Industrial strategy: mixed messages from government?

The government has published its industrial strategy white paper, and clean growth is at the forefront. However, there are concerns the aims outlined in the paper clash with messages in the budget the previous week. David Blackman reports.

It didn’t turn out to be the best day to launch a vision of Britain’s economic future.

Within a few hours of the publication of the industrial strategy white paper last Monday, the entire news agenda had been swamped by the announcement of Prince Harry’s wedding to US actress and divorcee Meghan Markle.

The reassuring news for the energy sector, particularly following the budget’s failure to identify any fresh subsidies for low-carbon energy, is the identification of clean growth as one of the industrial strategy’s four “grand challenges” for the UK.

The rollout of smart systems projects has been earmarked for support from wave two of the £725 million of the industrial strategy challenge fund, which was announced in the white paper.

Details are scant on the programme, entitled “prospering from the energy revolution”, which will support local smart energy systems delivering across power, heating and transport.

The big benefit of the challenge fund is that it will be able to test out how well smart energy systems operate in the real world, says Pedro Guertler, senior policy advisor on heat and energy efficiency at consultancy E3G.

By running this kind of pilot, he says it will be possible to see how the different technologies run in tandem. A typical smart system could consist of integrated storage and renewable technologies, potentially alongside a heat network.

Smart systems

The point of the smart systems pilot would be to demonstrate that smart systems work together rather in isolation, says Guertler: “This needs to be about more than testing out new technologies. The challenge fund is all about taking new stuff and getting it to mass rollout scale. It’s about bringing them together in a smart system, and that needs to be done at scale.”

And the pilots should err on the side of ambition, right down to domestic appliances, he adds: “They should cover as many bases as possible to deal with complexity: they should try and bite off a lot.”

Given how the government has run the Faraday battery fund, Guertler suspects that the smart system exercise will also end up as a competition.

This should place a strong emphasis on attracting private capital, but the government will still have to be prepared to commit sufficient investment to maximise the benefits from the pilots, he says: “The key thing is whether the money is sufficient to have meaningful demonstration projects up and down the country.”

To achieve this, Guertler argues that the smart systems should be allocated as much as possible of the £292 million he estimates is uncommitted from the £725 million fund.

However, there are other aspects of the white paper that have sparked disappointment.

“Death knell”

A sector deal for the nuclear industry remains on the cards following a nod in that direction in the white paper. However, there was no news on the outcome of the small modular reactor competition, announced by the now defunct Decc more than 18 months ago. Business and energy secretary Greg Clark admitted to the BEIS (business, energy and industrial strategy) select committee last week that he could not give a date when the results would be announced. At the same time, he refused to provide a timetable for a decision on the Swansea Bay tidal lagoon project.

Following the disappointing news in last week’s budget that there will be no new low-carbon subsidies until 2025, many were pinning hopes on the industrial strategy white paper to deliver the tangible support required by the more cutting-edge low-carbon technologies.

The document itself is liberally populated with references to progress on offshore wind, featuring a picture of a turbine that fills an entire page. However, it contains no commitments to the kind of upfront support that has been pivotal in driving down the cost of offshore wind.

Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit, argues that the absence of commitments to tidal power in the white paper spells the “death knell” for such projects in the UK. He says: “Without support in the budget and only a single fleeting mention in the industrial strategy, hopes of large-scale projects at Swansea and Cardiff are fainter than they have been in a long time. Developers are reported to be eyeing support in the next CfD (contract for difference) auction, but will likely be crowded out by lower-cost offshore wind projects.”

Mixed messages

A spokesman for the Renewable Energy Association (REA), expresses concern over what he describes as “decreasing appetite” to bring such new technologies to market. “If there is no new LCF (levy control framework), it’s hard to see how new large low-carbon projects are going to come forward.”

“We need some clear thinking about bringing projects forward: business needs some certainty about how projects are going to be developed,” he says.

The government is missing opportunities to foster the offshore wind and marine renewable industries, which could create tens of thousands of jobs across the UK, the REA spokesman adds.

The paper is right to focus its attention on smart systems, argues Guertler: “It’s a harder nut to crack.”

But Marshall worries that the government is still giving mixed messages about its commitment to the clean growth championed in the industrial strategy white paper.

“The aims of clean growth outlined in the industrial strategy are somewhat at odds with messages from the Treasury last week, which dealt a body blow to low-carbon Britain.

“Abstaining from most sources of low-carbon power for the next seven years despite weekly reports of how prices are falling shows the disconnect between government departments, which need to be aligned to realise the ambitious goals outlined for a post-Brexit Britain.”