“We have a very tough target in 2050 but we also have some pretty tough targets on the way to it. It’s amazing how the ambition just keeps on increasing.”
A policy expert set out the scale of the challenge – and the appetite to succeed – during an exclusive roundtable to discuss the urgent investment challenge posed by the UK’s 2050 net zero target.
The discussion centred on what needs to be done to fund the huge swathes of infrastructure necessary to support decarbonisation at the same time as addressing the needs of the communities affected.
Despite the considerable feats required to hit net zero, the word spoken more often than any other during the debate was “excitement”. The senior industry figures gathered around the virtual table all expressed their pride in their role in such a pivotal moment for the energy transition.
This article focuses on five key takeaways from that discussion, hosted by Utility Week and sponsored by Hitachi ABB Powergrids. But first here are two more quotes setting out just how much needs to be achieved over the next few decades.
“People sometimes talk about decarbonising the power sector as the easy bit of net zero. In a way they have a point and we have already made great strides, including a five-times increase in renewable capacity in the past decade. But there’s still a very long way to go and the 78 per cent emissions reduction target implies an unprecedented build-rate of infrastructure.”
“We’ve effectively got an economy that has been built up over the last 200 years on carbon-based infrastructure. We’ve got about 15 years to completely remake and reshape the infrastructure so we can support net zero. That pace needs to happen now.”
That huge investment is needed to deliver these ambitious targets is a point of unanimity, but opinions varied about how early this should take place and the risks inherent in different approaches.
A regulatory expert said that while this had been a key debate in the gas and transmission RIIO2 process, it would be even more important in the price control for distribution network operators. RIIO-ED2 will run until 2028 – a point at which 600,000 heat pumps a year need to be added to the system and the electrification of transport will be entering the mainstream.
They said: “The reality is, if you don’t get the capacity in place then you can’t decarbonise transport and heat.”
However, a senior figure from a transmission network warned against assuming the distribution networks were the only ones facing rapid evolution.
They pointed out that there were more projects on the table for the current price control than were delivered in the eight years of RIIO-T1. They also cautioned against siloed thinking, saying: “To get around public disruption, you need combined strategies – it can’t just be individual plans.”
The discussion inevitably led to the issue of cost of capital, with several companies reiterating their view that the scale and pace of net-zero projects risk being undermined by a lack of incentive for investors.
One business leader lamented that their company was bidding for investment against energy projects all over the world, and while the UK is still seen as an attractive market, it is increasingly out of step in terms of the rates of returns.
Certainty vs uncertainty
Debating the merits of anticipatory investment inevitably leads to a discussion of uncertainty and the risk of stranded assets.
One industry boss stressed that with a doubling of clean energy needed by 2050, the risk of stranded assets was “very low indeed”.
They added: “The challenge for policymakers is to make sure we don’t end up spending so long analysing a risk that is very low that it really impacts pace.”
The CEO pointed out that there are several areas where there is little question that investment is needed and these at least should be fast-tracked.
“These projects can take a long time and require work with planning authorities and suppliers. It’s not a case of just flicking a switch and we’re ready to go. The longer we have to plan, the better the plan. The more we see in our baseline, the more efficient we tend to be delivering that.”
Another senior industry figure made the point that there can be as much of a stranded asset risk from underinvesting in infrastructure as potentially overinvesting, saying: “If you invest conservatively and then find five years down the line it’s not fit for purpose, that either becomes a stranded asset or it’s potentially more disruption for that community when we could have planned ahead. You need to look at that long-term picture.
“Our stakeholders are telling us we don’t want you coming back three times in a decade. We want you to come in once and do it right.”
Reform of the planning system
In order to take that long-term view and invest ahead of need, wider reform of the associated processes is needed, the group agreed. Most notably, the planning system must be fit for purpose.
As one participant put it: “There is no way we can deliver what we need to, at the pace we need to, with the current planning regime.
“Interaction between planning and regulatory regimes needs to be aligned. They have to go hand in hand. There is no point us going for planning then having to wait for regulatory consent then having to go back to planning because we have to change our view.”
The current system remains far too short-sighted, according to another industry figure, who said: “There is a real tendency to keep tackling this problem from an evolutionary point of view, despite net zero. What’s the next step, how can we do it a bit better? It needs to be more strategic than a project-by-project basis. Network planning has always been there, it’s the spatial aspect that hasn’t been in the past.”
Another CEO said the issue was often not ideological but a question of boots on the ground, with understaffed planning departments often unwittingly becoming a bottleneck. They gave an example of actually offering staffing support to planning consent teams in their area to ease the pressure.
Ian Funnell, chief executive UK & Ireland of Hitachi ABB Power Grids, posed the question as to whether a body is required to enable all these disparate plans to fit together “in a much more complex environment than we’ve ever had before”.
One participant welcomed this idea of a “system architect”, saying “if your aim was just to get to a place where we have a zero-carbon world, you’d want some architecting that”. However, they enjoined against stifling innovation.
Another industry executive said the risk of a central body dictating the pace of net zero was that local considerations would get lost. They said: “I wonder who knows my network and my customers better than me and if some central architect could plan that better? Having collaboration and transparency and making sure we’re sharing that knowledge so that we can work together to architect that problem together has a lot of merit as opposed to an omnipotent power.”
An expert on renewables development stressed that whether it is done by one central body or not, there is a need for ambitions across different net-zero strategies to be aligned. As an example, they pointed to the need to incorporate future carbon, capture and storage scenarios in plans for offshore networks. They also cited the need for hydrogen strategies to entwine with renewables development.
“We used to turn up with our own mandates and work out why something else is going to upset what we’re trying to achieve. Net zero has created a common agenda and we’re just in this growing pains stage now of how do we make sure those are properly aligned corporate strategies that play out in the stuff we’re trying to do day to day.”
They added: “We need to be looking at whether we need an architect or one collaboration of people coming to the table to give us that wider view.
“It’s about a guiding mind – but that doesn’t have to be one mind.”
A policy expert mentioned the prospect of competition in the building, ownership and operation of onshore electricity networks as having the potential to accelerate the pace of change. They said opening up network innovation funding to third parties could also act as a catalyst.
This prompted mixed reactions. Some participants agreed that early competition could play an important role in making infrastructure rollout more rapid and bringing down costs. A network CEO insisted “we’re not scared of competition”.
However, another cautioned that introducing competition can add an extra layer of complexity and therefore delay to projects.
A separate industry leader said: “You don’t have to wait for competition to be efficient. We can absolutely work with our supply chain to do that.”
Meanwhile, a network boss warned that however efficient it becomes, the private sector cannot enable net zero on its own.
“The market has a big part to play in this but the market isn’t the only solution. There may be some lessons from the broadband rollout. Communities didn’t have those services because the market didn’t go there. It cherry picks.
“We can’t cherry pick with net zero. It has to be a process that reaches everyone. So what else do we have in the toolbox for areas where the market isn’t participating?”
Funnell summed up the debate by saying it showed why the UK was considered one of the most advanced regions in its net zero thinking.
He added: “We all have the same vision in mind. Whether we’re talking about a system architect or about the industry shaping itself and making itself fit for purpose, it’s all about collaborating for the same outcome.
“If we can deliver half of the things we talked about then we’re going to put ourselves as best in class, if we’re not already there.”