The Perfect Storm
The graph below illustrates that since 2004 the UK has become increasingly reliant on imported energy. Although many would argue that energy independence and energy security are not mutually exclusive, the trend of increasing reliance on foreign imports raises serious concerns when coupled with predicted capacity shortage.
The UK Office of Gas and Electricity Markets (Ofgem) has warned of an impending perfect storm, as the depletion of indigenous gas reserves, the drive to reduce greenhouse gas emissions and the need to renew and upgrade ageing energy infrastructure inevitably combine to debilitate UK energy supply. With this perfect storm due to hit as soon as 2015, it’s imperative that the discussion on how to respond to this ‘energy trilemma’, illustrated above, continues to gain momentum.
Recognising & Celebrating Failure
In December, The Crowd hosted a forum on ‘Celebrating Failure’, at which I sat on the Responding to Energy Supply Failure round table. In what resembled mass group therapy, four panellists proudly shared their fantastically engaging and entertaining stories of heroic failure. The stories ranged from Trewin Restorick’s pioneering glitzy and glamorous sustainable lifestyle magazine ‘Ergo’ which attempted to communicate sustainability issues to a market that turned out to be non-existent, to Matt Sexton boldly taking B&Q into the domestic micro wind turbine market, which was doomed to failure due to the wind-sheltered urban environment. The round table that I had the pleasure of joining then took the theme of failure a step further by looking at how organisations might constructively engage with the impending failure of energy supply.
The round table was attended by a mix of representatives from both private and public sector organisations, ranging from IBM to Transport for London (TfL); stark differences in their needs, challenges and perspectives quickly emerged. While the non-existent mechanism to control energy costs, and thereby the cost of a product or service, featured at the top of everyone’s wish list, the private and public sector organisations then diverged to prioritise energy efficiency and supply reliability respectively. This disparity is reflected in their preparations for potential energy supply failure, as the private sector typically invests in improving everyday energy efficiency while public sector institutions like TfL are under pressure to meet targets, therefore allocating investment to the assurance of emergency backup power generators.
The conversation evolved to explore dissimilarities in the way that each of the represented organisations approaches energy supply failure, highlighting the complexity of this multidimensional challenge. The electrification of transport, for example, reduces dependence on imported oil but does so at the cost of increasing dependence on electricity infrastructure. This demonstrates that it is arguably naïve to hope for a universal solution. Instead, response to energy supply failure might resemble an iterative journey with an expectation of stakeholder compromise rather than a promise of alignment. Reports have explained that an understanding of system networks is key, so response to energy supply failure ensures resilience to both short- and long-term shocks for both individual components and the whole energy system.
There was a general consensus around the table that the Coalition Government’s proposal for Electricity Market Reform (EMR) might be the best way forward. The EMR programme stimulates investment in low-carbon technology by creating a less risky market through a combination of Contracts for Difference (CfD) providing predictable revenue, and Capacity Mechanisms (CM) ensuring reliable supply. EMR is positioned to be a leading contributor to the £110 billion investment required to replace and upgrade the UK’s ageing energy infrastructure, and promises to do so in a way that also drives decarbonisation and improves energy efficiency.
The important question was: what can these organisations do to achieve energy security, affordability and decarbonisation in the face of political uncertainty? The round table agreed that two of the most effective approaches to this challenge are optimising the energy efficiency of our building stock and investing in renewable energy generation.
With regards to renewables, the first challenge is to help investors see the relevance of renewable energies, because they contribute towards a more diverse and thereby more resilient energy supply. In the record-breakingly long and cold winter of 2013, for example, the spike in gas demand was met by wind farms which had the right weather conditions to operate at maximum capacity. By offering renewable energy packages that work alongside existing business strategies, companies with electric supply shortage and those with organic waste, for example, could implement a biomass project, without needing a radical change in strategy.
Effective energy efficiency and carbon management strategies can help organisations to overcome the energy trilemma. The investment case for energy efficiency projects is well established, with a body of evidence to support business case development for both private and public sector organisations. Additionally, legislation such as the CRC Energy Efficiency Scheme and the 2011 Energy Act, which will make it impossible for landlords to let buildings with an EPC rating of F and G from 2018, help to create financial incentives for both public and private sector organisations.
The psychological dissonance that hinders the translation of concerns into actions is now widely conceived to be as grave a problem in its own right as the energy supply failure problem itself. As the financial and societal consequences of inaction become clearer it is refreshing that influencers within this space are coming together at forums such as The Crowd to share their experiences and collaboratively develop solutions. In order to respond effectively to energy supply failure, strategies need to prioritise actions, outline responsibilities and provide a clear roadmap for implementation while remaining consistent with the wider existing business strategy.