Cloudy future means politicians must place ‘multiple bets’

Politicians must become comfortable with placing “multiple bets” on energy given the enormous uncertainty over its future.

Whilst acknowledging that he had devoted much of his career to the pursuit, industry oracle Michael Liebreich said there must be a “sense of humility” about attempting to forecast developments decades in advance, adding: “In times of volatility and lack of knowledge, option value has extraordinary use.”

Liebreich, who founded Bloomberg NEF in 2004 and remains a senior contributor, was responding to the Energy System Catapult’s Innovating to Net Zero report at a launch event in London.

The report updated the Catapult’s two main scenarios for the future – one more decentralised and with more renewables (“patchwork”) and one more centralised and with more nuclear (“clockwork”) – to align them with the target to reach net zero emissions by 2050.

Contemplating the emergence of new technologies, Liebreich said: “We’re going to see some really dramatic things.” Machine learning will enable us “to get so much more out of every asset that we deploy”, whilst 3D printing will allow the industry “to create things that we would never imagine.”

“What that also means though is option value is really, really high,” he added.

“You’ve got a business environment that is actually pretty good at placing multiple bets. What we don’t have is a political environment that’s good at placing multiple bets.

“The political environment tends to want to say: ‘Just tell us the answer.’ And it just doesn’t work that way.”

He also suggested that: “Instead of trying to get every town in the UK to go on a glide path down to net zero, why aren’t we doing things like having a competition – the Treasury could put some money in – take three towns and they have to demonstrate in five years they’re on track for net zero and then they’ll get a tonne more money.

“Demonstrating a path to net zero in two or three places is tonnes better in terms of inspiring and getting momentum into the system than reducing it by 7.2 per cent everywhere and doing it through very directive programmes.”

Julia Pyke, nuclear development director for EDF Energy, said her company was aiming to do just that a town near its planned Sizewell C nuclear plant in Suffolk: “We’re hoping to run the project with the community playing dragons in Dragon’s Den and us coming forward with engineering solutions that we could implement in the town”.

She said it would give a “really good picture” of how a “post-industrial medium-sized town” might want to make the transition to net zero emissions and that funding had already been secured for 20 demonstration houses.

Pyke said EDF is also exploring possibility of using the power station to provide heat or produce hydrogen: “In other countries where heat is valued more highly, nuclear is already providing a lot of district heating and heating industrial processes. We’re looking at making sure Sizewell C is built with the optionality to take out heat at different temperatures so we can use it for district heating and so we can look at heat-assisted hydrogen electrolysis…

“We’re looking at what is the efficiency gain if you assist the electrolysis with heat. We’d really like to do something at Sizewell, which is at a location where the electricity from Greater Gabbard comes onto the same beach.”

Liebreich additionally raised concerns over the failure to incorporate the new net-zero goal into education and training: “We need to educate the trades and professionals because we’re still producing gas heating engineers and yet we’re not going to be connecting up gas boilers. So what are we doing?

“We’re producing architects who don’t know how to do zero-carbon or low-carbon buildings. We’re producing town planners who don’t know how to plan around an EV, pedestrianised, cycling system. We’re producing plumbers who can’t plumb in heat pumps. And I could go through the whole list: plasterers who don’t know how to do proper insulation, accountants who don’t know how to account for climate damage etc.”