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Home/The 2010s: The decade where the energy transition gathered pace?

The 2010s: The decade where the energy transition gathered pace?

As the end of the 2010s fast approaches, what better time to look back and reflect on what has been achieved in UK energy and climate policy over the past decade.

With the Net Zero target set in legislation earlier this year, and “Climate Emergency” being declared the Oxford Dictionaries word of 2019, will the 2010s be remember in years to come as the decade where our energy transition started to gather pace?

In this blog we chart the transformation of the UK energy system over the past decade, identifying where we have made progress and why, and some of the challenges ahead.

Out with the old, in with the new: can you name all energy ministers since 2010?

The 2010s has seen significant change in leadership on energy and climate. The start of the decade saw Ed Miliband at the helm of the then Department of Energy and Climate Change under the Brown Government.

Five Secretaries of State, Four elections, Three prime ministers, Two referendums, and One departmental change later – we now have Andrea Leadsom leading a Department of Business, Energy and Industrial Strategy. Yet Boris Johnson has signalled a return to a standalone Department of Energy and Climate Change as part of a possible departmental shakeup in 2020.

UK emissions trajectory: falling fast… but still wide of the mark

 Let’s start with the high-level view on how much progress we have made in reducing Greenhouse Gas Emissions. In the 2010s the UK managed to deliver a whopping 3.5% per year cut in emissions – more than double the rate in the previous decade of 1.6%, and faster than any other developed country. As we will discuss below, this is in large part due to reductions in the power sector – due to the phase out of coal generation, as well as the growth in renewables – with much slower improvement across the wider economy.

The UK has met its first and second carbon budgets and is on track to deliver its third. However, it is far from being on track to deliver the fourth and fifth carbon budgets for the periods 2023-2032. Looking further out still, based on current policies we would miss the Net Zero target for 2050 by as much as 295 MtCO2e per annum.

Special deliveries: growth in van traffic has offset other falls in energy demand

Part of the story about falling emissions has been falling demand for energy. Final demand for all energy products fell by around 8% from 2010-2018. Most of this reduction came from lower power and gas demand – as a result of efficiency measures such as low energy lightbulbs, more efficient boilers and appliances, and better insulation.

However, whilst gains have been made in gas and power, the same cannot be said of transport, where total demand for liquid fuels was broadly flat over the decade, and increased since 2013 in line with total vehicle GHG emissions. This increase can be attributed not to cars, but to vans – which saw more than a 20% increase in GHG emissions due to a surge in mileage on the back of increased home deliveries.

Old king coal: 2010s saw coal use fall to pre-industrial levels

One of the huge developments in the GB power system over the last decade has been the decline in coal generation – which has been a significant contributor to the overall reduction in GHG emissions. At the start of the 2010s, coal had already fallen to around 30% of total power generation (from around 80% in 1990) as a result of the ‘dash for gas’ through the 1990s and 2000s.

Coal generation increased during the 2010-2012 period as a result of very low carbon prices in Europe. But the UK Government intervened in 2013, introducing the Carbon Price Support scheme which significantly raised the overall carbon price to GB generators, and made coal less competitive than gas. We have since seen coal generation plummet to just 2% in 2019 due to the combination of higher carbon prices, low gas prices, and the growth of renewables eroding market share from thermal generation. April 2017 saw the first day without coal power generation since the industrial revolution, followed in 2019 by the first week and the first fortnight without coal power. Overall, in the 2010s, Britain used less than half the coal it used in the 1860s.

The winds of change: renewables scaled up in the 2010s as costs tumbled

Another major change and contributor to the fall in power sector emissions has been the rapid rise in renewables through the decade. The installed capacity of renewables increased from slightly less than 10GW in 2010 to nearly 50GW at the end of 2019 – led by solar (+13GW), onshore wind (+10GW), offshore wind (+8GW) and bioenergy (+6GW). Renewables provided nearly 37% of total power generation in 2019 (up from just 7% in 2010) which together with nuclear meant that low carbon sources provided more than half of annual power generation for the first time. Aurora forecasts the renewables share of GB power generation to increase to 50% by 2025 on the back of significant deployment of offshore wind over the next few years.

This expansion of renewables was initially driven by a series of Government support schemes in the form of the Renewables Obligation, Feed in Tariff and Contract for Difference. However, there have been major changes to these policies along the way – as the renewables industry and technologies have significantly matured during the period. Looking back to 2012, the Offshore Wind industry was wrestling with the high costs of the technology and charted out an aspiration to reduce the cost from £150/MWh to £100/MWh by the end of the decade. This played out considerably faster in reality, with the latest offshore wind projects coming in with a strike price of just £39-41/MWh – a staggering 70% reduction in costs in just 6 years. This has been a function of significant improvements in technology (such as the move to 10MW+ turbines), economies of scale in the supply chain, and acceptance of construction stage risk by a much wider pool of financiers. The introduction of competitive allocation under the CfD mechanism also played a role in helping to drive down the consumer cost of renewables. It remains to be seen whether the Conservative Manifesto pledge of 40GWs offshore wind by 2030 can feasibly be met.

Solar PV saw even greater declines in cost, as the UK and global solar industry scaled up. Solar cell costs have fallen by 85% since 2010, due to advances in technology and economies of scale in the industry. UK solar deployment gathered pace in the early 2010s on the back of subsidy rates set initially at very high levels (the first solar Feed in Tariffs in 2010 were set at an eye watering £472.50/MWh for domestic solar!). As costs tumbled, so did the subsidy rates – although the lag in policy implementation often meant a boom and bust cycle of very high returns and deployment levels, followed by subsidy cliff-edges. The closure of the RO to solar in 2015, and the sharp reduction in FiT tariffs in 2016 led to a rapid slowdown in deployment – with total capacity now standing at 13.4GWs.

Despite tariff cuts, the solar industry is now undergoing a resurgence with a strong pipeline of merchant solar projects. As profiled in a recent report by Aurora, the co-location of batteries with solar is enabling developers to achieve higher returns and accelerate the deployment of merchant solar. We expect an additional 5GW of merchant solar PV capacity to enter the GB market by 2030, thanks to further falls in technology costs.

Batteries included: are electric cars finally coming of age?

There is a huge amount of hype about the rise of electric cars – but at times it is good to have a healthy dose of reality by going back to the data. On a positive note, the 2010s has been the decade where EVs have started to make an impact on the auto industry. The Nissan Leaf has been the top selling EV to date at 32,000 units. Tesla came to market with the model S, model X, model 3, and launched the Semi, the model Y, the Roadster, and the space age Cybertruck. Despite production issues, the model 3 became the 3rd fastest selling car in the UK at its debut in August 2019, overtaking the Ford Focus. The major OEMs are waking up and ploughing vast sums of money into bringing new electric models to market, in an attempt to meet stringent CO2 targets, retain market share and win the EV race against their competitors.

Yet the market share of EVs is still incredibly low. In the UK there were just over 60,000 plug in hybrids and BEVs sold in 2019 (to end November) representing 3% of new sales. This is up slightly on 2018, but still represents a tiny proportion of the market. The sum total of EVs on UK roads remains less than 1% of the fleet – and it was recently revealed that sales of SUVs outstripped EVs by 37 to 1 in recent years.

On the flipside, overall car sales have been on the decline since a peak in 2016. The impact of dieselgate is clear, with diesel sales more than halving since 2015 whilst the market share of petrol cars has increased to two-thirds of new sales in 2019 (from 50% in 2015). Whilst the move from diesel to petrol is effective in reducing NOx emissions, it has the side effect of higher CO2 emissions (on a like for like basis). No wonder then that overall transport sector emissions have been on the rise since 2013.

However, this could all start to change rapidly – as new models come to market, and favourable changes in Company Car Tax kick in from April 2020. Aurora forecasts a 5% market share for EVs in 2020, increasing to 20% by 2025 due to continual falls in cost and technology improvements, adding nearly 5 TWhs of additional power demand by 2025. There are already early signs of this upswing occurring – in the last months of 2019 EV monthly sales topped 6% for the first time.

Too hot to handle?: heat remains the Cinderella of energy policy

Last but certainly not least, it is worth considering the progress to date and prospects for the heat and buildings sector. Often overlooked in energy policy, emissions from buildings now represent the third largest source of GHG emissions after transport and industry. There has been some progress, with emissions falling nearly 20% from 2010 to 2018 (perhaps less on a temperature adjusted basis since 2010 was cold and 2018 was relatively warm) on the back of higher boiler standards and improvements in home insulation.

Yet progress has stalled since 2013 due to significant cuts in public funding for insulation measures such as cavity and loft insulation. There were 1.88 million insulation measures supported per year in period 2010-2012, falling to just 0.3 million per year from 2013 onwards. The Green Deal energy efficiency loan scheme was launched in 2010 by Energy Secretary Chris Huhne, who claimed it would create up to a quarter of a million jobs by 2030 and result in energy efficiency improvements in millions of homes. In the end the scheme flopped with extremely low uptake, due to the fact that loans offered were at a high rate which was unattractive to consumers.

Here the solutions are far less obvious than in transport. There is still plenty of low hanging fruit in the form of improving energy efficiency. The Government has rightly recognised this and is investing £9.2 billion into improving the efficiency of homes and public buildings.

Electric heating is already being deployed, albeit in very small numbers of homes. But the concentration of heat demand in winter means that a mass rollout would necessitate an enormous expansion of the power grid – both in terms of generation capacity, but also reinforcement of transmission and distribution networks. With the relative cost of electricity to gas standing at more than 4:1, it is far from cost effective for consumers to switch to electric forms of heating such as storage heaters or an electric heat pump.

Hydrogen is a potential solution, albeit early stage in its deployment. There is potential to generate low carbon hydrogen from power (potentially from curtailed renewables as the power system is decarbonised) or natural gas through a process of CO2 extraction and capture. This hydrogen could be used across the economy, either as a substitute for natural gas in heating, or alternatively in industry or transport. Major questions remain about how low carbon hydrogen will be generated, stored, transported and used – and what all of this will cost. Aurora will be undertaking a major multi-client study in the early part of 2020 to develop a hydrogen market model and investigate how this impacts on power and gas market outcomes and asset economics.

With heat, as with the rest of energy policy, the key thing for policymakers to remember will be how to devise solutions which end consumers will be willing and able to accept.

The 2010s has been a period of accelerated change on energy and climate. We have already seen huge progress in cutting our emissions and transforming our energy system. And yet it feels like the hardest challenges are still yet to come. The new UK government will need to work hard to get back on track with our medium-term carbon budgets, and define a strategy for delivering Net Zero. 2020 could be a pivotal year for energy and climate in the UK, with the COP26 and the long-awaited Energy White Paper still on the cards.

We look forward to continuing to navigate this energy transition with our clients in 2020, and wish you a happy festive season from all at the Aurora team!

Author: Richard Howard, Research Director, Aurora Energy Research

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