This is the substance of a recent talk I was asked to give at a recent COP26 roundtable in Turkmenistan. It is an attempt to summarise, for policy makers, some of the general principles we have learned in the course of the Oxford Martin School Integrate project.
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First, the context. A low
carbon power sector has a central role in reducing CO2 emissions and making
progress towards zero carbon. This is not just because fossil-based power has
high emissions and we already have numerous technologies for low carbon
generation. A low or zero carbon power sector means we can progressively use
electricity solutions to reduce CO2 emissions in other major categories,
notably transport and heat.
The task then is developing and
integrating renewable and other low carbon energy resources into power systems
that deliver what we need and expect. The main factors that have to be
respected and reconciled are the following:
·
Power systems require flexible responses to balance real
time supply and demand.
·
Low carbon sources (mostly) lack the flexibility of
traditional thermal generation plant using coal oil or gas.
·
Renewables output can be intermittent and unpredictable
Today I am going to summarise some of
the general principles we have learned in the Oxford Martin School. The principles
apply not just to the UK but in virtually all power systems. However, lesson
one is that every country and every network is different, in terms of its
available resources, its climate, weather and seasonal effects, and the needs
of its consumers. So the best choices for the future will also be different.
Framing the Policy Choices
We have used this diagram to represent
the task, and the large number of questions that need to be addressed. The
potential resources and activities that we can manage, the options available to
the power sector, are shown in the top row - generation, storage, networks and
consumption. Costs are generally coming down.
The policy instruments that we have to
manage these options can be categorised, in the left-hand column, in terms of
technology and innovation, the wise use of markets and price signals, social
engagement in the process of change, and finally the whole framework of law,
organisation, policy, regulation and governance on which the sector depends.
There are 16 cells in this 4x4 matrix,
and there will be important questions in almost all of them.
Starting
with the resources, choices involve selection from a long menu, much of which I
am showing on this slide. Virtually all the items here feature in the UK as
part of our likely solutions, and they are all potentially important. I will
just comment on a few highlights.
·
When we look ahead to planning the power sector, we have to
look not only at the current use and applications of electricity but also at
its substitution for other fuels in new applications, especially transport and
the provision of heat. This implies coordination across sectors.
·
Electric vehicles especially have the potential to play a
huge part in the operations of the power sector.
·
Interconnection. The recent power crisis in Texas has
highlighted the importance of interconnection and the risk of isolation.
·
Solving the storage problem is one of the most challenging
parts of the exercise, at least from a technical and economic perspective.
·
Consumers are also a vital part of the system, technically,
economically, and politically. They merit a separate conference on their own.
Technical
and technology choices
The
choices have to be complementary rather than exclusive. This will involve
substantial computer modelling of alternative combinations to find out what
works best.
So the
balance, getting the right mixture, of solar, wind, biomass and other
sources is essential. For the UK, for example, meeting seasonal variations is
very important, implying a higher ratio of wind to solar.
Storage
is going to be important everywhere. Battery technology and pumped hydro, possibly
some interconnection, combined with the ability to make use of more
time-flexibility in consumer demands, will mostly be more than adequate for
smoothing daily variations. But inter-seasonal storage is potentially a much
bigger problem, unless the capital cost per unit of energy stored can be
greatly reduced. The most promising answer appears to be conversion of renewables
output into high energy forms which can be stored more cheaply. Hydrogen may be
the preferred long term storage option at the present time, but there are other
contenders.
In the
UK, a bigger issue than seasonal storage may turn out to be risk of prolonged
periods of low wind. Some modelling has simulated the effects using weather
data over the last 40 years, and this has proved a useful exercise.
Markets
and prices
These
issues have related to technical planning, and available innovations, but there
are also major implications for markets, governance, and the management and
control of the sector. Turkmenistan and the UK have very different starting
positions. Turkmenistan starts from a position of government ownership and
control of the power sector, and supply to many consumers has been free. The UK
has private ownership and some market structures but also has increasing
government involvement in underwriting new low carbon investments, and in
ensuring coordination within the sector. Despite these differences, I believe
that there are some important common principles.
One is
how to choose the most efficient plant to operate. In the UK we call this the
merit order. As we progress towards low carbon economies, this will normally imply
the plant with lowest CO2 emissions per kWh. In the UK and Europe this means
that a price has to be attached to emissions and that must impact on the
economic choices made for the sector. But it is also true that the task of
managing power systems effectively with high renewables presents new
challenges. In the UK we are also having to re-examine the methods that we use
to get the most efficient operation of the system. The optimisation methods designed
for a world of coal and gas generation are not necessarily the right ones for a
low carbon system.
Consumer
tariffs are very important. They are central to the ecology of the power sector
as the primary means of communication between production and consumption. The
priority attaching to reduced emissions is such that this should be reflected
in cost reflective pricing. Tariffs are even more important if we need to
promote more flexible demand. We expect to see some profound changes in the nature
of the services provided by electric power in meeting consumer needs.
Finance
and Governance
My last
big economic issue is financing. It is widely held that collectively the world
has a glut of savings waiting to be invested in useful projects. Also, the cost
of capital is at historically low levels. But to access that capital, for any country
or industry dependent on external or private finance, it will be essential to
demonstrate that the investment is going to be well managed. The institutional
structure is important for that and also for successful implementation.
This
means ensuring a good and stable legal and institutional framework within which
low carbon investments can be delivered, and one that banks, the World Bank and
others, or other investors, can rely on. That of course depends on the
commitment of governments, in the UK as much as anywhere, to low carbon
objectives.
