Welcome to episode 276 of the Energy Talks podcast. I'm energy and climate journalist, Markham Hislop. DNV, the global energy expert and assurance provider headquartered in Norway, recently released its UK Energy Transition Outlook 2024. Despite massive investments in renewable energy, without swift action the UK is currently on course to miss its 20 30 climate target to lower greenhouse gas emissions 68% compared to 19 90 levels, and the legally binding mid century decarbonization target is also in jeopardy. To talk about how the UK energy transition seems to be stalling and what can be done about it, I'm joined by Frank Ketelaars, operations manager for UK and Ireland at DNV Energy Systems.
So welcome to the interview, Frank.
Thank you very much. Good to good to be here and good to talk to people in Canada.
Well, our our audience is primarily in Canada, but we have quite a few American listeners and some in in Europe and Asia as well. But I would venture a guess that most of them will not be familiar with energy in the UK context. And so maybe we can start off the interview with just a bit of an overview of of, you know, how where the UK gets its energy.
Well, I mean, today, like many places, I mean, as we we show in our reports, about 80% of all the primary supply actually does come from fossil fuels, of which about half of it is actually produced in UK still from the North Sea offshore offshore fields. Half is imported. But, obviously, we are actually working so 20% of the turn current supply is actually coming from other sources, which includes renewables, includes nuclear and things like that as well. But it's it's still a very much a dominated book, fossil fuels with, of course, a very sort of, I would say, very big endeavors to try and reduce as quickly, I think. But our outlook shows that actually will take time.
So I think currently very much fossil fuel dominated with but also in terms of how we deliver energy, about 75% is delivered in terms of fossil fuels to the customer. So it's basically gas burning our homes, petrol for for our cars, but only and only about, about 25% actually comes from electricity at the moment. And that's the bit, of course, that we sort of are trying to green through having significant amount of renewables now on the grid here in the UK. And and I don't know if you like to say maybe a bit about because of you UK, of course, has actually been very progressive, I would say, in terms of driving renewables generation through some good subsidies. They've actually have been able to really kick start rollout of renewables, especially, I would say offshore wind.
We have so I would say we're currently a global leader there. So things are happening.
What I'm I'm curious about how the UK responded to, Russia's 2020 2 invasion of Ukraine. Now we saw on the mainland in Europe, the response was basically look for other supplies of gas, invest heavily in energy efficiency, and accelerate the build out of renewables. Is that the same kind of response we saw in the UK?
I I think partially, yes. Obviously, there has been discussion then, and there was quite a bit of focus suddenly again on trying to support a few more developments in the North Sea to try and actually build a bit on the local security supply. But I think that has a little bit gone quiet again, I think. So in general, maybe also because we had sort of the large LNG terminals for importing, we have gas from Norway. We're not as reliant on the Russian gas.
Although, of course, we're linked to it by the gas price, which affected all of us. So so I think I didn't it, of course, had a it changed the focus really very much back on security supply. I think that that is still obviously, that's correct. Yes.
It seems to be that in in Europe, the idea of security supply is not to get a more secure supply of fossil fuels, it's to generate the electricity at home with offshore wind, onshore wind, nuclear renewables, and so on. Is that fair to say about the UK?
Yes. I mean, it partially, yes. Because I think in I mean, in short term, of course, there is because we need so many fossil fuels, it still means we need to get them somewhere else. So but I think, yeah, long term, the view is if we get that many renewables, if they start dominating, it will really improve our security supply, I would say. I think there is still a big discussion about whether security of supply is actually linked to oil production in the UK with a view that a lot of the oil will be exported anyway.
Gas, I think, is still a bit different. Even though it's small, it is still an important part. And all gas, of course, are produced in the UK is used in the UK and is important. But it's already a small bit, and we're already supplying a lot of the gas. Gas actually comes from Norway and and LNG and LNG from other parts of the world.
Now, heating and cooling buildings is an important part of energy demand. And if if, the UK is already using only a little bit of gas, then how are they and and, in fact, we know that the UK's building stock is dominated by some of these very old buildings that are hard to hard to heat and cool. So how are they how are they managing? Have they electrified those buildings already?
No. I mean, I I would say the UK, it's very much I mean, nearly most households still running on gas. I mean, gas, as a result of having had very cheap gas, the UK has a has really completely, I would say, gasified their heatings of the of of buildings. And there is currently, I would say, a view that we're trying to change that. So there is this they are starting to think about electrifying through things like heat pumps.
But to be honest, I think even with all kind of government supports, it hasn't really taken off yet. We've been I think we've been installing about 50, 60000 heat pumps a year. If we wanna electrify, we have to get close to a1000000 a year. And there are so currently, it's that's one of the big discussion items. How do decarbonize heating?
Because it's such a big part of our gas demand. According to our forecast, as you would have seen, we actually still think because of this issue around cost and insulation, we think that still about 60% of all homes, even in 2050, with current prices, current costs, will actually still be burning gas in their homes. And that's will be a large part of our remaining emissions, we're preventing us to get to net 0.
What will happen on the heating of buildings if, and I've seen some estimates that, China in particular will is scaling up its manufacturer of heat pumps, and it will do to heat pumps what it did to solar panel modules, like, basically, drive down costs, quite a bit. Does that change your estimate of the role that electricity will play in decarbonizing buildings in the future?
Not actually at the moment. I I mean, I think in the end, because there's 2 things. I think it is understood in order to have an efficient heat pump in in Maine, Maine, you you need a certain level of insulation. And currently, that's only about 50% of the homes in the UK who have that level of insulation. You can use a heat pump, but so it's not impossible.
It'd be very expensive. And the other thing, which is very well, in the UK, the pricing of gas and electricity is quite interesting because, basically, electricity is 4 times the price of gas per kilowatt, kilowatt hour. Sorry. So there is a lot of so even if you would actually replace your gas system by a heat pump, the potential could be 3 times as efficient. It actually would be more expensive to run So you're forgetting about the installation cost.
That's there as well. So I do believe and it's currently the government is thinking about how do they have a new sort of electricity gas pricing model? Because at the moment, it does not incentivize electrification, and and that's an issue.
What we'll we'll get to to some of the other sectors in just a moment, but I'm curious about the UK attitude towards electrification of the economy. I mean, this seems to be the way that most advanced economies are approaching the their climate commitments. They're going to electrify buildings. They're going to electrify transportation, electrify industrial processes. The power sector will be shifted over to mainly renewables, but other nuclear and and biomass and other, clean sources.
So, is that, sounds like the government understands that pretty well. Is it generally accepted publicly that there is a need to electrify the economy?
I would say yes. I think so. And I think, again, our forecast shows really we're expecting as a result of electrification drive, we have about 50% of all our electricity energy will deliver electricity by 2050. And we are forecasting about a 2 and a half times increase of of both generation and probably also about a 3 fold increase of grid by 2050. And that's understood as the main way to decarbonize.
So in that way, I don't think we're very different. Maybe the the difference we have a little bit is that we have such a a very sort of entrant a gas system that's basically used across the whole country. It's very much sort of part and parcel, every household, really. So it's it's probably more difficult to change that than other countries who maybe already have more electrified heating in some parts of Europe.
I I'm I wanna talk about the power sector for a little bit because, in Canada and the United States, we have two examples that are quite a bit different. In Canada, 8 out of the 10 provinces have government owned Prime Corporation utilities, and they manage the, you know, they're vertically integrated. They manage everything or most mostly everything within their within their provincial grid. And the grids are, you know, that that we have very low electricity cost. They're very reliable, and clean.
84% of the electricity in Canada is is low emission because the dominance of hydro and nuclear. So so that's great, but it's a 2 edged sword because on the other hand, we see the Americans, which had a creaky old grid, you know, full of coal and and now it's switching to gas. Now it's adopting renewables and batteries at a rapid pace, particularly in places like Texas and California. They're basically reengineering their grid on the go. Yeah.
And it's and it's causing some problems and some growing pains, and there's been outages and disasters, but this is the direction the Americans are going. So we've got state old conservative Canada that has this pretty good grid that, you know but how do we how do we scale it up? That's that's gonna be the big question. Versus the Americans who are rapidly reengineer engineering their grid, do either of those models, are they applicable to the UK and its power sector?
It's I mean, UK, of course, it's all you have the national grid, of course, that actually runs the the transmission network. And and those are very much the ones, that needs to deliver this this this step changing grid capacity, I think. And then you so the and the power generation providers, they all have these targets obviously to to decarbonize. But but, I mean, we we see very very much focus on actually putting more renewables on the grid that's there. I mean, very much 40 I say 45 gigahertz on it today.
The but the grid infrastructure is very much the responsibility of the energy of the grid operator. And that is and and to be honest, I think that's still something we're working. I think what I've heard from some of the people actually last week at our panel as well, there are some very good things happening now in terms of actually planning out the grid. But, of course, there are big there are big issues about it. I mean, running potentially very large power power lines, the pylons through the countryside, which people actually also won't like, but will be necessary.
And, also, especially in the bigger population centers, like old cities, like like London, Birmingham, Manchester, really, to to elect to replace some of the grids, some of it's very old as well, needs to happen. So I think there needs to be, like, a step change nearly in terms of how the grid operator has to do this. Because they're used to you running a steady state chip. Now this is gonna be very different. So so I think it is very much it'll have to come from that that grid operator.
And how are you gonna finance that? How will we cover that in in also in their sort of, budgets that they will have allocated for actually building out the group? So I think in a way, it sounds a bit more like the American system then, I would say.
Interesting. I would, just alert listeners to an interview I did a couple weeks ago with, Gerhard Schlage, who is the chief technology offer officer for Hitachi Energy. We talked about the changes that are going on in the American grid and and what that means and how, if it's done right, and there's planning and there's the investment in the right places, that in fact, renewables or me put it this way. A grid that's geared to variable renew, energy that is is comp properly accommodates inverter based resources like wind and solar can actually be very stable and reliable and and low cost. But this is not for the faint of heart.
These there really needs to be a lot of planning and engineering in here. Yep. And and renewables are not drop in replacements for thermal plants. That that is a that is a it was a key point that came out in that in that, interview, and that it's a whole different animal to have this other kind of grid that we're headed towards. And it sounds like the UK is at least recognizing that and putting in place the processes to get to where it needs to go.
And, of course, Evertip, what was of course, the big issue of variable renewables penetrating with 80% renewable renewables on the grid in 2050, that will have a big impact. So we did quite a bit of assessments on looking at the variability of what goes through the grid. And really what we're seeing, it will more or less today I think it's about a plusminus 10% swing around the average. It will be plusminus 20%. And of course, that's also on a larger number.
So we're seeing a lot more switch and a lot more sort of variability. So, actually, again, we're trying to highlight in the report. It means an awful and a significant increase in battery storage. Still a need for thermal plants. So we still have 20 gigawatt of thermal plants on the grid.
Obviously, they would probably be running on hydrogen or carbon capture plants. And then also very much relying as well on connections to the grid with Europe. And the other thing, which is actually going part of the picture, is this whole idea of using excess renewables for producing hydrogen as a backup source. And, again, one of the things we recently looked at is actually we think that's potentially a very large part of the hydrogen use in the UK. If you have so many variable renewables, you will have a lot of access, which you maybe can then actually monetize as well.
So that's something but I think it's a complex picture, which will mean a very different grid to operate, I would agree
then. Yeah. I I'm interested in the the role of hydrogen as long term storage as, you know, gas plants that have dual fuel, turbines now. We're seeing those come in. And it seems to me that I mean, I've had a a number of economists argue in in interviews that, as the the cost per watt of solar panels drops, eventually, we're gonna get to a marginal cost of almost 0 Mhmm.
For for solar power, and and that makes the production of hydrogen relatively cheap. And if you're doing it on-site and then you can store it, then you can use it in these thermal converted thermal plants, and that becomes a real a key, source of firm dispatchable power, in this new grid. Is that kind of what you had in mind?
That that's what we're thinking about. Obviously, you need a very different economic model than commercial model for those power plants because they barely would be running. I mean, they might be running only a couple of weeks a year. So then this investment of having a plant there. Also, the hydrogen storage, of course, is a big deal.
You have to make sure of course, you have the right storage available. And, also and that's something where we actually discuss with people at the National Gas here who are sort of the the the currently so the the transmission provider. You need a system actually in place, like a hydrogen backbone type system in place to be able to move that hydrogen around when you need it. So so hydrogen in that space, yes, there would be, in our view, there is a role for it. And and especially the more variable use you got, you will have periods when you have a lot of excess.
And if you then have your is it very cheap potentially very cheap hydrogen then, as long as you have all the facilities. Of course, there's no use of all the hydrogen if you don't have 20, 30 gigawatt of actual power plants to actually run it. Otherwise, it just won't help you. So it's it's but so I think we just need to look still what our system looks like and to really understand the variability and sort of help you get it resilient is is still a big question. I think it can be done, and everyone keeps telling me this is not impossible.
But it's a very different system than what we have today.
I would agree. Let's talk about the electrification of transportation, and much has been made of Norway's rapid switch to electric vehicles, thanks in part to, very, generous, subsidies from the Norwegian government. And lately, there's been a lot of talk about the, impact of Chinese, electric vehicles in, in in Europe. And I read an interview, I keep coming back to this, but it it Carlos Tavares, the head of Stellantis, said it so clearly. He said, if you're an OEM, like a legacy auto manufacturer, and you are not ready for the onslaught of Chinese EV competition, you're dead in the water.
Like, he would he didn't mince words. And I've run that quote past a number of experts in the field, and they go, he's absolutely right. So the China sorry. Europe seems to be the big export market. The first really big one that the Chinese, EV makers are targeting, That, of course, has now got some response from European governments who aren't happy about about that, happening.
So there's some negotiations going on. What how is the UK responding to this? Are we seeing a lot of Chinese, EVs, and what do people think about it?
I must have this probably not I don't know that much about, actually. I mean, I am aware I'm aware of the overall electrification and what what was happening on the EV side and the uptake there, but I must have but don't have a real sort of deep insight in terms of how we're also dealing with the the Chinese influx there. I think I do. So maybe maybe not on the right person to comment on that.
Okay. Fair enough. Is it fair to ask you then about the role that electric vehicles might play, in an electrifying economy and the power grid. I mean, there's talk about, you know, vehicle to grid, integration has been around for for for years, but now seems to be moving into the pilot stage and doesn't and seems to be only maybe a year or 2 away from from fairly large scale, adoption. Is is that something that the UK is considering?
We, I mean, we are looking at it. I mean, as as as DMV, actually. We actually think that this is quite a significant part of potential overall storage battery storage that will be available. Obviously, a lot of things still have to happen, but I think it's definitely part of the solution. So when we look at our forecast, we see actually vehicle to grid as a very large part of the so not specifically just for the UK, but in general as a very big part of the storage story.
So yes, I see that happening. I think also, as I say, in the UK, even though there's been some talk about delaying the ban of internal combustion engines phase out, the view is still that with the existing directors for the manufacturers, we still think that post 2035, very few, combustion engine will still be sold. And, really, our our view is still that by 2050, most of UK will be using EVs going forward. So it's very much still in line with with with many others, I think. So and, obviously, that means we are very much a big part of the electrification or the increase in electricity demand is linked around the whole use of, electricity for transportation.
Now your report argues that the UK is in danger of not meeting its targets, the slowing of the energy transition, and you also argue that the the response to the proper the the best response to that is for, better government policy, more clear government to address some of these bottlenecks and and places where investment is required. Maybe could you elaborate on that, please?
Well, the the main thing we were trying to get across a bit, I I think at the moment, still in the UK, there's a lot of different options on the table. Like, when you look at the Committee of Climate Change, they have their main scenarios. The balanced net zero pathway, is very much assuming that all these things will still develop over some time. I I think the reason I think why things are not moving fast in some areas, for example, heating for homes, is because there's such there's no clear guidance here where people go. I think EVs is quite clear.
In the end, yes, they're still expensive, but it's quite clear. There's one solution, and we'll go there. Heating for homes is more complicated. Hydrogen's a bit more complicated. So for the areas where it's not so clear, I think I see a little bit of because there's no clear path yet, it's actually harder to see it moving forward.
So one thing we argue for, and I think in some ways you see it in UK now, they have they have appointed a new energy system operator as of this summer to really take this whole system view that you really have to look across all the energy vectors. And I was still thinking, yeah, you have to look as a UK. What's the most economic, the most, efficient energies you could have at 2050? How do we get there? And I think just only relying on market forces, market competition, and consumer choice, I think that won't get you there.
So I think that's maybe the key point we're trying to make. Really, you need a bit more, you know, direction and maybe also a bit a bit more government sort of pushing things in certain directions. And, otherwise, I think you will basically be sort of sticking where you are. For example, home for heating. I think without any major changes, people will still be buying boilers for the next 5, 10 years.
And they every time you buy a new boiler, it's another 15 years, of course. So so, so when I see, it's easy to stick with gas, but, of course, that means you will have emissions.
Right. Every time that, heat pumps come up, I always chime in with the success story that, you know, is our family. We adopted a heat pump, 2 years ago, but our house is quite well insulated. It was built in the nineties, and it's got at least our 17, maybe our 20, insulation in it. It's very, very airtight.
And the heat pump is is a revelation. I mean, it is an amazing technology. And I I only I am only sorry that we didn't get one, a lot sooner, But we're very happy with it, and our our, our heating and cooling bills are very low, shockingly low.
Under Were you guessed before? Were you guessed before or what were you asked before?
You were a guest before. Every house I've ever owned, has been has been a gas furnace, and we've not had air conditioning before. So the you can imagine the the change in comfort level, cost, and so on. And so we've talked about electrification of of buildings enough. I wanna get back to the idea of what needs to be done, and one of your recommendation is clear incentives to crowd in private capital for the build out of clean energy generation.
I hear that a lot, crowd in private capital. What did you have in mind?
Oh, I mean, I I wanna be a bit careful here. Because I'm again, I'm not myself a finance person. Some of our people in in the group of in who've been working on this have been more looking at the finance side of things. So we be hard to maybe be very specific here, I think. So maybe I maybe better something to so to discuss, I think, actually. Not really my area of exp I'm more of coming from the technology side, I would say.
Fair enough. Well, let's talk about the energy infrastructure CapEx because you Yeah. 26,000,000,000, British pounds, currently, rises over 30 years to £38,000,000,000. And one of the things that's come up in in Alberta, over this debate around renewables is, you know, the government which is has just slagged renewables, wind and solar publicly, with all sorts of misinformation. It's very not very often that you see a provincial government taking this approach, towards a, you know, investment, basically.
And but I think the the the, system operator in Alberta issued a report, and I interviewed one of the VPs about it. And she said 90% of the cost for increasing generation electric electoral electoral electricity generation will be borne by the private sector, not the public sector, the private sector. And is this something that that, also applies to the UK?
I mean, it will be it will be a mix, I think, in I guess in terms of how we build it so far through government subsidy, it has been sort of happening in that way, I guess. I mean, I I it has I mean, if you if you the overall investment, well, let's not forget that the the number we're mentioning there is a mix of many, many different things. I mean, it includes, for example, costs or retrofitting homes, which will be, in a way, probably more carried by by individuals, I guess. There's there's a lot around the actual infrastructure onshore around both the pipelines the sorry. The pipeline but also the grid infrastructure.
So I think a lot then it sort of you get sort of into utility sector. I guess, in the past, well, of course, the whole a lot of the investment, 50% of the investment was was offshore oil and gas. So very much the private sector. So so it's a real mix. In the future, where is it gonna go?
I think in the end, again, I'm maybe not best place to to really give a, an exact view on this. It's not really I mean, as I say, our report is more focusing on sort of technology and so the over more the absolute CapEx, if I see what it actually would mean in terms of investment for the country. So maybe maybe keep it a bit vague that I'm afraid.
Fair enough. On the demand side, your report, recommends extensive engagement with society to embed low carbon solutions. And this, yeah, speaks to my heart as a journalist because I've been arguing probably for 4 or 5 years now that Canada needs a national energy strategy, and we need to have a we need to expand our energy conversation. We're not even talking about the energy transition, really. Everything gets viewed through the climate lens, and and then that goes in places that, you know, are just are silly sometimes.
And so I was intrigued by this recommendation. Maybe you could expand on that.
Ma'am, I think, one thing I feel very strongly about. I think I think we don't actually engage enough with society at large about this whole issue. Because I do think it's such a complex it's such a complex question. And it's so and it's such a huge transition. And I think we don't talk enough about it.
We basically it is there in terms of people yeah. This whole thing about heat pumps or not, hydrogen or not, but people forget that that we actually we have to make these changes, but it will and and because of this change, that will mean people have to not everything's gonna be easy. It doesn't there's gonna be a cost associated with it. So we have to decide how you're gonna pay for this. Is it is it gonna be taxation?
Is it gonna be people themselves having to pay for it? So so I do really think when I, in general, present this, I'm I'm amazed how little, actually, awareness that still is about what's actually required. The average person, even the average person I've talked to someone yesterday, they don't even even know what the heat pump really means in terms of in terms of efficiency improvements. So we don't actually explain to people what is there. And also, for example, explain, but we need to electrify, for example, which means we need renewable wind farms maybe in the UK on land.
We also need a lot of additional pile on, so people have to accept that if you wanna make this work, we will need change. So and I think we we don't I think we don't dare to say it quite often because I think it is for these are these are difficult subjects, difficult decisions to take. And, and I I I think it will be and we discussed at our launch last week, we had a panel there as well. This whole discussion on awareness is important in making people aware of it so the issue understands where we're coming from, rather than just telling them, oh, we're gonna change this furnace to a an arc furnace, so you're gonna lose your job next week, which which happened here in the UK. So I think disengagement is understanding what it means for people, the rescaling.
And also the other thing I think is it's an amazing opportunity for all for all these countries because there's so much opportunity for actually for actually, work, for jobs because it will be such a big infrastructure project. I mean, it's the biggest infrastructure project I think the UK would have delivered for a long, long time. So so I think you could you can focus on the positive, but also maybe just awareness of the step changes required. And I feel quite, yeah, passionate about it. And I think even even at schools, at universities, people need to know about this.
And so, yeah, that's I think where we're coming from a little bit. And, obviously, that means then you get more you can buy in and you can also get, and also maybe acceptance that change needs to happen. And it's not there's there's gonna be change to our society around this whole topic, I think.
On that note, that actually is a a keen interest of mine, starting 40 years ago when I was doing my graduate work, around the mechanization of farming in in Canada. Because you didn't you don't just mechanize agriculture, you literally change the rural society.
Yeah. You
know, they we had 80% of people that used to work on farms. Now it's like 1%, and the rural areas have just emptied out. And so there's it it would be reasonable to assume that given the chain, the magnitude of change that's coming with this energy transition, that we will also see changes in the way we organize society. Maybe we maybe we organize our, our cities better,
you
know, for for better mobility. That would be one thing that we could do. And so I'm I'm very interested in in this and also the idea that we need to talk about it. Because I remember in in my graduate work, I I read old farm newspapers from the 19 twenties, and farmers were having this very vigorous, well informed debate about what tractors meant for the future of their society. I don't see the equivalent of that that debate happening in Canada and to some extent, I guess, in the US.
It's all you know, it it happens at this rarified level that the average person just doesn't engage with and and, frankly, just is is, is mostly uninformed as you say. So, we'll be watching that with, with some some interest. Let's end the the conversation this way, Frank. I am of the opinion that I think the evidence supports this, that we're now into an energy transition that is driven by technology and economics.
You know,
this is just better technology at a lower cost, and and its its adoption is inevitable. The only issue is pace.
How fast will it go?
Would would you agree with that based on your understanding of the UK?
I mean, I always keep saying, yeah, and the the challenge is actually is the timing. It's the time scale. Long term, of course, the costs are coming out long term. We will have an excess of renewables. We will have an excess of renewables at a certain time, but not yet.
And I think that's I mean, including things like, for example, we're talking about green hydrogen as being part of decarbonizing certain parts of the industry. At the moment, I think there's still an issue about where is it all gonna come from. Because any electricity you currently generate is needed to electrify your country or electrify your industry. So so I think it's all yeah. But long term, it does.
Yeah. It's it's a no brainer. This will work. And it will be, in the end, a cheaper system, a more efficient system. But to get there by 2050 and time within all the various carbon budgets that the world has, that's the that's the big challenge. And, and I think that's people need to work very hard to get there.
It's a very energy transitions are a very messy process. They are not neat and ordered, unfortunately, as much as we would like them to be. Well, Frank, this has been fascinating. I know a lot more about the UK, energy situation than I did before. I hope that's true for our listeners as well. So thank you very much for this.
Thanks very much. It was a pleasure to to be there. Thank you very much.