3 February 2021
- Big shifts are needed in the power industry, and over a relatively short 10-20 year time horizon to de-carbonise the energy sector.
- We reflect on the implications of the big release of the Government's Energy White Paper, what this means for the future of energy and how it sets the scene for policy and regulation to deliver net zero.
- Increase in renewable energy
- Hydrogen heating & and the Government looking to create hydrogen to test technical challenges
- Batteries and storage
- Electric vehicles
- What does the energy tariff of the future look like? There has been a big increase in renewable tariffs over the last decade. Plus smarter tariffs that turn power on/off to capitalise on high prices on low (or negative) prices. Individuals are taking more control of their power and using it more effectively.
- The future might be the energy company controlling the power supply, systems are much smarter and able to turn power up and down and automate those processes.
Is hydrogen as a heat source consistent with existing homes?
- The lifetime of a gas boiler if purchasing now would be 10-15 years. However this is the timeline over which we need to achieve a lot of decarbonisation to meet net zero, hence a need to develop alternative technologies soon.
- There are two big options in household power:
- Electrification, using heat pumps;
- Hydrogen gas (which can run on existing pipe infrastructure with some modifications).
What influences the choice between the two?
- The location comes into it, as it might be closer or further away from the gas grid. Also new builds, built to high insulation spec are likely to be built straight to electric. In a city, switching a whole street to electric would also require an upgrade of the electricity lines. In that case converting to hydrogen might be better.
- If producing hydrogen in a green way becomes cheap enough, this could work. If not perhaps electricity will be dominant - it comes down to economics.
- A mixed grid doesn’t work – a whole street would need to switch on the same day.
- Hydrogen cookers.
- Use of power outside the household.
- Shipping and aviation is harder to electrify, so it will need some other source of fuel to decarbonise, perhaps hydrogen.
- What about the overall electricity demand? It is likely to increase with having more renewables on the system.
- Renewables are likely to be providing the majority of the power, but need other technologies alongside to balance the system – batteries, storage and also energy from nuclear.
- Nuclear is now recognised as a necessary part of the mix. The Regulated Asset Base is under consideration for nuclear.
Where do private investors come in?
- This depends on risk appetite, there is likely to be a range. Today’s renewables are well established and mature now so offer a lower risk/return proposition. However developing new technologies involve more risk.
- Current subsidy regimes have worked well and attracted a lot of private capital from around the world.
- Getting investors comfortable early on with new ideas is key.
- Net zero by 2050 – early 2030s. National Grid wants to see the power system being net negative. This is partly through carbon capture and storage. National Grid scenarios are discussed here.
- Oil and petrol related companies, for example petrol stations, are moving into EV charging points.
- It’s a transition, not a switch.
- The new energy supermajors of tomorrow like NextEra Iberdrola and Orsted are overtaking the oil majors in terms of market capitalization.
What should investors look out for this year
- Short term: more of the same ie renewables. There will be another auction round this year with an increase in ambition for offshore wind, onshore wind and solar.
- Medium term: batteries are being deployed and durations are increasing and becoming more useful to the system over the next decade. Also, EV charging infrastructure and tariffs.
- Long-term 10+ years: new technologies are coming through to be a key part of the system, like hydrogen.
One key thing to take away
- We are going to see a significant amount of change in the future. As an investor now it is a great time to find your niche and establish a portfolio. £350-400bn of investment will be needed over coming decades.
Most underappreciated thing
The scale of the investment challenge – almost everything we do, the infrastructure behind it needs to change. Read more in Kyle's blog on financing a net zero energy system.
How to access our podcasts
You can access all our podcasts across all major audio platforms via computer or devices.
Each LCP investment uncut podcast is for information and marketing purposes only and does not constitute any form of investment or financial advice or a financial promotion (under the Financial Services and Markets Act 2000). All views expressed by the podcast hosts and guests are purely their own opinions and do not represent those of LCP, its clients or affiliates. Our podcast listeners should always seek independent financial or legal advice before making any financial or investment decisions. Please refer to the Legal Notices section on the LCP website for further information.