04 Oct 2019

Energy infrastructure: the key to a low carbon future

Hitting net zero carbon emissions for the UK by 2050 is ambitious – and could cost more than £1 trillion. But with the climate crisis unfolding almost daily, finance, utility and infrastructure experts are collaborating to deliver practical solutions.

Our planet’s ecosystem is in crisis. But there is cause for optimism. The technologies to build out energy infrastructure that helps limit the damage caused by CO2 emissions are coming. That was the message at The Role of Infrastructure in Enabling the Energy Transition, a seminar hosted by Investec‘s power and utilities team.

 

Experts from industry, government, finance and academia – the key collaborators in any holistic solution to the carbon emissions puzzle – met to explore the roles that technology, regulators and investors must play in delivering infrastructure to help the UK meet its commitment to achieving net zero CO2 emissions by 2050.

 

This journey centres on decarbonisation, digitisation and decentralisation, explained Harold Hutchinson, Head of Equity Research at Investec Securities. These principles need to be incorporated into infrastructure planning at all levels.

 

And the journey is certainly underway. Renewables’ share of generating capacity has soared in the past decade, hitting 35.8% in Q1 2019, compared to 30.5% in Q1 2018 – and less than 10% in 2011. The government is committed supporting a massive increase in offshore wind. Electric vehicles are gaining popularity – from sales of around 1,000 in 2011 to nearly 60,000 last year – offer potential to be part of smart grid solutions in the future. And despite delays to the programme, there are now more than 15 million smart meters installed in the UK. 

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Batteries: disruption and deployment

Smart metering

Grid challenges

Regulatory perspectives

Batteries: disruption and deployment

The bad news? Not every energy tech is on a path of exponential change. Dr Gregory Offer from Imperial College’s Department of Mechanical Engineering told the panel that the most promising battery developments just offer incremental improvements on 20-year-old chemistry. But up-scaling production will deliver better performance and costs falling at an average of 7-8% each year – encouraging investment.

Electric vehicles (EV) uptake will also boost battery storage as part of a holistic energy system without a revolution in technology. EV batteries can be part of a local grid or be redeployed for grid use when a car is obsolete.

Smart metering

Tim Mortlock, chief operating officer of SMS plc, warned the panel that overall domestic demand for electricity will double by 2050 – significantly hurting the hunt for net zero carbon. One solution is an energy market driven by intelligent software platforms that analyse 2.5 billion data points gathered each day from smart meters, helping households optimise consumption behaviour. 

“We are entering a period of transformative change,” he said, providing a utility industry that’s been operating in much the same way for 80 years can change. 

Grid challenges

Keith Anderson, CEO of ScottishPower (which is now 100% renewable) added that the power grid “is the most forgotten and the most essential” element for reducing CO2 emissions. 

A new grid needs to incorporate features such as two-way communication so that energy delivery becomes more flexible and proactive. This requires significant investment, backed by a regulatory model that takes into account the different requirements of both short-term investors and the long-term stewards of those assets. “The last thing we want to do is build a distribution system that’s not fit for purpose,” he said.

Regulatory perspectives

Akshay Kaul, Director of Network Price Controls at Ofgem, explained how regulators are responding to Anderson’s call. They’ve been instrumental in supporting renewables – and the roll-out of the smart grid will require a similar commitment. Competition and consumer protection (including safeguarding their data) are two of Ofgem’s strategic objectives for the next five years. 

The third? ‘Facilitate decarbonisation’. “We want to maintain a stable regulatory regime that keeps the cost of capital low and creates strong incentives for innovation and efficiency to drive down running costs,” Kaul explained.

Harold Hutchinson

Head of Research

To discover more about the electric vehicle revolution and how you can benefit, get in touch.

Marc Elliott

Equity Analyst - Energy

Where next?

It’s too early to talk of the ‘death of the transmission grid’ as a result of off-grid power from domestic solar or EVs as local storage. Local grids are not configured to deal with two-way power flows; and we’re only at the start of capability to actively manage demand and supply locally.

 

But real investment opportunities are clear: new infrastructure to deliver efficient generation, distribution and consumption as part of a hyper-connected, holistic system capable of flexibility to new technologies and consumers habits. It’s a tough challenge for investors, regulators and operators alike.

 

But the rewards for the bold are not just financial. They’re also offering solutions to perhaps the greatest existential crisis humanity has known.