Comment by Ben Shafran, Head of Markets, Policy and Regulation, at Energy Systems Catapult.

It’s been another busy month in the British energy sector. Here I’ve handpicked some of the stories most relevant to Net Zero innovation.

Energy smart data

The Department for Energy Security and Net Zero (DESNZ) has launched a consultation on creating an ‘energy smart data’ scheme. Essentially this would be a mechanism to allow different types of service providers to access households’ energy data (with consent), so that they could offer tailored services. The idea builds on Open Banking in the financial services sector, where it is credited with opening the market to innovators and improving consumers’ experience.

We at the Catapult think this is long overdue. In 2018 the Energy Data Taskforce – for which we acted as the secretariat – introduced the idea that energy data should be treated as ‘presumed open’. This would have made energy data available unless such data was specifically identified as private, commercially confidential or otherwise sensitive.

More recently, we worked with the Smart Data Communications Company to identify ways in which data from energy smart meters could be used for the good of the system and to help vulnerable consumers. Energy use data could also be combined with information about the property from (reformed) Energy Performance Certificates to create a digital ‘building passport’. This could unlock an even wider range of tailored offerings, such as green finance for low carbon and energy efficiency installations.

Carbon capture and storage

Our Innovating to Net Zero 2024 modelling found that there was no credible way to decarbonise the UK economy without Carbon Capture, Usage and Storage (CCUS) and other greenhouse gas removals. But the Public Accounts Committee has raised concerns with the government’s approach to supporting CCUS. Beyond the headline-grabbing questions about whether government funding for CCUS represents good value for money, the Committee’s report highlights how systems thinking is essential to Net Zero policymaking and how failure to take a systems perspective is likely to result in negative effects:

Take the fact that – for the ‘track 1’ CCUS projects that have been granted government subsidy so far – most of the funding will come from a levy on electricity bills. This risks undermining another government aim: to decarbonise heating by moving households from gas boilers to heat pumps.

Or the approach of targeting the first tranche of subsidies at CCUS ‘clusters’ centred around an electricity generation project. CCUS can have more bang-for-public-buck in decarbonising heavy industry (not to mention the potential to support green growth and jobs).

There is also the need to ensure that projects genuinely achieve their target level of capture and ‘additionality’ – an issue that will become increasingly important for Bioenergy with Carbon Capture and Storage (BECCS). Carbon accounting rarely gets headlines, but it’s the sort of foundational issue that must be addressed if we are serious about understanding how effective policy is at delivering lower emissions. We have written extensively on the topic and will be publishing the final report in our series shortly.

Future of the gas system

While we wait for the government to make a decision on the future of hydrogen for heating, there are some important decisions that need to be made. Ofgem is gathering information on the process and costs of households disconnecting from the gas grid. Ofgem cannot pre-empt the government’s decision on hydrogen, which would effectively be a decision about the future of the gas networks, but it needs to be prepared to act quickly for the possibility that large numbers of consumers will switch off in favour of electric heating and cooking.

In addition to the individual cost of disconnections there’s the looming question of how to recover the costs of past investments in the gas networks in a world in which fewer and fewer users are connected to those networks. Ofgem’s proposal is to speed up the rate at which those pasts investments are recovered (known as ‘accelerated depreciation’). Accelerated depreciation adds to gas bills in the near-term. All else equal, this would reduce the ‘spark gap’ between the retail unit costs of electricity and gas (Britain has one of the highest spark gaps in Europe). An unintended effect of this could be to encourage more consumers to switch to a heat pump – leaving fewer customers from which to recover the costs of the gas system.

Nuclear

Recent months have seen renewed vigour behind attempts to get nuclear power going in the UK. In Innovating to Net Zero 2024 we identified considerable potential for ‘small modular reactors’ (SMRs) to power heat networks and the production of hydrogen. The government has now indicated a willingness to make it easier to build nuclear power stations in the UK, including SMRs closer to towns and cities.

A new approach is absolutely necessary to make nuclear a reality in our Net Zero economy. Current regulatory approaches have contributed to the UK being the most expensive place in the world for building large scale nuclear plants. The impact of that extends beyond the energy sector: access to reliable, low carbon power such as nuclear is seen as essential for data centres and AI.