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UTILITY Week 23rd October

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Policy & Regulation 12 | 23RD - 29TH OCTOBER 2015 | UTILITY WEEK Market view I n recent years, there has been no shortage of political rhetoric about energy policy – not only reassuring us that the lights will stay on while the system is decarbonised, but also that, somehow, no-one will to have to pay extra for this transformation. Also, it will happen spontaneously without the need for any difficult decisions, at the same time making the UK a world leader in the field. Reassuringly for politicians, there have been plenty of energy scenarios published showing that some of these aspirations can be met if certain input assumptions are sat- isfied. However, this important conditional- ity in the messaging has been overlooked or ignored – the necessary decisions for deliv- ery have not been forthcoming. So, have things improved since the gen- eral election? It could be argued that at least we now have greater clarity and know what government does not want, but we are still little wiser about what it does want, or how it will be achieved. Worse still, measures that were delivering are being cut short, reversed or abandoned and nothing put in their place. Rather than delivering on a world-leading ambition, we are instead seeing companies going out of business, job losses, invest- ment in energy efficiency slowing down, large-scale investment plans in renewables and carbon capture and storage being aban- doned, and the UK plummeting out of its long-held top ten position in the EY country attractiveness index. Unless confidence is re-established and key decisions about deployment made, the necessary investment in innovation, produc- tion and standardisation is unlikely to be forthcoming. Yet it is this very investment that sits at the heart of cost reduction aspi- rations, and therefore delaying or making no decisions could be the expensive option. Recent research titled Energy System Crossroads – Time for Decisions, by myself and Imperial College, builds on a range of the energy system scenarios and other policy initiatives to show how the envisaged out- comes can be realised through appropriate choices and actions. Linking scenarios to policy can be com- plicated. One reason is that many scenarios use optimisation models that behave a bit like a central planner. In the real world, there is no perfect foresight, and decisions are made by multiple agents. In the research, we do not seek to develop a new genera- tion of "fat controllers", but rather to derive pragmatically the key delivery actions. Some of these actions need to be taken directly by government bodies, others to be encouraged indirectly through market instruments and regulation. A practical reflection on physical deliv- ery and a recognition of the interactions and interdependencies across sectors shows how important the timing and sequencing of these decisions is. For example, electrifi- cation of heat and transport can be deemed the right solution only once the shape and implications of future heat and transport pathways are determined and demand levels and patterns understood. However, despite the crucial role for new or extended network infrastructures, not enough is known about the potential costs and impacts associated with the non-incre- mental transitions needed. This requires urgent further analysis and consideration to properly evaluate options. The research we have undertaken high- lights scenario outcomes that point in simi- lar directions, especially where this reveals actions of low regrets. Where they contain mutually exclusive elements, or diverge sig- nificantly, the paper outlines the informed choices that must be made. Dr Keith MacLean is an independent energy adviser Download the full report at: http://bitly.com/ESystCrossroads Real world modelling New research aims to help government form effective energy policy by analysing the outcomes of specific decisions and actions in our complex, interconnected world. Dr Keith MacLean reports. ENERGY SYSTEM CROSSROADS – TIME FOR DECISIONS KEY RECOMMENDATIONS Heat •  Long-term, effectively targeted investment programme needed for residential and commercial  buildings to reduce energy demand for space heating and hot water. •  Analysis needed of the potential role for decarbonised gas to allow continued use of valuable  gas network infrastructure and storage. •  There should be clear plans at a local level for the use of heat pumps and district heating •  Regulation is needed for the move away from natural gas boilers and the adaptation of appli- ances for alternative fuels. •  Regulatory backstop measures are needed to ensure the necessary measures are deployed to  reduce and manage heat consumption. Transport • Stronger regulatory measures needed to underpin the move away from fossil fuel vehicles. •  Clear local plans needed for the stepwise rollout of electric vehicle charging points and hydro- gen refuelling points, building on local public sector and business requirements.   Electricity • Carbon intensity target needed for electricity generation and phase out plans for coal and oil. •  Market and regulatory reform to support necessary system services: security, flexibility, and  balancing. • Plans required for the next stages of CCS deployment and infrastructure delivery. • There should be enhanced competition for nuclear contracts. • There should be guidance on locational and volume aspirations for renewables. This research project was carried out together with Imperial College and kindly supported by fund- ing from the European Climate Foundation.

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