robotics will change how plant is built and maintained, what ever size it is. Finally in the next ten years one of the important and productive areas of research and innovation will be energy storage; be it batteries, phase change materials, electromechanical devices or some form of storage I haven't even heard of.

We are at the start of a revolutionary move from an analogue to a digital generation sector.

DISRUPTIVE 

 

The three themes of decarbonisation, decentralisation and digitisation will work together to completely transform the generation sector from the predictable, ponderous and polluting one we have now, to decarbonised, decentralised and digital one. This change will be as  radical as the shift from fixed line telephones to smart phones. A digital control system with enhanced storage will allow the integration of thousands of small, clean power stations to work together for the common good. The transition will be disruptive and leave some behind and create winners out of others. The only thing that is inevitable is change itself. 

 

Benchmark against the future

I believe that all businesses should apply a sustainability lens to their whole operation but this belief is firmly routed in a long background in business. Sustainability and long term valuation can and should go hand in hand. In fact I would argue that it is essential. However, I do not mean the version of sustainability that has been effectively hijacked by the green movement but I have in mind a much wider and deeper version. I start with my own definition which has at its core the more standard definition of sustainability. My definition is as follows;

 Growth that meet the needs of the present stakeholders whilst enhancing the ability of the                          organisation to meet the future needs of all stakeholders. 

This isn't just about shareholders. I think there are five stakeholder groups; staff, customers, communities where you operate, the environment (or natural capital providers if you want) and providers of financial capital. Sustainability means keeping the needs of all these in balance, itself a tricky task, as well as thinking about future needs. That got me thinking. Businesses of all sizes use benchmarking as a performance management tool. We benchmark ourselves against the past. Did our KPIs improve on last year? What is our five year track record? We benchmark ourselves against the present. How am I doing against my peer group? Where do I stand against best practise? However, we also need to benchmark ourselves against the future. This generates lots of questions that can be useful in developing a sustainabile business plan. Here are a few that spring to mind.

1. Is my resource usage robust against a scenario of increasing global scarcity?

2. Will my business model survive in a world of exponential technological growth?

3. Am I prepared for fundamental shifts in global demand, influence and power?

4. Where is our future generation of leaders going to come from?

5. Are we innovative and flexible enough to survive the pace of change which is only accelerating?

Understanding the right questions is the first step to a path of sustainable devolpment and growth. Businesses need to think through whether today's threats and opportunities are just that, today's problems, or are they are actually harbingers of mega trends that could have profound implications in the long term? Where are the weak signals of long term trends that we may be missing? What could happen, good or bad, and how would we respond to it?

By benchmarking against the future and embracing sustainablilty, businesses can prosper today, tomorrow and the day after tomorrow. 

A nightmare on Whitehall place

Another day, another speech on energy policy. This time I used as my theme the nightmare of me being the next Secretary of Energy and Climate Change.

I came up with the ten things I would kick off on my first morning behind the desk on Whitehall Place.

1. A long hard look at the real electricity security of supply situation for this coming winter involving a hard look at the data station by station.

2. A review of the CFD auction regime. This would involve both taking the battle on the levy control framework straight to the Treasury and also looking at the detailed auction rules to make sure that the second round of auctions produced useful results. 

3. A proper analysis of the two possible solutions to the Gordian knot of Energy supply, either proper joined up regulation or unhindered and vibrant competition with a clear view that a decision on which route would be taken quickly and cleanly.

4. An objective look at what has worked on energy efficiency and what hasn't, both in the UK and elsewhere.

5. Launch a campaign to increase acceptance of onshore wind within government and the media whilst driving costs down.

6. Announce a decision to introduce a proper independent, not for loss, system operator to take on many of the functions currently being given to a plethora of bodies.

7. Intiate renegotiations on the Hinckley C nuclear CFD contract as I wouldn't sign the current version at the current price.

The final three where the same as my three big ideas from a previous speech ( see. http://iansblog42.blogspot.co.uk/2015/05/three-big-ideas-for-big-challenge.html ) on unburnable carbon, heat policy and Marchants law which are all important but need careful thought.

I concluded that my appointment would be a real nightmare, certainly for the civil servants in DECC, but that maybe this nightmare wasn't as bad as what could happen! Some of the audience were nice enough to say they would vote for me which was very kind but reinforced my desire to never be a politician.

Three big ideas for a big challenge

I was asked to speak at the launch of Strathclyde University's Centre for Energy policy. The brief was to come up with a 'big idea' for a new direction in policy formation. In true Ian Marchant style I rather exceeded the brief and suggested three big ideas. 

The first idea was the formation of a Royal commission on the question of unburnable carbon. Our society is still dependent on fossil fuels and the UK is still dependent on the hundreds of thousands of jobs created by this industry. However, most analysis suggests that only around a half of all known global reserves of fossil fuels can be extracted before we trigger climate change that would cause serious damage to our way of life. All to often policy makers and, indeed, the energy industry, ignores this dilemma and seeks to maximise UK fossil fuel production whilst maintaining a strong commitment to limiting gobal climate change. The implicit assumption is that someone else, somewhere else, should leave their carbon in the ground. We never make this explicit, never say why we should be so fortunate as to use our own reserves and never specify who should lose out in the carbon scramble. This is not an easy dilemma to solve and we should get our best and impartial minds to address it and come up with practical policy recommendations.

My second idea was not really new. Over a third of our energy usage is on heat but the whole policy agenda in heat has been fragmented and short term. Any heat project depends upon a key customer to take the bulk of that heat. That is a local issue and the viability of any investment depends upon that heat customer surviving as you can't dump surplus heat onto a national grid like you can with electricity. We need a policy review that reflects these physical and economic realities. The main thing it needs to be is a long term policy, in fact it needs to be longer than for electricity. 

My third big idea is something I have modestly called "Marchants Law" following on from Moores law in the semiconductor industry.  Let me explain. Globally we need to largely decarbonise electricity supply over the coming decades but electricity has some unique features. A kWh is the same the world over. Wherever you are that KWh can charge your smartphone or light up your life. A gramme of carbon emissions is the same the world over. It has the same environmental impact regardless of its source. Taking these two factors means that the carbon intensity of generation (ie grammes of CO2 per kWh) is comparable over both time and space. That gives us a foundation for policy or my law. Every country and every large geneator should halve their carbon intensity ever ten years. In the UK it's typically around 500g now so by 2025 it would be 250g, by 2035   It would be 125g and so on. This is technology neutral and would allow nuclear, renewables and carbon capture to compete. It can work with both competitive and regulatory based market structures. It can work alongside other policy interventions. It can be used as the basis of a global deal in the electricity sector.

I put forward these ideas to stimulate better minds than mine to tackle a big challenge we face in the 21st century; how do we revolutionise our vital energy industry so that it continues to drive economic development without undermining our environment.

Is Cinderella coming of Age?

I have just read an interesting article in the Economist about energy effficency. Apparently, in 2014 industrialised countries used 0.9% less electricity than in 2013 and slightly less than in 2007 before the financial crisis. It would seem that the age old relationship between GDP and electricity consumption has changed. This could be because of new technology or simply increased awareness of energy efficiency, either way it's good news, provided we can keep this going.

The article looks at vehicle technology, energy use in buildings and smart energy systems including storage and demand side management and there is a lot of good stuff happening in these areas. In fact I have made a number of investments in small start up companies in these areas. However the article goes on to say "The International Energy Agency reckons that only one-third of the available energy-saving opportunities with a cost effective payback period are taken up. For businesses and residents alike, factors including ignorance, inertia and misaligned incentives still rule" I can see evidence of all these obstacles as well as a lack of trust in organisations and businesses promoting energy efficiency.

Tackling energy usage over the long term is going to take the best minds in engineering, behavioural economics, policy design and marketing but all too often it is seen as the Cinderella of the energy sector. That has to change so that Cinderella comes of age and hopefully there will be more articles like this in the future. 

May you live in interesting times

We are now only a few months away from the UK General Election and, at this stage, it seems to be one of the most unpredictable for a long time, if not ever. In fact, one report that I saw analysed 10 different possible outcomes for who would form the next government covering majority or minority governments for both the larger parties and then a whole raft of different coalitions.

The election is being fought on more predictable grounds with things like the economy and the NHS coming to the fore. Every now and then another topic seems to dominate the media coverage and so far energy hasn’t been one of them. I hope that at some stage in the next few weeks it does get an airing as the new Secretary of State for Energy and Climate Change is going to face some interesting issues in his or her in-tray. I think that the following will be near the top:

1. How is the UK oil and gas industry responding to the low oil price and what can Government do to create a stable and supportive investment climate? This folder will, I imagine, recommend a quick visit to No. 11 Downing Street.
2. What will be the outcome of the complete investigation of retail energy supply and how should the government of the day react given that, since the investigation was launched, competition has increased and prices have decreased?
3. What progress is being made on implementing the recommendations of the Wood report to secure the long term stewardship of the North Sea assets to maximise long term recovery?
4. Is the much vaunted Electricity Market Reform actually going to secure the UK’s security of supply over the next couple of winters, and then put us on the road to decarbonising the electricity sector in the next couple of decades? This brief should recommend a long, hard and rigorous look at the capacity margin in the next two years.

Of course on the climate change side of the department the issues are no less serious as the new government will be taking part in the Conference of the Parties (COP) meeting in Paris later in the year where the subject of an international agreement on emissions reduction is, once again, on the agenda.

Here things seem a bit more positive in that the leaders of the Conservatives, Labour and Liberal Democrats parties have signed a joint pledge. This didn’t get much coverage as it was swamped by a megaphone debate on tax avoidance so I thought I would provide a link to the agreement, see www.green-alliance.org.uk/resources/Leaders_Joint_Climate_Change_Agreement.pdf

When I step back and think about the next few weeks I am reminded of the alleged Chinese proverb “May you live in interesting times”.

On 3 March, the EI will be hosting a pre-election energy question time in London with representatives from the political parties. This debate will provide delegates with the opportunity to engage in the discussion and express your own views on energy policy issues.

Access requires action

I have been reading an excellent report from the Shell Foundation ‘Accelerating Access to Energy’. The statistics are challenging. Here are a few:

1. Low income households in Africa spend up to 40% of their income on energy.

2. 1.2bn people lack any access to reliable and affordable electricity and for another 800 million the grid is unreliable and unpredictable.

3. Half the children in the developing world go to schools that have no electricity.

The Shell Foundation, through many years of experience have adopted what they call the “enterprise based theory of change”. This has involved identifying and tackling market failures, helping create social enterprises, patient and flexible grant funding and business skills development.

They have now refined this into a six stage process that takes between 5 to 10 years to reach maturity. The first three stages are to catalyse, pilot and create pioneers. The major step is number 4; scale. This involves a mixture of grant money and market revenues. It is this stage that we are getting involved with through Scotland Lights up Malawi. There is good evidence from Kenya and Tanzania that the model of distributing solar lights through schools works well and by about year 3 or 4 of the scaling stage the business can be self funding.

So if you haven’t donated to Scotland Lights up Malawi, the 2020 Climate Group's climate justice initiative yet please think about it, access requires action! You can find more details elsewhere on the 2020 group webiste but remember any personal donations are doubled until 5 February by UK Aid Match which matches any public donation pound for pound.