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- [00:00]
A
I'm your host, Ed Porter. Welcome back to Transmission. Right now, the UK is attempting the biggest grid build since the 1960s on a political deadline, while simultaneously rewriting the rules of the market. Most of the decisions that will shape the next decade of British energy are being made in the next 18 months. My guest today is Chris Stark, head of Mission Control for Clean Power 2030, the government task force delivering those decisions and setting the UK up for a clean energy future. Few people have a clearer view of what's coming, and even fewer are willing to talk about it this openly. If you have questions during the episode about constraint costs, new wholesale CFDs, or. Or how the UK grid is being rewired in real time, those are exactly the type of questions Co Moto Energy's AI is built to answer. Now back to the episode. Let's jump in. Hello, Chris. Welcome to Transmission.
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Hi, Ed. I'm very glad to be here.
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A
Excellent. And our pleasure to have you. So, as ever, let's get straight into it. So what is the one thing that everyone gets wrong about Mission Control?
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B
Well, I think people think of me in Mission Control as if I'm sort of sitting with a load of dials around me and a big control desk. And the reality is it's not quite like that. So I think that is probably the one thing that people get wrong. You might remember a few years ago, there was a thing in the times of Dominic Cummings standing in a big room, the giant version of Dominic Cummings and lots of little people. It's not like that either. It's much more like an office space where we have some very large screens. You've been in that room. And we use them. We use them a lot, actually, to look at what's going on in the system. But it's not a control room.
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A
Okay. But that is, it's mostly to track what's happening, right?
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B
Yeah.
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A
And so maybe just to get into that a little bit, like, what is the one thing you're sort of watching most closely on all those screens?
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B
Well, let's stand back from it. So it's almost two years now since the election when the new government came in and one of the big commitments that they had was on energy. So it was to have a clean power system by 2030. And I was very fortunate to be asked to lead that by Ed Milibands before the election. So we came in like a bull in a china shop with a sort of plan for what to do that we tried to get really quickly informed by some work that NISO had had done for us. So it's gone through phases. Basically the initial phase was all about getting the thing set up and some very big numbers in that plan, which we're still pursuing. But as it progresses, we increasingly change, I suppose, where the focus goes. So in the early part is very much about, you know, ensuring that we had the grid plans in place and that we had good plans in place for connecting large renewable infrastructure and use the contract for difference for that as we go on. Increasingly that's not going to be the challenge. We've still got lots to do there, but we want to sort of curate the system to work better. So the thing we worry most about actually is a set of metrics that include things like constraint costs, which is something I know that you care about, but that is quite a good sort of system metric for whether you've built a system that is what we call operable. So we look at those sorts of things very regularly, along with quite granular level what's happening with the actual projects. We've got a project list essentially that we're trying to see delivered. So it often involves us looking really closely at individual projects and what's happening with the delivery of those.
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A
I love that you look at constraint costs because to me there's kind of different ways you can design your system, right? You could be sort of more market oriented and put more risk onto market participants and allow market participants to make their own decisions. Or you could go down a more sort of central routes and try and move things faster by central planning or strategic spatial energy plans. And we're sort of on the left hand side of that. If people could see what I was doing, we're towards the more sort of central side of that, which means that if we don't get timing right and we build the wrong things in the wrong order and we try and do things very quickly, which is exactly what we are doing. We do run the risk of having the sort of the gremlin pop up in the system. And that gremlin is sort of constraint costs. And so I'm really interested sort of to see that you're thinking about that. Also, obviously we expect constraint costs to increase in the near term. So how do you kind of square off the pace of Clean Power 2030 with the kind of gremlin in the system of the constraint costs.
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B
So I quite like the gremlin analogy. I mean, look, you're right, there's a different way to do this which would involve far less pace. So you could take your time with this. You could plan that system. And you would probably build the grid first if you were doing that. So you would put the grid where it needs to go and then you'd connect to that system the generation that you want. Our view is that that would just take too long. So we are, we are definitely engaging in something that is, that is more challenging or I quite often talk about building the plane while it flies because we're doing grid build plus generation build. And the risk, as you, as you rightly say, is that we are connecting to a system that isn't yet ready projects that, that will not be able to supply all the power to the demand wherever it's located. And inevitably that will result in some constraint costs. Important to say any system should have some constraint costs on it because it's a sign that the system is sort of efficiently built. What you don't want to get to the point is where you don't want a point where the constraint costs get out of control. So for us, the biggest thing that matters is that the grid build program, particularly transmission build, comes in on schedule and preferably ahead of schedule, if we can do that, because that's where most of the constraints will be relieved. But in addition to that, there's a set of things that we hope we can do alongside that. And we published very recently a delivery plan, as we call it, for what's called reform national pricing that has within it some clues as to how we might also, alongside that, get that system that exists already to work better for us. What we don't want to do, and I freely admit we are doing this now, is connect wind farms that can't supply 100% of the power when the wind blows. It's particularly a challenge in the north because we haven't got the ability to transfer that power to where it's needed in the South. Inevitably that's going to happen until we can upgrade the system. And we've acknowledged that and we accept it. But what I don't want to find is a situation where those constraint costs get to the point where they are spiraling to the point where it really is a challenge for the system. And I don't think that will happen, but it's the reason why we care so much about it.
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A
Yeah, we have, I think in those constraint cost forecasts of potentially getting to sort of 7 or 8 billion per year before the end of 2030, when you sort of work that back in terms of household costs, that could be quite large. And I think it will be difficult for people who receive A bill and see, you know, £100 on from constraint costs that just, it just doesn't feel like the type of thing that many people would be able to get their head around. You know, why, why can't that energy just flow to the right place?
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B
Yeah. And look, the 7 billion number, which is the one that is bandied around is, I mean, it's top end, right? I mean, I don't think it will be 7 billion, but equally it's not going to be possible to keep it to, to zero either. So somewhere in that range is where we want to be and you want to be at the lower end of that range, if you can at all possibly achieve that. So there's a set of things that we think we can do, some of which MODO has looked at too. So location of batteries using that cleverly across some of those constraints. That's interesting. Using something called dynamic line rating, which is a technical term, but it's quite an easy thing to conceive of, is essentially allowing at the right time more power to flow across power lines than would otherwise happen. And those sorts of things we think can really help. The other thing that will matter actually is location of those wind farms that you talked about. And some of that, we don't pretend to mandate all of that, but some of that will change as the next contracts for difference come along. The next allocation rounds happen and the next auction rounds happen. And we want to keep a live view of some of that. And the last thing that matters is when some of those new projects are built. Yeah, we tend to think of them as single blocks on a map, but that's not actually how it works. You get generation from some wind farms ahead of the whole wind farm being constructed. Some of these big transmission upgrades, parts of those will be available earlier than, you know, other parts of that upgrade. And that means, I think as we go along, I don't expect us to get anywhere close to that 7 billion, but I acknowledge that that's the number, that's the sort of, that's the range within which could, you could, you could find a number that was high.
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A
So we're starting to move into reform national pricing and let's get onto it in a second. But just first let's make sure we sort of close off the network side. So it is worth talking about. We have EGL 1 through 4, the Eastern Green Link, which are HVDC lines running from Scotland down to England. We have four of them coming through, they're about two gigs each. And so that will Help the constraints. So it's very important in these debates to not sort of just be seen to be okay. We're just. All we're doing is highlighting that constraint. Costs are going to get high. Like there is work going on to relieve this alongside the things in reform national pricing. I think maybe where I want to get to is that with CP30, Clean Power 2030 and the sort of big build out of generation tech, we also have this big build out of network that we're trying to do at the same time probably the biggest build out of network for some time in Great Britain. How are you trying to manage that build out of network to make sure that we can actually deliver it? Because it's a huge undertaking.
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B
It's a massive undertaking. And I think the way you framed it is correct. It is probably the biggest build of transmission that we've seen since the 60s in terms of the overall ambition of it and I think more importantly in terms of its impact. Again I use this term sometimes when I talk publicly. But what we're essentially doing is turning the grid inside out. We're moving from the old grid that was planned around coal in a really sensible way by an organization called the cegb, which is essentially the forerunner of niso. You can think of as the energy System Planner. And that was done in a really sensible way. They looked at where people lived, they looked at where the coal seams were and they put power stations in sensible locations and then tried to minimize the amount of grid that was built to take the power from where it was being generated to where it was being used. We need to do the same thing. So we benefit from the fact that there's actually been quite a lot of planning over the last few years about what that strategic new system needs to look like. And a lot of the planning was done ahead of what we call the price control period, which is basically the period over which the transmission operators get to bid to construct something and then have the regulator agree that and then recover those costs over time as they're built. So we are in the point now where actually we can go fast on that grid build. And you've mentioned some of the big projects, the ones that really we think a lot about are they're mostly in East Anglia, they're the ones that bring the power onshore. So there's a big project called Sealink and then a huge project, I think probably the biggest single project we've ever built, called Norwich to Tilbury. And these are very, very important projects that are in the planning system right now, and they are in the middle of being determined, as we call them. But when we have those projects up and running, they will relieve most of the constraints that we see across Britain today. And therefore we care a lot about getting them in on time. Now, those two projects are running to a 2031 timetable at the moment. If we can bring them in an extra year earlier, at least think about that year of 2030, that might relieve 4 billion of that 7 billion pound constraint number that you talked about. So they have an outsized role in delivering the efficient, cheap system that we want for consumers. And therefore the government, not just me, has an interest in supporting those projects to be built as quickly as possible. And that means partly managing the planning process as efficiently and as well as we can so that we get to determination in good time. But it particularly means getting the construction of those projects done ahead of schedule, if we can. And that means a really deep discussion, you know, for example, yesterday with National Grid about the ways in which we can do that. So I think that's quite exciting. It sort of brings a focus to the work that government does with industry that we probably wouldn't have had in the past. You know, that idea of this being a mission is not just a government mission. It's something that's shared by National Grid and the energy sector and they get it right. They understand the importance of getting these projects in on time. And that is, that is a good example of what's actually happening in mission control. You know, we're not sitting looking at schedules of work with National Grid, although we're close to it, but what we are doing is asking daily what can we do in government to try and remove the barriers to this thing being built? Because it is so important nationally for this country.
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A
I think it might surprise people to know that just the pace of actually building out those new transmission lines, eight to 10 years, is not uncommon. So when you say, look, I'd like to get this done, then let's say a political cycle is five years or roughly, then if you have that idea in a first political cycle, like the, the ideas that you bring through might not land in that first political cycle. They might be in a second or a third or whatever it might be.
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B
So it's a really important point because if you think about the, the Clean Power 2030 framework, people, there's been a lot of focus on the 20, why 2030? The reason for it is because you can, you can envisage this work being done in a single parliament. You know, I Don't know when the next election will be, and it'll be before 2030. But the majority of the work that we will do to curate and create the clean power system we want by 2030 will be done in this parliament. And, you know, I feel really proud of what we've done in those first two years because that momentum is there now. And the irony of that is the benefits will come in the next parliament, more so than this one. What we're trying to do now is to bring forward some of those benefits so that people see that as early as possible. And those benefits are to the energy system itself. Of course, I want benefits to go to consumers, of course, but there's a host of other benefits. And if Ed Miliband were here, he would talk about the industrial and employment benefits that come with that. They're enormous. These are huge capital projects. Not just the grid projects, also all the renewables projects, the storage projects up and down the country, that is employing people in parts of the country that wouldn't have those jobs otherwise. And the sums involved are huge. This is an investment program like no other. It dwarfs anything that you would find in a traditional government spending review, for example. So it's a bit like harnessing a market that can deliver all this, but trying to grab the reins early on it so that you get these benefits as quickly as possible.
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A
Yeah. And in terms of thinking about as we build out that network capacity. So one thing that sort of seems like it would be interesting is obviously you mentioned the allocation rounds and contracts for difference that get allocated to wind and we build out more wind in different places. So we're now working really hard to try and sort of fight the constraint costs that might come up and make sure the network is there in the future to get a system because life goes on Beyond 2030. It does.
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B
I mean, I may not be there for it, but it does. Yes, I understand that that happens.
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Understand the concept. And as we add more wind to the system, like, how do we. How do we put the sort of the system controls in place that encourage us to not fall into these sort of traps again? And I'm thinking about things like could we do more to encourage networks to be measured on utilization of their network and try and be a little bit more sort of forward thinking about this?
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B
Well, look, I agree with that. So inevitably, we're in a situation at the moment where we don't have the network we need, and we also don't think we have the generation that we need. So we have inevitably had to take it on the chin that we're going to build this stuff now. What I don't want to be is in a future situation where we've got to do that again. So you don't want to do this every single Parliament because it's extraordinary amount of effort that's gone into this from government and from industry to try and get to where we need to by 2030. There's a reason why I think this, and stepping back from the sort of detailed what's in the Clean Power plan and what we're trying to do across the country, if you look at what the energy system needs to do over the next 20 years or 30 years, perhaps the challenge is that I hope as someone who's worked on climate change for most of his career, that what we're going to see across the country is mass electrification of what is presently fossil fuel led industries and sectors that is going to result in a larger demand for electricity. And I want to be in the position by 2030 when we're ready for that growth in demand that I hope is going to come. Yeah, and you know, if you look at my old organization, the Climate Change Committee does the projections for this out to 2030, they would say that we need to double power demand by 2050. If you want to hit the carbon targets that we set for the country that also, you know, that electrification story also brings with a huge efficiency story for the whole economy because we're not wasting energy from fossil fuels through burning them and wasting all the heat. So there's a not. There's a productivity benefit that comes with that too. It's not just a climate benefit. The reason for having this Clean power target by 2030 or mission for 2030 is that we want to be in the right state at the start of the next decade so that we don't encounter the problems that we have at the moment. And the biggest dysfunction that we face at the moment is that we are building generation in parts of the country ahead of network. That's that, you know, we are procuring through a really strong, good system the contract for difference that was developed in previous government. But we're putting those projects in places before the network is being built. And that dysfunction is where a lot of these issues of constraint costs that we've talked about is coming from. I don't want to be in that position in the future. So that points to us having through a different process that we haven't talked about yet that we call the Strategic Spatial Energy Plan a much better sense of what infrastructure we want to have in our energy system in different parts of the country. It's a spatial plan. And with that, the most important thing for me is that we have at the end of that process a really strong idea of what the future network will look like, because that will. That will allow us to get into a future where we are not suffering the kind of problems that you asked me about.
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A
One final question on networks before I move on. So you've described it really well. We've gone from coal and we're going into electrification, and we're going into this world where there'd be far more demand and that demand may be far more flexible. We'll have EVs at home, electric vehicles at home. We'll have solar panels on roofs. We'll have heat pumps that you could flex. And so this whole system moves from large centralized transmission systems to something where there's a lot more flexibility in this system and there's a way in which just the whole system will work in a. In a different way. So some of the sort of more traditional ways of thinking about strategic planning perhaps might not be the right answer. Perhaps like we might see other systems or other grids do a better job of handling kind of the new assets and new opportunities that come forward. Do you worry about that at all? And do you think that the network should perhaps look to, rather than just have sort of grand plans around expansion also think about, hey, how do we run this network hotter?
- [18:56]
B
Yeah, so that's exactly how I think about it. So I think it is necessary to do a strategic plan. I think it's important that you do it. And if you think about the plan that we did for 2030, that was a sort of blueprint for what we're now doing with the strategic plan. And just briefly, for anyone tuning into this, the strategic plan is, I think, the biggest and most important thing that will happen in the next 12 months. So, you know, this is a pretty simple process to explain. You ask our energy system operator, niso, which is a newly independent organization, to give advice to the government about what options there are for the future energy system. We then in government make a decision about that that goes back then to the energy system operator to do a more detailed design, and out of that comes a whole host of things, including a strategic network plan that we can have for the country. It's really important to do that. Now. What you want, I think, at the end of this is something where we're not having to do that every 10 years. We actually want to build the strategic network that we need for the future. And then we get into the exciting, sexy stuff you've just talked about, about making that network work for us. So that, frankly, is the exciting thing. You get to a world where we've established the motorways and it's sort of trunk networks there. And then you attach to that a much more flexible, dynamic system where the cost savings come directly to the consumer. You've got stuff happening at the other end of the wire. That's where the really important stuff is going to be. And that to me is the excitement of all this, that we're sort of setting that up. And that flexible, that word that we use a lot, that flexible power system is, I think, the future of every economy we haven't got yet, the kind of trunk network that I talked about in place to allow that to happen. So, so, you know, inevitably in this parliament, as we focus on 2030, we've had to think about the big stuff. That means transmission, that means the really big nuclear decisions, decisions on big, big wind farms offshore. We will get to a future where actually the exciting stuff in energy policy isn't that anymore. And frankly, I think that can happen quickly as long as we're confident about what that future looks like. We get into a much more interesting world where actually a lot of this is driven by the fact that the bundles of tech that will drive this are at the other end of the scale. They're in households and businesses. They are being used flexibly. They're receiving the signal to operate flexibly. That is the future power system that I've talked about for 15 years. And you're doing this stuff.
- [21:20]
A
We have not talked about reform national pricing yet. Today is the 22nd of April. The government doc came out on the 21st of April. So I had a good read last night of the potential system that we might be entering into now. I think there's kind of two things I'd really like to talk about. One is that thing you were just mentioning, which is how in a reform national price system, how do you give these kind of signals to people to do the right things? So that's sort of first question. Let's do that one first. And the second question that I'll come onto is a big part of reform national pricing or the proposal is around delinking the price between power and gas. Let's come on to that second. But let's start off with how does the system, how does the new pricing system give the right incentive to the right part of the network to get the most out of it.
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B
So I'm glad that we gave you some bedtime reading. So as we're talking today, it's the day after a big set of announcements that the government made. And it's worth just delving into some of the context for that. So amongst the many, many things that we announced yesterday was this delivery plan for reform national pricing. But actually the context for that is the crisis that's going on around us. It's worth just touching on that because all of these issues are now framed by what's happening in the Middle East. And once again, we are in a situation where this country, despite not having any direct intervention in the Middle east to cause the situation there, is facing the full effects of another price crisis. And the reason for that, sorry to go back to the fundamentals, is because we are so dependent on fossil fuels and we are exposed to all the geopolitics of that. And this is the second crisis we've had in two years. So what we've done, an important framing point for all of the questions you just asked me is we have leaned into this clean power story, this clean energy story, because that is the route through which we think we can secure ourselves from these situations as they come along in the future. And they will come along in the future. I did this a while back. We looked at these price crises that are fueled by geopolitical events. There's roughly one every seven years now. We're slightly ahead of schedule here by having one within five years. 2022 was the last one. Every time this happens, the country, the economy, faces a crisis that's linked to it. And the only way we'll get off that is by having the kind of power system that we've talked about already today. So we're trying to accelerate as much as possible. We'll come to delinking. That's part of the story of what we're trying to do at the moment. But the main part of it is that we are trying with clean power by 2030, to accelerate to that future quicker than we would have done otherwise. To make that work, you've got to have a sense of how that system will operate. So the really important set of things that we announced yesterday, amongst them is this delivery plan for reformed national pricing. In the first two years of government, the big decision was framed by our decision not to go with zonal pricing, something I know, Ed, you've talked a lot about in the past. The main reason we didn't go with zonal is because of the impact that might have on investment, the kind of chilling effect that comes from uncertainty from investors. A lot of controversy about that. I think we made the right decision on it. But in that world, you've gone with a world where there is a single price across the whole of the British wholesale market that doesn't work in terms of the kind of much more exciting story that you asked me about in the previous question, this future, where there is things happening across the country that are determined largely by weather and patterns of demand, a single price is difficult to manage across that. So what we got in the reform national pricing package, which I encourage anyone who's interested in this to read, is our attempt to illustrate how we will set out a different model of operation for that strategic plan that I talked about earlier. And we're not done at this. This is kind of. We'll keep returning to this. But largely what we set out in the document that was published yesterday is about citing investment. The main meat of the document and proposals within it are about the signals that we send about where we put things. And there's choices there. And not to get too into the weeds on this, but essentially you've got a spectrum of choices where at one end you allow the market alone to decide where everything goes, which is very difficult in the kind of world that we're in at the moment to conceive of. And at the other end you've got an entirely planned system which is essentially being operated by a control room somewhere and being planned by somewhere in Whitehall that is also very difficult to conceive of. So somewhere in the middle is, I think, where we'll end up with this. And we've got a set of choices about how we give the signal to investors about where they put certain assets across that system. At the moment, the main sort of system signal that we send is things like transmission charging. So naturally we want to have set signals in place in that system about locating assets so that you get a price signal that allows, if possible, those assets to be built as close to where the demand centers are. That causes you, I'm afraid, to have lots of difficulties. If, you know, you've got a lot of wind resource in Scotland, but all the demands in the south, the transmission charging methodology we have at the moment makes that quite difficult. So we're looking at options to change that. Some of those options involve actually stepping back entirely from having transmission charges that are locational like that. But what we've actually talked about in this document is having a kind of combination of Some price signal, so some price reflectivity, as we call it, plus a bit more of a proactive step to connect projects where they need to be, which is a bit like what we've done with the connections process that we have at the moment, which we've gone into reform for 2030. So we're being more proactive about connecting the projects that are strategically aligned with what we think the country needs, putting them to the front of the queue to be connected to the grid. So some combination of those things is what we're exploring in that, and that's about siting assets alongside that. We've also given a set of, and I'm afraid these are technical things, but a set of indications. But we will need to go with things like the balancing market that sits alongside how the wholesale market works. And it's within that that you'll get this locational signal that would have been there had we gone down the route of zonal. So in that world, we're looking at niso, the energy system operator, having more access to granular data about the location of certain assets and. And being able to operate the wholesale market such that it balances through the operation of these assets wherever they are, in a more granular way than we can at present. And that I think is to me at least a sort of a good place to end up. It's not full fat zonal, but neither is it full fat state planning. You've got a space in the middle for assets to operate as they should, depending on the conditions in each part of the country. It's really hard, this stuff. But, you know, I think inevitably that's that, you know, that that sort of middle ground is the right way to go.
- [28:03]
A
Yeah, super interesting. Let's. And I'm always nervous that when you sort of reopen a zonal type debate, you can go forever on that. I think that the thing that maybe to leave that section is the thing that as a consumer I would love to see is I'd love to see people getting good signals to do things that would help the network. So if I'm in Scotland, could I charge my EV at a right time to encourage us to get the most from the wind? You know, that. That to me just seems like such an obvious thing and we'd love to see that coming through, but I don't want to reopen that too much. And then onto the part two, which I've almost forgotten about, which is delinking the gas and power prices. So how does the document that you released, how does that do this.
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B
So if you're in this space and if you're watching this, I suppose you are in this space. The topic du jour for some time has been that we have this issue that electricity prices are influenced in a sort of outsized way by the prevailing gas price. Why does that happen? Well, it's because we have a system we call marginal pricing. So at all points, right down to every second of the day, we need to balance supply and demand in the power system. That's just how the power system works. It's a modern miracle that power systems across the world are able to do that. The way in which they do that, massively simplifying it, is essentially that you've got to make sure that you can balance the amount that's available from the supply side with what's being demanded. And that generally means that you're bringing different technologies onto the power system to balance. And we do that through various routes. But often the final technology that is used to balance is gas. So gas generation is very useful because it's flexible. And in this country we have a large fleet of gas fired power stations, largely because in the 1990s we had something called the dash for gas. We had a lot of gas coming out the North Sea. At the time it made sense for power stations to switch increasingly from coal to gas. That has given us quite a flexible fleet of power stations. The job of the plan that we set for 2030 is to say, look, we acknowledge that that's there. Let's not pretend we're going to close them, but let's use them in a flexible way. So we're bringing on augmenting that system with lots of variable renewables on top of it. And we want alongside that and set a new storage assets that will increasingly displace those gas assets over time. That will come in the2030s I think in the main. But at the moment, gas is often the technology that you use to balance the market. That means in the market that we have, not just in the power market, you find this common in many other places, that the price that is received by all the participants in the wholesale market is defined by the price of gas. We have essentially a pay as clear market. And that means when gas prices are high, everyone in that market is receiving a higher price than they would otherwise. So we've been looking at trying to delink the electricity price from the gas price. Now, lots to say on this. The first thing is it's happening already. We are achieving delinking by displacing Gas by bringing onto that system lots of things that require us not to use the gas in the first place. And that in the end is the future. And that's exciting to see that happen. Just a few stats on that early 2000 and 20s, probably 90% plus of the time it was gas that was set. The price this year's maybe 60%. So we're on the journey. By 2030, if we do no more than see what we've got coming onto the system, it's probably going to be less than 50% of the time the gas is setting the price. So that means the delinking is happening because of the clean power transition that's underway. We want to bring that forward even quicker. And it's particularly important in the crisis that we're in now because gas prices are high. So what we've done in the announcement yesterday is something, it's quite simple. We were looking at about a third of power generation today is not under a long term contract that we call a contract for difference. It's a low carbon generation that is not under one of those contract for difference contracts that we regard as good value for the consumer. Many of those projects are what we call RO projects. That means they're under an old system called the renewables obligation, which means that they get the prevailing wholesale price plus a subsidy on top of that. And actually that's driving a lot of the kind of costs that consumers are bearing at the moment. Now, we've had various attempts to look at this, including notably last budget, the Chancellor decided that she would take 75% the cost of those RO projects off the bill and put them on the Exchequer. That's tremendous because that helps the consumer. But we also want to attack that kind of 30% even harder. So what we announced yesterday was something called a wholesale cfd. So it takes a bit of explanation, but not too much. The contract for distance system that we have at the moment for renewables is the basis of it. So at the moment, for a renewables project, you bid into an auction, you get a price, and then that's the fixed price you receive. So regardless of what the prevailing price in the wholesale market is, you'll get the price that you arrived at in the auction. In the contract for difference. We want to apply that principle to that 30% of generation that's not under a CFD. Now, there's different ways to do that. One we've arrived at is essentially to say, why don't we try and offer a guaranteed wholesale price? So that is the wholesale CFD. So in 2027, we'll run an allocation for this. So we're in the. Now having announced that, we're in the point of making that happen. Basically, we'll be offering to that 30% or so of the market that's not under a CFD, the option voluntarily of receiving a wholesale CFD, which basically will give us fixed price rather than the variable price that we're seeing in the market now. So we think that will do a lot of the work, and it's important, but it's voluntary. So the second part of the announcement yesterday is for those projects that are receiving very, very lucrative returns right now, because the gas price is high, we see that as a windfall gain. So we have a, we have, we have a tax that we call the electricity generators levy that we've increased to try and recover those windfall gains. And essentially what we're saying to you is you've got a choice. If you're in that 30% of the market that presently isn't under a CFD, you either pay that tax, we recover it, and pass that back to the people of this country in some sort of benefit, or you move on to the wholesale cfd, and we'll do that allocation next year. So it is a voluntary thing, but we want to encourage as many of those projects as possible to get onto that wholesale cfd. And in a sense, what we're doing is borrowing from a future where we can see wholesale prices will fall because there's lots of low carbon generation in the system. Rather than commodity price generation, we want to bring forward the benefit that would come in the 2030s to now. So in a sense, that 30% of generation get them on the wholesale CFD now. Yes, that's the sort of system you would see in the2030s. Anyway, we're trying to accelerate and bring that today to today. So the consumer gets the benefit.
- [34:58]
A
Yeah, so there's a few parts to that. So if someone who's just heard of a CFD for the first time, essentially, yes, you'll still see that high wholesale price or you'll still see that low wholesale price coming through in the system. But if the wholesale price is high, then the generator will give back some of that money effectively to get back down to the strike price. And if the wholesale price is low, then they will be topped up to that strike price. And so that's really how that works for people listening, if that's your first time hearing about a cfd, but also just to talk about that general trend of wholesale pricing. So when we do this forecasting, we see wholesale pricing coming down as we go into the future. And so it feels to me like if you're on an ro, the net amount of money that would go to that generator would be higher in the short term and lower in the long term. If you move them onto a cfd, you sort of, you kind of re tilt that a little bit so that they get less money near term, potentially more money long term. And so it feels like we're almost, it's not the technical term isn't right, but it's almost like we're borrowing from future lower wholesale prices to give lower costs.
- [35:59]
B
I like that description of it. The way I would describe it is we're sort of, we're smoothing out that, that cost. So and you know, the future is going to have lots of generation under long term contracts and also lots of network costs with long term cost recovery as well. That is a very different system from the one that we had say 10 years ago where the consumer essentially was paying for commodity costs. It was the gas, the cost of the gas being burned in a power station or the cost of coal being burned in a power system. There is no commodity cost to wind, there is no commodity cost to solar. So what the consumer is paying for now is the capital cost of building the wind farm or the solar array. And what we want with the contact for difference is essentially a way of spreading those costs out over 20 years. And in a sense, what we're doing with the delinking announcement is saying exactly what you've described. We're saying to those projects that are essentially getting windfall returns right now, move on to these long term contracts. Let's smooth that cost out and give the benefit to the consumer now rather than in the future. And that to me is a very sensible way of looking at it. We're accelerating towards a future that is more positive for the consumer by doing it, but it is voluntary. So it's a big question about how this is going to work. I mean, the industry is going to have to process that and work out what they do.
- [37:15]
A
So we've done networks, we've done generation. People will know this podcast. We often talk about batteries. And so flexibility is such a key thing for us in terms of the plans that we have for the system. It feels like we've thought about networks a lot, we've thought about generation a lot. But sometimes it feels like flexibility is almost like the forgotten third child. Apologies if you're a third child. Anyone listening I'm a third child, so I can say that, am I first?
- [37:41]
B
Maybe that's why.
- [37:42]
A
There we go. But it almost feels like it's kind of like the last part of this puzzle, right? Making the most out of that generation, making the most out of the network we've got. It doesn't feel like that falls into some of the big grand plans. And particularly when we run more generation through things like contracts for difference, where those generators don't necessarily care about what that price is because like whatever happens, they get the strike price. And I'm not going into the negative price piece because that will take us slightly longer. Yeah, yeah, that's podcast too. But how do you think about flexibility and are we doing enough to encourage the flexibility that we need on this system?
- [38:13]
B
So stand back from this. In terms of the 2030 plan, it was always the plan that we would go hard at the big infrastructure challenge early because you run out of road otherwise to do that. We will not be able, over the course of a parliament to achieve what we want by 2030. If we're still thinking that being the priority by the end of this Parliament, we are at with the next allocation round, which is called AR8, which we've brought forward to the summer. Yeah, that's the last one that will really matter in terms of 2030. We'll continue to do them after that. But it's terms of the mix of big infrastructure projects that will be brought on by that. This is the one that really matters, particularly for offshore winds. So if you want to get something delivered by 2030, this is the last stack allocation around that matters. Inevitably that means that we're going to shift our focus in terms of the 2030 framing and the clean power mission towards. I suppose you could think of it as the other end of the wire. I mean, that's slightly oversimplifying it, but flexibility, which I have to say, unless I'm sure people tuning into this know what it means, but people out there don't know what that means. And it's a term that I don't really like, if I'm honest with you, because it doesn't really mean much to your average consumer or punter. But when we're talking about the energy system, we want a flexible energy system because it's going to be a more variable power system. We have got more weather dependent generation on that system than was ever planned in the 1960s. And to make that work, you've got to have a system that can flex when the power is available. So that has a number of elements to it. We've talked about storage and batteries as part of that. We will need a lot of storage on that system and you've got to give the right signals for that storage to work well. So the proposals that we put out yesterday for reform national pricing, are part of it, trying to make that work. We've also given quite strong support for long duration stories, particularly because that is a system that we haven't built any pumped hydro for a very long time in this country and we should build more. So we've got a system out there to try and support that. And then at the other end of the scale you've got batteries which are in what we call the merchant market mostly, and they're trying to thrive in a world where you've got that variability. Actually, they want that variability. So I freely admit that flexibility is the kind of next stage for this for us. And I've got good ideas, I suspect you've got great ideas what we could do with it. But to me, the exciting thing is that there is still quite a lot that is unexplored about how you build that flexible power system. And then the final bit of flexibility is not big system design, not location of assets, it's about what the consumer does. And that's where the really exciting stuff comes. Because what we want is to give people the opportunity to save money by having technology. Let's just think of households. It's not the only challenge, but let's think of a household. I want to see households that have batteries in them, preferably have solar panels on the roof, eventually have heat pumps. That gives you something you do not have in a fossil fuel system, which is the ability to store when it's cheap to do so, store when there's power available, use power when it's available from the grid, when it's cheap, put power into the grid when the sun is shining. All those things that you could never do if you had a gas boiler, if you were in a fossil fuel system, your transport will be electric, your heating and cooling will be electric. These things require a more flexible power system to work. And I think we are right at the beginning actually of making that system work and creating that system. We have, supporting me, a set of what we call clean power commissioners. And one of them is Kathy McLay, who is a real expert in flexibility. She is just like a font of ideas of what you can do to make the system work. But priority one is to get those bundles of tech in the hands of people so that they have the opportunity to benefit from it. So a lot of what we announced in the last day is about that we're trying to accelerate a world where those who most need access to those savings get the tech first. At the, you know, in the past, what we've had is those who are most able to afford that tech get the benefits before everyone else. We want to flip that in its head so that it's low income households that get solar panels and the batteries first.
- [42:13]
A
And I fully agree in the sort of domestic flexibility side and if it goes sort of towards the grid scale piece. I think the thing that maybe worries me a little bit is if, if we go through this process where we have contracts for difference which kind of water down the wholesale price and then we have the capacity market and maybe we sort of move our gas thermal units onto different types of contract where they're more paid for their capacity than they're actually being paid for the particular half hour that they run. We sort of water down the wholesale market. And to me, it sometimes feels like the wholesale market's going through death by a thousand cuts. And then when people come on. Julian Leslie came on from SCP and I asked him what his contrarian view was. And he said the markets were essential for the good functioning of a system. And yet that's from the central planning side of things. And I worry that we have. And that, by the way, is not just Julian, that's been multiple times that's come up that markets are so important for how this runs. And particularly I see a lot of battery business cases, markets are so important for that. I worry that sort of the more interventions you make, the weaker that signal might be.
- [43:16]
B
Yeah.
- [43:17]
A
And so how do you, how do you kind of keep investor confidence in people who are at the forefront of this trying to build out new tech, new batteries, but at the same time, we're seeing this kind of reduction of importance from the wholesale market.
- [43:32]
B
Look, I don't have an easy answer to that question because I think you're right to frame it in the way that you did. I mean, there's a sort of mythology to liberalized energy markets. And in the 1980s, the UK went further than any other country in the world to liberalize its energy market. But even from day one of that, there's an element of state intervention that's still required to make a liberalized energy market work. I suppose we are exploring that spectrum right now. Inevitably to do something quick by 2030, we've had to step in and do a lot more State intervention direction to the private sector to build things in the right places, get things built that previously we probably wouldn't have been building. That is the plan. There's no question that that is what clean power is about. We're trying to do something more quickly than would otherwise be delivered, I think by the market. Okay, but I don't want to lose the fact that markets work and like I'm a big advocate for, for markets working. It's just that you've got to put those controls in the right place. I suppose when it comes to what we call arbitrage, that the ability, that's where markets work really well. So if you can, if you can get to a world where you have market participants putting their assets in places to benefit from the fact that when the wind blows hard they can store that energy and they can sell it back to the market when it's needed at a good price, that is how you should be, want to kind of harness the market. And we are definitely exploring the boundaries of that. We still have assets that are working on a merchant basis in the system. But you are right to say that increasingly around those assets we've got essentially state backed contracts for almost everything. So I don't want to lose that. You see that most obviously in the battery market, it's easily the storage technologies that we're asking to operate in that merchant way. I sort of like it. One of the reasons I like it is because there's also a technology race happening in those, in those places, particularly for long duration. As we get, as you build out the system, you want longer and longer duration energy storage. The longest duration energy storage we have at the moment is fossil fuels. You know, if we had a lump of coal, you could put it on the table and it would sit there for millennia and hold that energy. We are trying to replace that. So we need increasingly assets that have longer and longer energy duration for their storage capacity. At the moment that means pumped hydro, but in the future that's going to mean a set of new technologies. And essentially what I want to try and preserve is a bit of a technology race to make sure that we get to the right place at the end of that. So we've got all sorts of exciting things happening right now. It might be that lithium ion is the answer to everything, but you've also got things like vanadium flow batteries and liquid air storage and lots of things happening right now. And essentially we're trying to set up a competition to make that happen because that is often the way that innovation happens best. So I think we toy with this at our pedal really. I mean we think carefully about everything when we, when we intervene on this. But I wouldn't want to get to the situation where absolutely everything is sort of mandated by government, by technology. It's a, it's, it's, it's not going to be an efficient way to go about things. It's also not going to be a very exciting place to do energy investment.
- [46:29]
A
If you mandate everything by government. You kind of really would question what the role is of private companies in this exactly at that point. So yeah, it's a very interesting avenue to go down. I think we also see some of the same challenges of replacing coal in South Australia. We now see batteries coming through sort of 11 and a half hours in duration, which is really interesting because if I'd asked you this question 10 years ago, they said, oh, the longest battery that you could get would be say one hour. And now we see 11 and a half hours coming through commercially.
- [46:56]
B
So totally right and quite interesting. We defined long duration as eight hours and to be honest you could go much longer than that. In the end we're going to need seasonal storage or even decades long storage potentially. But we're not quite at that stage with battery technology. But you are right, it's almost daily you see the progress of this technology that allows you to have these longer duration. The battery chemistry is what supports that, plus the willingness of developers to put those kind of projects in place. That's the exciting thing. I want to see that happen.
- [47:29]
A
And I would flag from a power perspective, we're now seeing the battery so the electrochemical side being bigger than the pumped hydro side from a power perspective. And so when you talk earlier about things like gas being kicked off the system, it's often things like battery storage that is doing that, which is fun.
- [47:45]
B
Well, and that's, you know, as someone who cares about decarbonization because, you know, most of my career has been thinking about the energy system from that perspective. As pleased as I am to have the gas fleet that we have in this country at the moment, because that's what's allowing us to accommodate renewables at the scale that we're now building. The long future for this is that we need to get those gas assets off as well. And that requires you to have something that is similarly flexible but low carbon and similarly dependable. And that's the bit that people often forget. So you've got to be very confident when you close a gas fired power station that there Will be something there, ready to go. And it's one of my favorite terms, which I bet has come up in a podcast you've done in the past. But when you have a Dunkelflauter.
- [48:25]
A
Oh, we've been there.
- [48:26]
B
We should do another one just on Dunkelflauta. We actually have mugs that say Dunkelflauta in the office.
- [48:31]
A
I should say a Dunkelflauter is a low wind, low solar.
- [48:34]
B
It's a German word.
- [48:35]
A
Yeah, yeah. When it's sort of cold conditions, it's generally quite hard for a system which is decarbonizing to deal with the Dunkel flowers.
- [48:40]
B
Yeah. So in a world where you're building a system that is dependent on wind, not exclusively, but largely, we need to worry about these periods of doldrums, essentially where the wind isn't blowing. And particularly in the winter, you've got high energy demand. You need to know that you've got assets that can accommodate that at the moment. That's what gas is able to give you. That's dependability. That's why I think we will have gas in the system for a long time.
- [49:03]
A
Yeah.
- [49:04]
B
We just won't be using it very much. But increasingly to displace that gas, what you need is a set of newer technologies that offer you really long energy storage duration. And that might be pumped hydro. It's essentially pumping water up a hill from a reservoir to another one and allowing it to fall again when you need it. But actually the exciting stuff is moving into newer set of technologies that might offer you those long duration energy storage periods. And some of that might just be straight up batteries. It's amazing to see that happen. So it's, I think, the most exciting thing that's happening in the energy system right now.
- [49:35]
A
Okay, three final questions. One, on that gas fleet, how do you manage that relationship? Right. So you're saying to them, okay, don't run all the time. You used to run all the time. I don't want you to run all the time now. I actually just want you for those dark lulls, the Dunkelflouters. Please stick around for those. We really need you for those periods. How do you manage that conversation? Because if you're an investor in a gas plant, of course you know that in time those gas plants will have to shut. But there's a decision to be made about when you close and sort of how long you stick around for.
- [50:06]
B
Well, look, I don't think we're at the point where we know exactly when that's going to happen. So this is quite a, you know, it's not a difficult conversation with the operators of those plants right now because they understand all the issues that we've just talked about better even than I do. So gas is around for a while. They also understand that its role is to run less. And so I think the straightforward answer to your question is you ask them, right, you say, can you do this? And they tell us, yes, we can. So we have a system of essentially securing the capacity so it's available when you need it, through what we call a capacity market. And at the moment, that's working very well for us. There is a future, though, where we're going to need to look at this properly and it's the industry that lead that conversation. So we need to think increasingly as that gas fleet as what we call a strategic reserve. And definitely there will come a point where we're going to have to look at the arrangements for that. I don't think we're at it yet, but it's also potentially quite an exciting thing to think about. So you need to think about it as an asset for the country that's there when you need it. And basically we need to keep looking at whether the capacity market arrangements are doing what we need them to at the moment. I'm very confident they are. They keep showing us that they're delivering what we need. But into the2030s, this is going to be more of a challenge, I think.
- [51:19]
A
And people say, oh, look, are we going to go around turning off these gas units? And the answer is no, we're going to have a very pragmatic conversation.
- [51:24]
B
No, I think we'll have fewer of them, but we're still going to need them. And, you know, again, as someone who cares deeply about achieving net zero, I did all the work showing how the country could do that. That is a good use of fossil fuels like that is, you know, that we should be using them only when we absolutely need to, because they have that ability to store energy forever. Essentially, we should use that when we absolutely through the difficult parts. And, you know, the, the point about the clean power target is not to get rid of all that gas. It's quite a pragmatic view on it, actually. What we're seeing is that we think we can get IT down to 5% of the total mix and probably keep it at that level for. For quite a while. And it's towards. Actually, I think it's towards the end of the 2030, you really got to face into some of the harder challenges there, but what you do.
- [52:06]
A
And by the way, if you get close, that's still a massive change.
- [52:10]
B
Totally right. I mean, look, this is all about aiming high and seeing what you can do. I mean, it's been amazing doing this job for the last years because we didn't know whether this would work. So the ambition that we injected into that plan from day one involved us setting out very lofty expectations across every one of those technologies that we've talked about. It's pretty much worked. I mean, the industry's completely responded to it. I don't want to lose that enthusiasm that you can sort of sense, particularly amongst the industry. It's great having a government that wants to do something of that. Industry loves seeing that ambition and they respond to it. And you get into this kind of really kind of great optimism loop that happens. You say we want to do this and industry says, are you serious? And we say we're really serious. And then they deliver it and then you get into the next phase of it. So that's what the clean powered plan has achieved. And I think if we keep that in what I sometimes call a rolling boil, that's when the good stuff will happen. But you're right, like some of it's going to work well, some of it I think will work better than we planned. Some of it we're not going to get to where we wanted to. And that inevitably is what we're in a phase now where we understand more of that. I'm very happy with the progress we've made.
- [53:20]
A
Okay, final question. What is one view you've got about energy markets? A contrarian view you've got about energy markets that not many other people would agree with.
- [53:30]
B
Oh, gosh, I'm not sure I have a ready made answer to this, but I'll give you one. I think there's an interesting sort of harks back to another decision that we made in the last few days. I've said this before, so I don't think I'm going to be saying anything that would surprise anyone who's listened to me in the past. But I think there is a declining role for carbon pricing in energy markets. So I think we are in a world now where carbon pricing is already not the principal route to decarbonize our power system. And that is, I mean it might be seen as contrarian, but basically we will achieve our goals on decarbonization through other means. And that's largely by bringing on providing the right incentives, of course, but bringing on the cleaner stuff rather than giving the signal to the dirty stuff. And the reason I raised that is because in the last few days, something that didn't get as much attention as it probably should have is that the treasury and the Chancellor made a really important decision to take carbon pricing off gas generation.
- [54:32]
A
The carbon price support, yes.
- [54:34]
B
We still have something called the Emissions Trading Scheme, which sets a carbon price, and that's a really important continuing signal. But we in the UK had an additional carbon price on top of that, which was designed essentially to give an even stronger signal than was provided by an EU wide scheme called the ets. And it's done its job and it's great to be able to retire it, basically. So we're in a world where that was designed to drive coal off the system and coal is gone. And what it has been doing now is actually just making gas slightly more expensive than it needs to be. And that has an important outsized impact across the market where gas sets the price. So it's brilliant to see the Chancellor take that off. I came into this job as that was one of the things I wanted to see happen, and it's happened now. And it's a clue that carbon pricing is basically coming down the list of things that matters. And it's contrarian, I suppose, because your average economist would say that's the answer to how we address the climate crisis. I actually think it's far more interesting than that.
- [55:31]
A
It's a critical thing in terms of what it enables as well. So lower power costs, more electrification. That's the missing piece of the jigsaw.
- [55:38]
B
You said what I would say on this. In the end, what matters most is cheap electricity. So you want to give that signal rather than trying to squeeze off the dirty stuff with higher prices, you want to make the clean stuff cheap so that, you know, we're in, like, here we are talking today and it's happening and it's exciting to see that happen. So maybe it's not contrarian to say that, but it's definitely my view.
- [55:57]
A
I think it's quite contrarian. Chris, thank you for coming on. You've been a wonderful guest. Hope to have you on again soon.
- [56:01]
B
Thanks, Ed.