“A reliable, secure and decarbonised power system by 2035 is possible – but not at this pace of delivery”, says the Climate Change Committee’s (CCC) latest report. It’s hard to disagree with their assessment. Our energy system is in dire need of reform, without which, we risk placing even greater stress on our creaking networks, while making the transition to Net Zero more expensive than it needs to be.
Reforming our grid and modernising our approach to decarbonisation is not something we can afford to get wrong. Tough decisions will be needed. The last 18 months have demonstrated what happens if we lose control of energy prices. To avoid a repeat, we must build an energy system that puts consumers at its heart and makes the best use of our assets.
Reform will not happen overnight. Equally, it is too important to be used as a political football or to be kicked into the long grass. The government should maintain its momentum for change and ensure industry is brought along with it.
At the Catapult, we’d like the government and Ofgem to:
Specifically, we need policy and market conditions that enable the integration of more renewables onto the electricity system, the decarbonisation of heat in homes, and a reduction in emissions from industry.
Over the last 15 years we have seen tremendous progress in deploying renewables and bringing down their cost. Now we are at a different stage of the transition. We need to massively scale up the investment in renewables – the CCC estimates needing three times as much offshore wind and four times as much solar by 2035. We also need to deploy – and reduce the cost of – additional technologies such as nuclear and carbon capture and storage (CCS). And at the same time, we also need to future proof the grid and ensure it is as reliable as the one we have now. To make it all fit together requires exploiting the potential of a flexible energy system.
At the Catapult, we work with a diverse mix of innovators who are harnessing digital technologies to provide system flexibility – this ranges from batteries in homes, vehicle-to-grid technologies, and smart devices that help the network operators manage the grid.
Getting the best out of these brilliant innovations – including the potential for the UK to exploit an international competitive advantage – requires a market framework that provides strong signals for flexibility. This is not the case at present, as value of flexibility is suppressed due to there being a single national price in the wholesale market that does not reflect local constraints.
Key to creating the conditions for flexibility is switching to more locational market signals that match the physics of the future system. This would support efficient location and dispatch of generation and storage across the system, and more efficient use of network infrastructure.
Our recent work on locational pricing examined the evidence from the many international markets that already have locational pricing in the wholesale market – such as the US and New Zealand – and found that Britain can create an energy market that supports investment in both new generation and flexibility. If we get this right, it could save consumers billions of pounds over the coming decades and spur on further investment. In the US for instance, areas with locational pricing typically saw more deployment of storage than European markets that had less granular prices.
How we decarbonise heating in our homes is perhaps the hardest innovation challenge the UK will tackle to get to Net Zero.
The overwhelming majority of people, some 78%, currently heat their home with a natural gas boiler. Our modelling shows that electricity will play an important role in transitioning to a low carbon heating sector as homeowners and social housing providers opt for alternatives such as heat pumps. This will drive a spike in demand for electricity. Indeed, the CCC’s report sets out how there will be a 50% increase in electricity demand by 2035 and a doubling of this demand by 2050.
Heat pumps are a valuable alternative to gas boilers. While we wait to see what the outcome is for the domestic use of hydrogen (a government decision is expected in 2026), we should be acting now to progress the adoption of electrical heating. We have seen through our work on the government-funded Electrification of Heat Demonstration Project that heat pumps work in all housing archetypes in the UK if you get the design right. They are the most readily available and viable option we have today.
Genuine innovations are changing the face of heat in homes. Efforts to evolve technologies like heat pumps, coupled with smart thinking on tariffs are beginning to provide competitive alternatives for households across Britain. The kind of pricing reforms the Catapult is advocating for will not only help create an efficient electricity system but will also create the market conditions to scale the uptake of heat pumps. We need complimentary policy changes that reward consumers for making the switch to low carbon heating, particularly in how policy costs are recovered when we move out of the energy crisis.
The decarbonisation of domestic properties will not be enough to get the UK to Net Zero, we need to target those sectors of our economy responsible for the highest emissions. The UK’s industrial clusters for instance, are responsible for over half of the country’s industrial emissions.
Many of these clusters are ideally situated for the use of CCS for abatement and/or negative emissions, as well as low carbon hydrogen production and use. To harness this opportunity, we must ensure that we are taking a whole system approach to inform our decisions on technologies, and their enabling infrastructure and network investment. Key to this is comprehensive, data-driven planning done at a local level. The Catapult developed the concept of Local Area Energy Planning (LAEP) which is designed to help decarbonise communities, including regional industrial clusters, and enabling investment for associated infrastructure requirements.
More broadly, we need to address the misalignment of incentives to decarbonise and design frameworks – such as for carbon accounting – that work for industry, not against it. We talk about this in our forthcoming report, Carbon Accounting in Industry: A Framework for Innovation and Growth. A broad-brush solution won’t work – the Catapult advocates for sector-based carbon policies that align to the Carbon Budgets. Sector-specific policies can help us decarbonise while ensuring that industry remains competitive internationally. Government is consulting on options to address carbon and investment leakage. We will be responding to this consultation in due course. Our response will be shared on our website.
A reliable, decarbonised power system would be the foundation of a Net Zero economy. Delivering that scale of change is not going to be simple, but nothing worth doing is ever easy.
We have an opportunity here to change the way we plan, generate, and distribute energy, and the way we use it in our homes and industry. If we get it right, the prize would be huge for consumers, businesses and for UK plc.
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Find out more about how Energy Systems Catapult can help you and your teams