UK energy equation grows evermore complex

Energy policymakers struggle to reconcile the competing claims of climate change, cost and security of supply, writes Mike Scott

Energy has always been central to economic success at home and around the world. For many years, the main issue was simply whether you had the resources to produce it and, if not, how you could get hold of the means of production. But now the situation is more complex.

Fears that we are running out of fossil fuels – the peak oil hypothesis – may have receded thanks to discoveries of new sources of oil, such as Brazil’s pre-salt offshore reserves, and new technologies, such as fracking and horizontal drilling.

However, the fact that we need to use these new technologies and to look for resources in evermore inhospitable locations –the pre-salt deposit is two kilometres under the seabed which is itself two kilometres from the surface – illustrates the world’s continued thirst for oil and gas.

There are still plentiful supplies of coal, but it is the most polluting fossil fuel and burning fossil fuels releases greenhouse gases (GHGs) that lead to climate change.

The world is currently grappling with how to limit GHG emissions in order to keep average temperature rises below 2C. According to Fatih Birol, chief economist at the International Energy Agency (IEA): “No more than one-third of proven reserves of fossil fuels can be consumed prior to 2050 if the world is to achieve the 2C goal.”

If there are problems with fossil fuels and nuclear, are renewables the answer?

While the World Bank has just promised to focus more on climate change and was immediately urged by green groups to stop lending to fossil-fuel projects.

Despite this, coal-fired power plants are still being installed at a staggering rate in countries such as China and India, but in the United States and Europe, coal projects are finding it increasingly hard to access finance because investors fear that climate regulations will make it either illegal or uneconomic to run coal plants, leaving them as “stranded assets”.

Meanwhile, the world’s population continues to grow and get richer, meaning that people want more stuff, which all requires evermore energy to produce it. The inevitable result is higher prices.

For some people, the answer is nuclear power; it is a tried-and-tested technology with minimal emissions and it is always “on”. But, despite decades of construction and operation, the industry has yet to demonstrate that it can build capacity cheaply, on time and without government subsidies, while the issue of what to do with nuclear waste has still to be properly resolved.

The devastating Fukushima accident in Japan prompted governments around the world to reassess their commitment to nuclear, most notably in Germany, where a phase-out of the nuclear fleet has been brought forward from 2036 to 2022. Even France, the most nuclear nation in the world, is seeking to cut its nuclear capacity from about three-quarters to around half its generating capacity.

So if there are problems with fossil fuels and nuclear, are renewables the answer? Technologies, such as wind, solar and marine energy, have the advantages of being emission-free, improving our energy security and making use of our ample renewable resources.

But they are still very new, largely unproven and expensive. However, as more capacity is installed, the industry gains more experience and prices for many renewable technologies continue to plummet. Even for those that are some way off cost competitiveness, such as tidal power, the path to price parity is now clear and it appears to be accelerating.

And there is a whole host of energy efficiency and demand management technologies that can help cut energy consumption and bills, but which seem to be ignored by consumers, investors and policymakers, perhaps because they lack the big-ticket impact of a wind turbine or a nuclear power station.

It is equally clear that the technology itself is only part of the solution. A whole new infrastructure needs to be created, not just the physical infrastructure of an upgraded transmission system that will include a lot more high-voltage direct current (HVDC) lines to transport renewable energy from the remotest parts of northern Scotland and the North Sea to power-hungry southern Scotland and England.

It will also include a digital, virtual grid that will transform the relationship between producer and consumer, allowing customers to save money by not using energy during peak times, for example.

And it will become increasingly untenable to stop the flow of electricity at national borders. A pan-European energy market will be able to integrate solar from the south and wind from the north, as well as coal power from Poland and nuclear from France, using instantly reacting hydro-power from Norway to smooth fluctuations in supply and create a truly integrated energy future.