27 January 2017 

Merlin Hyman 

Having digested the government’s new Industrial Strategy, announced with much fanfare this week we thought we would give you our views on what it tells us about the new administration’s thinking on energy.

If you want to know more Regen will be exploring the decentralised, flexible and renewable energy system of the future at Smart Energy Marketplace on 28 March in Exeter at which BEIS will be speaking.

RIP Energy Trilema

Putting energy and business together in one department is clearly having a significant impact. The familiar trilema of energy security, decarbonisation and keeping down costs is explicitly ditched with business and consumer energy costs and new industrial opportunities seen as policy areas that “require a higher priority”.

On carbon reduction, the defining challenge of our age, we are pointed to the forthcoming Emissions Reduction Plan to be published this year and a rather blasé assurance that “have an exemplary record of meeting our commitments”. There is a similar broad assurance that “much progress has been made” on energy security. Whilst this is an industrial strategy it would be reassuring to see rather more recognition of the huge challenge we still face to decarbonise our energy system – the Emissions Reduction Plan will be a key document.

The impact of the new priorities can be seen in the fact that technologies like solar and onshore wind that are presumably not seen as industrial opportunities don’t get a mention – whilst nuclear, offshore wind and battery storage are high priorities.

There is an obvious disconnect here. The latest BEIS report on Levelised Costs of Energy shows onshore wind and solar are becoming the cheapest ways of generating electricity. If we want to keep energy bills down they are going to have a big role to play.

Cost or opportunity?

Successful industrial strategies set out clear directions of travel that government and business can get behind. Countries like China and Germany have made leading a low carbon ‘energy transformation’ a defining principle. The Trump administration has an equally clear strategy, whether we like it or not, that sticking with fossil fuels will keep costs down for industry as a whole.

At headline level the new industrial strategy lends support to the outdated view that low carbon = cost = bad for industry. Its key energy commitment is “The Government will set out in 2017 a long-term road map to minimise business energy costs”.

However, looking at the detail the means to minimise business energy costs are all good things: greater energy efficiency; further reductions in the cost of offshore wind; ensuring “markets and networks operate as efficiently as possible in a low carbon system”; and reviewing the opportunities for growth from the energy sector.

If we ask ourselves whether investors reading this strategy will be clear on the direction of energy policy the honest answer is ‘not yet’.  Until there is greater clarity investment will remain slow which, of course, leads to less jobs.

Smart and storage

One area of clarity and a key winner in the strategy is battery technology, energy vehicles and smart grid technology.

“This paper commits us to a programme of research and innovation in energy storage and other smart technologies which aligns with the work underway on designing a smart grid and the roll-out of public charging points for electric vehicles, and smart meters at homes and commercial premises.”

There is to be a new research institution and the strategy has been backed up by an announcement of millions of pounds of innovation funding for storage and demand side response www.gov.uk/guidance/funding-for-innovative-smart-energy-systems

Overall its clear a new direction is beginning to emerge from a new department, one that recognises the energy market is changing rapidly with new business models emerging. We now need to work with BEIS to create the policy clarity needed to enable the market to get on with the huge task of transforming the way we generate, supply and use energy.