Utility Week

14 | 8TH - 14TH DECEMBER 2017 | UTILITY WEEK Policy & Regulation Analysis I t didn't turn out to be the best day to launch a vision of Britain's economic future. Within a few hours of the publica- tion of the industrial strategy white paper on 27 November, the news had been swamped by the announcement of Prince Harry's engagement to US actress Meghan Markle. The reassuring news for the energy sector, particularly following the Budget's failure to identify any fresh subsidies for low-carbon energy, is the identification of clean growth as one of the industrial strategy's four "grand challenges" for the UK. The rollout of smart systems projects has been earmarked for support from wave two of the £725 million industrial strategy chal- lenge fund, which was announced in the white paper. Details are scant on the programme, enti- tled "Prospering from the energy revolution", which will support local smart energy sys- tems delivering across power, heating and transport. The big benefit of the challenge fund is that it will be able to test out how well smart energy systems operate in the real world, says Pedro Guertler, senior policy adviser on heat and energy efficiency at consultancy E3G. By running this kind of pilot, he says it will be possible to see how the different technologies run in tandem. A typical smart system could consist of integrated storage and renewable technologies, potentially alongside a heat network. Smart systems The point of the smart systems pilot would be to demonstrate that smart systems work together rather than in isolation, says Guertler: "This needs to be about more than testing out new technologies. The challenge fund is all about taking new stuff and getting it to mass rollout scale. It's about bringing them together in a smart system, and that needs to be done at scale." And the pilots should err on the side of ambition, right down to domestic appli- ances, he adds: "They should cover as many bases as possible to deal with complexity: they should try and bite off a lot." Given how the government has run the Faraday battery fund, Guertler suspects the smart system exercise will also end up as a competition. This should place a strong emphasis on attracting private capital, but the govern- ment will still have to be prepared to commit sufficient investment to maximise the ben- efits from the pilots, he says: "The key thing is whether the money is sufficient to have meaningful demonstration projects up and down the country." To achieve this, Guertler argues that the smart systems should be allocated as much as possible of the £292 million he estimates is uncommitted from the £725 million fund. However, there are other aspects of the white paper that have sparked disappointment. 'Death knell' A sector deal for the nuclear industry is on the cards, following a nod in that direction in the white paper. At the time of going to press, the government was expected to unveil a package of measures to support the nuclear industry imminently. This, reports suggested, would include a rescue deal for Moorside, as well as up to £100 million of funding for small modu- lar reactors. The sector deal is expected to be "most ambitious and complex" so far, with ministers hoping to slash nuclear construc- tion costs by between 20 and 30 per cent, according to reports in the Telegraph. But business and energy secretary Greg Clark has refused to provide a timetable for a decision on the Swansea Bay tidal lagoon project. Following the disappointing news in last month's Budget that there will be no new low-carbon subsidies until 2025, many were pinning hopes on the industrial strat- egy white paper to deliver the tangible sup- port required by the more cutting-edge low- carbon technologies. The document itself is liberally populated with references to progress on offshore wind, featuring a picture of a turbine that fills an entire page. However, it contains no com- mitments to the kind of upfront support that has been pivotal in driving down the cost of offshore wind. Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, argues that the absence of commitments to tidal power in the white paper spells the "death knell" for such projects in the UK. He says: "Without support in the Budget and only a single fleeting mention in the industrial strat- egy, hopes of large-scale projects at Swansea and Cardiff are fainter than they have been in a long time. Developers are reported to be eyeing support in the next CfD [contracts for difference] auction, but will likely be crowded out by lower-cost offshore wind projects." Mixed messages A spokesman for the Renewable Energy Association (REA) expresses concern over what he describes as "decreasing appetite" to bring such new technologies to market. "If there is no new LCF [Levy Control Frame- work], it's hard to see how new large low- carbon projects are going to come forward. "We need some clear thinking about bringing projects forward: business needs some certainty about how projects are going to be developed," he says, adding that the government is missing opportunities to fos- ter the offshore wind and marine renewable industries, which could create tens of thou- sands of jobs across the UK. The paper is right to focus its attention on smart systems, argues Guertler: "It's a harder nut to crack." But Marshall worries the government is still giving mixed messages about its com- mitment to the clean growth championed in the industrial strategy white paper. "The aims of clean growth outlined in the industrial strategy are somewhat at odds with messages from the Treasury, which dealt a body blow to low-carbon Britain. "Abstaining from most sources of low- carbon power for the next seven years despite weekly reports of how prices are fall- ing shows the disconnect between govern- ment departments, which need to be aligned to realise the ambitious goals outlined for a post-Brexit Britain." Strategy versus the Treasury The government has published its industrial strategy white paper, with clean growth at the forefront. But there are concerns its aims clash with messages in the Budget, says David Blackman.

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