Will the energy transition be derailed?

28 Mar 2017

A blog by UKERC Director Jim Watson, based on his speech to UNI-SET Clustering Event, ‘Universities in the Energy Transition: Focus on Sustainable Transport and Carbon Capture, Storage & Use’

This is yet another significant political week for the UK. The UK’s departure from the EU is set to start tomorrow by the government triggering by Article 50 of the Lisbon Treaty.

This process has huge risks – to the UK economy, for the integrity of the UK and to the EU as a whole. As a forthcoming report from UKERC and Chatham House will explore, it will also have implications for the energy sector, for energy policy and for energy innovation and research in the EU – particularly the part that UK research can play within this.

Energy systems around the world are changing fast, driven by technological changes, government policies and global markets. Much of this change is going in the right direction, but needs to accelerate if the transition to sustainable energy is to be achieved quickly enough. But what do the global political uncertainties we are currently facing mean for this process of change – whether Brexit and the rise of nationalist politics in Europe or the election of President Trump in the US?

My first real job, in 1988, was with Austin Rover, when it was still a UK-owned company struggling to come to terms with globalisation, global competition and a reputation for making cars few people wanted to buy. What struck me was the industry’s enormous capacity for innovation, even though the focus in those days was on size, performance, the quality of the interior and the output of the in-car stereo, rather than reducing emissions and improving fuel economy.

Times are changing, though. In 1988, the average vehicle managed less than 30 miles per gallon – equivalent to CO2 emissions of well over 200g per km. Now that figure has risen to well over 50 miles per gallon (120g/km in 2016) - though the Dieselgate scandal has revealed the standard tests which helped us to arrive at that figure to be rather less accurate than we were led to believe. There are also signs that the shift to electric vehicles is beginning to gather pace.

A couple of years later, I designed, built and tested a small wind turbine for my engineering degree. Safety concerns and my tutor’s understandable scepticism meant that early plans to test it on top of a tall Imperial College building in South Kensington were soon abandoned in favour of a wind tunnel. The turbine worked, and generated enough to power an old fashioned lightbulb. Since then, wind energy has moved from niche to mainstream and global capacity has grown from around 2.5GW in 1990 to 490GW in 2016. Costs have fallen significantly as innovation has yielded larger turbines. Even in the UK, which has been embarrassingly slow to adopt renewable energy, wind power now accounts for over 10% of electricity.

In contrast to the positive innovation story for wind power and other renewables such as solar, some other technologies are struggling to get off the ground. Technologies to capture and store CO2 emissions from large facilities, which are likely to be essential if we are to avert the worst impacts of climate change, have been a focus of significant research and innovation for many years. The technology works. But investment has stalled in the absence of government support and market structures that enable the considerable costs and financial risks involved to be passed onto consumers. Rather like nuclear power in Europe, most of the large-scale power sector CCS projects that have been built in North America have been characterised by high costs and/or large cost over-runs.

What stands out for me from these examples is the global nature of the innovation process. This increasingly involves large companies that operate across international borders in multiple markets. Furthermore, the cost reductions and deployment we have seen in some of the success stories have been driven by policy support in several countries. Without Danish and German government support, wind power may not be where it is today. Similarly, those UK consumers how can now buy relatively cheap solar panels have Japanese, American and German taxpayers and energy consumers to thank.

To some optimists, these changes look unstoppable. Combined with reducing costs of batteries, the increasing role of ICTs in the energy system, and new entrants, we are perhaps on the cusp of a revolution in energy systems that could leave incumbent utilities and fossil fuel companies flailing in its wake.

Whilst I share some of this optimism, there are at least three reasons to be more concerned.

First, energy systems are still fossil fuel dominated. When faced with competition, incumbents tend to fight back – politically or with technical changes of their own. We have already heard plans from the US administration to roll back vehicle emissions standards and cancel the Clean Power Plan. This is an administration that has aligned itself firmly with fossil fuel interests. The new US Environmental Protection Agency administrator, Scott Pruitt, bizarrely claimed over the weekend that the administration wants to have a ‘pro-growth and pro-environment approach to how we do regulation in this country’. That is desirable, of course. But it is hard to see how cancelling or downgrading regulations which push incumbent industries to invest in the cleaner technologies of the future is fit for that particular purpose.

Second, the process of change leads to losers as well as winners. Not just in terms of companies, but in terms of regions and communities. Last week, I visited the museum of science and industry which documents the pivotal role of Manchester in the industrial revolution that had far reaching global impacts. At one point, that region of England dominated the global market. But now, the industry has moved on to other parts of the world, driven by the cycle of what the economist Joseph Schumpeter called ‘creative destruction’.

Third, the forces of globalisation that are partly responsible for innovations we have seen today are being increasingly questioned. It is not clear what the new economic nationalism will mean – but there is a risk of slowing down the process of innovation and change that we need. As recent UKERC research showed, it already takes a long time for new innovations to move from the R&D lab to significant deployment.

There are two lessons for those of us engaged in research that underpins and informs the transition to sustainable energy.

First, international collaboration is essential. As the UK leaves the EU, we need to keep making the case that there are huge benefits of working together collaboratively across borders. This applies to energy research just as it applies to the development and commercial deployment of new technologies.

Second, we need to pay more attention to the potential losers of change, and the downsides of the transition that is unfolding. History shows that whole communities can be left behind as economies and technologies change. This has been widely cited as one of the contributors to the Brexit vote in the UK, and the election of Trump in the US.

Governments seeking to implement an energy transition also need to engage with their citizens about what this transition should look like and who should pay for it. Opportunities for communities to benefit, such as through shared ownership in new facilities, should be maximised. The benefits of new technologies and access to new services should be widely available –with safeguards for privacy and those least able to pay.

Finally, more attention than has been given in the past is needed in industrial strategies to social inclusion. An approach to industrial strategy is needed that focuses on future opportunities rather than shoring up the status quo. But they need to include clear plans to help those who risk being left behind