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Current± Predicts: The energy transition in 2021, part eleven

Image: Getty.

Image: Getty.

Alan James, MD at Pale Blue Dot Energy

Increased public demand for action on climate change in the energy sector

Throughout 2021 we anticipate a growing demand from the UK public for serious action on climate change as the country gears up for the COP26 event later in the year. Whilst the government has made many pledges, the post-COVID economic recession will limit the spending on the green recovery. At the same time considerable confusion develops around the energy transition as all sectors of industry seek to redefine “energy transition” to suit its own situation. First Carbon Capture and Storage project in the UK reaches FID.

UK announces the end to offshore petroleum exploration

Following several nations demonstrating advanced climate leadership such as Denmark, New Zealand, France and Ireland, the UK Government announces an end to new offshore petroleum exploration licensing after a review of petroleum licensing. This brings new exploration to a end, but petroleum appraisal, development and production on discovered assets continues as usual. This announcement is more symbolic than impactful since exploration drilling rates are already at record low levels. However, it becomes a key announcement for the UK Government at COP26.

UK Government places major market incentivisation in place for the hydrogen economy

After the end of the transition period, the new BREX ETS scheme comes into force with a strong carbon price coupled with a Carbon tariff placed upon all imported or domestic fossil fuel products and also embodied carbon value of industrial imports to the UK. This established a material market price for carbon that enables the private sector to fully engage with and invest in the energy transition. This places a huge incentive in the UK to displace natural gas with hydrogen as the continued use of unabated natural gas becomes much more expensive.

Dave Openshaw, director of Millhouse Power

Fundamental Review of energy strategy

2021 will be the year in which the foundations are set for a radical review of the energy industry - its regulatory and market structure and its overall governance in helping to deliver Net Zero efficiently, economically and safely, with the needs of customers, stakeholders, and climate change at its heart.

Key inputs to this review will be recommendations from recent reports including: ‘The Infrastructure Strategy’ (HM Treasury - Nov 2020); ‘The Ten-Point Plan for a Green Industrial Revolution’ (HM Government - Nov 2020); ‘Recosting Energy - Powering for the Future’ (Laura Sandys CBE and Thomas Pownall - Nov 2020); ‘The Sixth Carbon Budget’ (Climate Change Committee - Dec 2020); and, of course, the long-awaited Energy White Paper.

A whole energy system market approach

2021 will also be the year in which recognition will finally dawn that the current market structure of the energy industry, based on delivering energy primarily from fossil fuels, is no longer sustainable in the context of low carbon energy transition.

Evidence of electricity market failure is evident in the wide variations and overall volatility in wholesale prices and balancing costs. And whilst flexibility in the form of demand response and energy storage is being usefully exploited by various parties (energy suppliers, aggregators, ESO and DNOs) there is no overall coordination to ensure synergies are being maximised, conflicts minimised, or that flexibility is delivering the maximum whole electricity system value at any given time.

Moreover, there is currently little recognition of the value of cross-vector integration in terms of supply and demand-side arbitrage – including the whole energy system value of green hydrogen as not only a storable non-fossil primary fuel source, but as a tool for electricity system balancing and a means of avoiding wind generation constraint payments at times of low electricity demand.

Applying systems engineering principles

In 2021, the concept of ‘systems engineering’ and the importance of its application to the energy industry will begin to be recognised. In simple terms, Systems Engineering can be thought of as a multi-stage iterative and continuously dynamic approach applied to the design, development, testing, commissioning, operation, and continuous refinement of an end-to-end system. In this case it is the entire energy system - including cross-vector interactions, and interactions with other systems (most obviously transport as an example) extending into the homes and businesses of its customers - that requires a Systems Engineering approach.

Key to applying a Systems Engineering approach is understanding the required functionality of the whole system and the role of technology, markets and regulation in delivering that functionality. This in turn requires an inclusive governance structure with the agility to efficiently manage change and fully exploit innovation. The Future Power Systems Architecture programme has shown how such an approach should be applied to the electricity system and how that might be adapted to the wider whole energy system.

Jo Allen, customer engagement ambassador, Pegasystems

New pricing models will be introduced

As more people are now working from home this winter, it is understandable that some customers may find it difficult to pay their bills, which will be higher than normal. Therefore, the adaptation of new pricing models is likely to be rolled out, rather than simple tariff changes. Also, providers will increase their data collection and analysis to inform how to charge customers according to their usage and needs. We will also see subscription-based pricing models introduced in 2021, with additional services bolted-on to the basics.

Utility providers stay ahead of the game

Better predicting customers’ needs and addressing their issues before they arise through technology is something utility companies will need to consider in 2021. For example, by monitoring data extracted from customers’ heating systems, artificial intelligence (AI) can be used to spot if something is about to break. Where we will see real progress is when this type of technology is installed in the grid to spot spikes in usage in particular areas so energy companies can then re-direct supply as required. By improving their data utilisation, companies will move to providing a pre-emptive service.

Using technology in the right way

Recently, AI technology has been employed without really considering whether it really is the most appropriate solution. In 2021, utility companies will use this technology more effectively. For example, data scientists will go beyond merely identifying problems, to doing something valuable with the information they have available and resolving the issue straight away i.e. moving away from pure analytics to actionable insight. We will see a shift in mindset to applying the right tech in the right place at the right time to serve customers.


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