Thoughts on the future of energy

I spend a lot of time reading, thinking and talking about the future of energy. It is a rapidly evolving field, with rapid progress in some areas, and a lot of uncertainty as to what will be possible in future. Still, I thought there might be value in setting out what I currently think about different technologies, and raise some broader questions about how we might integrate them into an energy system. I’m mostly focussing on the situation in the UK, though a lot of these thoughts will be applicable elsewhere. I should also note that I’m not an expert on any of these technologies, and I’m sure my mind will change over time.

Before I start, I want to make clear that I accept the need to massively decarbonise. I am emphasising in this piece the potential for technological progress to reduce the necessary cost of that effort, however I accept that there will still be a need for sacrifice in order to avoid even worse outcomes.

Thoughts on individual technologies

Wind and solar

Wind turbines and photovoltaic solar have had an impressive cost reduction over the past decade. I’m sure costs will continue to fall, but they are already about the cheapest source of electricity.

The biggest obstacle to complete reliance on wind and solar power is their intermittency, and the inevitable mismatch between their generation and demand for electricity. However, managed properly, I still expect significant growth of these, to the point of them being the largest sources of electricity by 2040.

Battery storage

Batteries are getting cheaper, although right now, the main reasons to buy them are to ensure security of supply, or to avoid paying network charges.

Over time, I’m sure batteries will get cheaper and better, and with increasing wind and solar in the grid, the value of battery storage will increase. As a result, I would expect to see batteries playing a much larger role on the grid.

However, it is important to note that today’s batteries are optimised to hold 1–4 hours worth of energy. We may soon be at the point where batteries make sense for storing solar power to use overnight. But I believe that we would need to see an enormous reduction in costs, or a dramatically different technology, before batteries could play a significant part in storing power for winter, or for less windy periods.

Nuclear Energy

I am fairly ambivalent about the current generation of nuclear power stations being installed. They are expensive, we aren’t building enough to get good at it, and there is significant political opposition to them. However, building some amount of them isn’t clearly the wrong choice, given the desire for carbon-free electricity on demand.

For future generations of nuclear power stations, I believe we should take an open-minded stance, financing continuing research.

For nuclear power stations that are currently operating satisfactorily, I would be inclined to keep them running. It seems likely that if we switch them off early, we’ll just end up burning more fossil-fuel.

Carbon Capture Utilisation and Storage

CCUS is a topic with big questions. The first question is how productively we can use the carbon dioxide, or if we are going to have to store it. The second question is whether we can economically remove carbon dioxide from the air, or if it only makes sense to remove it from concentrated sources (like from a gas generator).

So many questions in the energy space depend on our answers to these questions, so I support ongoing research and experimentation in this area.

Hydrogen

Hydrogen could play a significant role in the future energy system: replacing natural gas in heating and industry, and replacing petrol for transport.

There are two main ways to produce hydrogen: from natural gas (as it is currently done, though likely relying on CCUS to avoid emissions), or splitting water using electrolysis. The challenge of the first method is its requirement for CCUS. The challenge of the second method is its cost (it only makes sense if you have very cheap electricity much of the time, and easy storage). These are questions where further research is needed.

I think some people are underestimating the effort needed to get households and factories converted from using natural gas to hydrogen, but there is nothing fundamentally stopping us doing this once we can produce it and store it economically enough.

Long term storage

This is a place-holder for what I see as the biggest challenge for countries like the UK with significant heating needs and minimal hydroelectric storage capacity. Existing batteries are as yet uneconomical to store more than a few hours of electricity, and hydrogen is expensive and difficult to store. CCUS alongside hydrogen may have some potential, as may biofuels. Considerable research is needed in this area.

Heating

At the moment most space and water heating in the UK is done by burning natural gas, which leads to excessive levels of emissions. Irrespective of what changes we make to how we do the heating, there are significant improvements that can be done on reducing the amount of heating we need by improving insulation in buildings.

Beyond that, we have a number of options, including hydrogen, electric heat pumps (essentially an air conditioner in reverse), and even geothermal (using underground heat sources). I suspect we will end up using a combination of technologies, including centralised heating to take advantage of the flexibility this offers.

Transport

I expect most road transport will move to battery electric within the next 10 years as the costs come down and charging infrastructure improves.

For longer distance transport (including trucks, buses and potentially shipping) there may well be a role for hydrogen.

I am sceptical that much will be done to decarbonise aviation (other than reducing the amount of flying). There is some talk of synthetic fuels (combining hydrogen with carbon from CCUS), but these seem like they would inevitably be way more expensive than existing fuels.

Some broader questions

There are significant uncertainties for the development of most of the technologies above, and none of them are likely to prevail single-handedly. As a result, I believe societies should as much as possible create markets in which the best combination can be found. In this section I discuss how this may occur.

Carbon Pricing

Given the need to decarbonise, it makes sense to ensure the cost of solutions reflect their relative carbon intensity. I would support a carbon tax on energy use that would reflect the cost of undoing the damage of carbon emissions.

Emissions markets can have a similar benefit to carbon taxes, but in both cases the aim needs to be to send a clear long-term signal.

Electricity Pricing

We are likely to find ourselves in a future in which at some times and places there is excess demand for electricity, while at other times and places there is excess supply. Comparing different technologies on a cost per unit energy, or on raw energy savings, doesn’t make sense. I believe that the best way of incentivising the optimal mix of generation, storage and demand side management (which I think will be much more important than people think) is with transparent, time varying prices.

It may therefore be the case that a lot of the time the price is close to zero, but at times where there is low wind/solar the price is extremely high.

Unfortunately, time varying prices produce a lot of uncertainty for consumers and people that own assets (eg generators or batteries). The challenge for economists is to design markets that allow participants to manage this exposure, while still incentivising the right decisions (this is my research area).

Fairness

Historically, governments had a responsibility of ensuring that everyone had enough energy whenever they needed it, at a fair price. However, in recent times it has become less clear what we should consider a fair price, or how fixed costs should be allocated between different people. It is also unclear how to incentivise reducing emissions, and also ensuring everyone is able to stay warm or cool when needed. These questions are going to need more research.