The quest for net-zero carbon emissions by 2050 has become a shared ambition for countries across the globe, and the UK is no exception. The energy revolution is picking up pace, with electricity at the heart of a sustainable energy framework.
This revolution is based on a simple yet game-changing rationale: electricity can be carbon-neutral, unlike traditional fossil fuels like oil and gas. Two pivotal factors drive this transformation: renewable energy such as wind and solar is costing less and the industry can store energy very cost effectively to address renewable intermittency.
Capturing these drivers for net-zero goals has triggered several underlying shifts away from fossil fuels, as described below.
Powering demand, at home and on the road
Firstly, we are seeing the mass adoption of electric vehicles (EVs) globally as manufacturers produce ever more attractive and affordable models. The government plans to phase out new petrol and diesel cars by 2035, with an 80% target by 2030, and is providing several incentives, deadlines and emissions targets (for manufacturers) to achieve this.
This move will contribute to cleaner air, bolster EV charging infrastructure and ultimately eradicate vehicle emissions. Despite these tremendous advantages, EVs are hampered by myths of insufficient range, excessive fire risks and high costs, which will fade away as experience trumps rumour.
Recent advancements in technology means EVs are now capable of travelling significantly further on a single charge and they pose less fire risk than traditional vehicles – the best models travel over 400 miles on a single charge.
While the upfront cost for battery vehicles may be higher, their costs are falling steadily as manufacturers ramp up production volumes, driven by government sales targets.
Crucially, when all the costs over the life of an EV car are added together – including aspects such as maintenance and fuelling – they often come out at par with, if not cheaper than, petrol and diesel cars.
Secondly, the shift to non-fossil fuel heating is in motion, with a particular focus on heat pumps. While the UK currently lags its European counterparts in heat pump installations, there is a clear positive growth trajectory.
Misinformation strikes again here: common criticisms include that heat pumps are unable to heat homes well enough, are too expensive, are noisy or take up more space than existing gas boilers. However, ongoing innovations and higher efficiency are making these devices increasingly efficient, smaller and adaptable.
Changing how green levies are applied (which are applied to electricity tariffs) by adding these costs to gas bills, would also make heat pumps even more affordable.
The government has recently increased the subsidy per home installation to £7,500 from £5,000 which is taking some smaller installations to very low cost levels.
Striking gold for taxpayers and consumers
Thirdly, the Contract for Difference (CfD) regime has been a major success, with the government guaranteeing to pay renewable energy producers the difference between an agreed long-term price, and the prevailing market price. This has helped increase the UK's renewable energy capacity to 45% of total electricity demand.
Based on existing renewable sites already committed or under construction, renewables are expected to account for at least 70% of electricity generation within the next five years.
In recent years, the CfD mechanism has debunked the myth that renewable energy is expensive. In fact, the government actually benefitted from the mechanism due to market prices higher than the agreed price. This demonstrates renewables can be both cheaper as well as cleaner than traditional power sources.
The cost of renewable power is a function of the cost of the equipment as there is no fuel charge. The cost of both wind and solar have plummeted over the past decade and promise to continue falling.
There have been concerns in the recent past that the disappointing CfD auction in 2023 (for offshore wind) and the abandonment of a prior auction offshore wind project (by Vattenfall) due to supply issues and costs, might slow the transition. However, we are confident these issues will correct themselves.
Further, the government has just addressed this with promises of much higher price caps for the next auction which is in 2024 (it is usually every two years, but an extra auction is being run to compensate for the poor result in 2023 – this demonstrates commitment from the government too).
Lastly, energy storage technologies, particularly highly responsive Li-Ion batteries, play a vital role in the renewable energy revolution. They are essential for making the most of energy from intermittent renewable energy sources such as wind and solar (which together promise to generate upwards of 70% of all our electricity needs, and thus all our energy needs as we electrify all demand).
In addition, storage saves huge amounts in grid reinforcement costs avoiding the need for new power lines and other equipment – this is because renewable generation occurs far from where the demand is.
Intelligent deployment of storage in key locations can reduce or eliminate constraints in the power network, such as the power lines between Scotland and England. This both enhances grid reliability and cuts the cost of incorporating cheaper renewables into the energy mix.
While the road to a renewable future may seem straightforward, it is not without its obstacles. It is not just a technological hike; it is also a socio-political battle with fossil fuel producers threatened by the clean energy landscape or political dogma resisting energy diversification.
For instance, nuclear energy, despite its significant safety concerns and higher costs, is still promoted as a clean and cost-effective option. Carbon capture and storage, which aims to trap carbon dioxide before it escapes into the air and store it underground, remains largely unproven and underfunded.
Highly explosive green hydrogen is often presented as a panacea but is beset by inefficiencies (25-30% efficient vs 80-90% for battery energy storage systems), with at least three units of energy wasted for each unit turned back into electricity, as well as safety concerns.
High production costs and the need to substantially rebuild existing gas infrastructure further weigh on its merits. Other ideas such as compressed air storage remain commercially unproven, with downsides including needing large sites and operating with low efficiency.
These competing concepts should not obscure the resounding truth: renewable energy is more sustainable and cost-competitive. Delaying action will increase the wasteful curtailment of excess renewable energy.
Therefore, batteries are the commercially viable linchpin to a renewable future, avoiding hefty power network investment and cutting energy waste.
Batteries are more than just an energy solution, they are pivotal to the transition and can deliver sustainable financial returns for investors, and cheaper, cleaner energy for homes and businesses.
Ben Guest, fund manager of Gresham House Energy Storage Fund. The views expressed above should not be taken as investment advice.