Deployment vs Development: The Real Net Zero Challenge with Guy Newey (Energy Systems Catapult)

Hello, and welcome to Transmission. Today, we're joined by Guy Newey, who is the chief executive from the Energy Systems Catapult. I actually listened back to this episode in the editing process, and one thing jumped out at me that I'd originally missed, which was Guy's response to my question around invention and whether we had all of the technology we need. And there's kind of clear difference between invention and innovation.

And a lot of the conversation is really structured around the things that we need to do to bring some of the key technologies that we already have to bring benefits to consumers much sooner. The conversation also covers some of the key innovations they see at a system level. So how do we bring more heat pumps onto the system and we cover some of the really large debates that have been happening for example in Rima in the GB market. I particularly like the contrarian view.

So with no further ado, let's get into the conversation.

Hello, Guy. Welcome to transmission.

Thanks, Ed. I'm honored to be here.

Oh, that's very kind. And so starting in the same way as we always do, could you introduce yourself, the Catapult, and your role in energy markets?

Yep. So my name is Guy Newey. I'm chief exec at the Energy Systems Catapult. I've been at the been at Catapult for seven years and been chief exec for the last three years.

What's Catapult? So we're part of a network of Catapult centers in different sections of the economy. So you've got cell and gene therapy catapult, an offshore renewable catapult. And the job of these organizations is growth, is to increase the amount of innovation activity that's happening in these kind of strategically important sectors.

They're set up as independent not for profits. They get some government money. They do some private work. They do deliver some public innovation needs that need happening.

At the Energy Systems Catapult, we focus on how we're gonna make this energy transition work and how companies that we work with are gonna take advantage of it. We focus mainly on the demand side. So how are we gonna get twenty six million homes to net zero? How are gonna think about nondomestic buildings, public sector buildings?

And the second kind of homework question is, how is this all gonna fit together? How is this system this system actually gonna work? How are gonna make sure it doesn't fall over? How is it gonna be better for consumers?

Okay. And just to give a little bit of context on that, how long is the catapult been running for? How many people work there?

So we've just we had our tenth anniversary party last week at the Energy Systems Catapult. We're one of the younger catapults, and we've got just over two hundred and ninety people working with us. We've built a fantastic team, what we call kind of whole system team. So if you're an SME or you're a company that comes to us, we've got the kind of capability that could help with whichever problem you want.

So that could be we've got people who really understand the deep engineering, power systems, the networks, how all of those things work, the technology works. We've got people who understand consumers and consumer insight. We've got people who understand policy, digital modeling and thinking about future scenarios. All of those questions, the idea is we've got that capability so that we can kind of choose from the menu and help people out on their particular problem.

And and really a lot of this is around innovation. Right? Yes. So a huge amount of innovation across the sector.

I think if I if I then take sort of one step back from this and say, maybe say ten years ago, we really needed lots of innovation. It wasn't clear sort of how we were gonna do this this sort of transition to a net zero system. Now I feel like we've got many more tools in our arsenal that are actually pretty good and getting better. So maybe my my sort of challenge to this would be, actually do we do we need do we need more innovation?

Have we not got everything already in place that will do innovation between now and twenty fifty?

So there's probably no sentence that winds me up more in the energy debate than we have all the technologies we need, we've got to deploy them. And I it happens on panels all the time. I think it's actually quite a lot of government thinking has been things like that, and I think it's so far from the truth. First thing to say is you're absolutely right here.

We have made incredible progress on some key technologies over the last fifteen, twenty years since I've been working in energy. You think about electric vehicles were just, you know, the mid two thousands. They were what are those things that fell over when they went round called gee whizzes, milk floats. That's what you thought of when you thought of electric vehicles, and now you think of the competition going on.

Incredible success story. Still loads more to do. Solar, massive success. Wind, also hugely successful. But you think about all the bits of the economy that we've got to transform.

You think about flying and sustainable aviation fuel. You think about electric planes, how they're gonna work. You think about where nuclear is. You think about what we need to make progress on CCS.

All of these areas, different parts of the economy, how hard it is to get a heat pump installed, all of those things, they need innovation. And when I talk about innovation, it's not often gets confused. There's this kind of sense that you've got invention. That's really early stage new ideas.

Innovation is like how are these technologies put into the market and delivered in a way that works for consumers. And right now too many technologies are too expensive, they don't work for consumers and you need innovation on all of that across the board on on the energy sector and beyond to if we've half a chance of getting to net zero.

Mhmm. And maybe let's put an example on this, let's make it real. So what what is something that the Catapult have worked on over the last ten years that has really been a standout example of a startup coming through or innovation in a large system that you're really proud of?

So it's like trying to choose your favorite child. You know, we've worked with probably two hundred and fifty plus innovators where we've done some kind of substantive piece of work and they've raised whatever it is at the moment, six six hundred million quid in different ways going forward. The areas where I get most excited, and actually there's still a lot of promise to fulfill, are technologies which are enabling the kind of flexible digital system that we're talking about to actually to actually happen in in place. And lots of those are on the kind of cusp of being hugely successful. Right? So you got a company like Equiwat who are based out of Gateshead, kind of spin out of some of the universities there, and they're about virtual power power plant in people's homes. So they they've got an app which, you know, is connected to the devices.

Now joined up with the wider markets, etcetera. And we've helped them along along the way, helped them progress going forward to develop their app. So it works with consumers to think about how it's gonna work with the wider system, help them raise money, help them go international now. I just heard last couple of days that they've got a contract in Singapore, which is really thinking about smart buildings in a sophisticated way. So I've got loads of little examples of companies like that who are just putting little bricks in place so we can move to this kind of digitalized flexible energy system going forward. And that's what we get excited about with the catapult.

Okay. And you said you kind of mentioned within there sort of two hundred and fifty Yeah. Was that sort of ballpark the right number of of say companies that you've worked with?

Yeah. Yeah. That's right. And some of which don't exist anymore, right? Big part of our job is helping companies get into next stage and turns out it doesn't work out for all sorts of reasons.

Mhmm. You'd you'd expect if we had a hundred percent success rate, first of all, we should all be in venture capital and making a huge amount of money out of it, but we get it wrong as as often as we as we get it right. Yeah. And what they need is is very different.

Lots of them will be thinking about different business models, thinking about how they're gonna make money in a particular environment. Some of them will be helping test with consumers. So we got six thousand real homes with people who put their hand up and said, you know what? We will allow people to come and test new technology, new ideas with us.

They find out very quickly whether consumers like it or not. It's kind of classic early stage innovator trap who think they get really excited about the tech and realize there's no actual customer for it. So part of what part of our service is is testing whether people actually like what they're putting forward.

But let's be let's be really clear like that that is a very good outcome, right? So getting money, getting support into businesses so they can actually test the thing as soon as possible is a really good outcome. So of say two fifty businesses, if a hundred and twenty five of those have failed, like for me I think that's a good outcome in that you're not necessarily continuing to kind of put more time, more money, more effort into something before it actually gets tested because the thing you should be doing as soon as possible is working working out, hey, look, have we actually got the the kind of core of a good idea here?

Yeah. And if you've a core of a good idea, let's run with it. Let's push it hard. But if it if it actually is not a good solution Yeah.

Then the sooner that we test that and then move it off road maps, the better. Because what we don't want to see is kind of when when we go and think about sort of future systems Yeah. Who here we go. We've got seventeen different ways that we could do an zero system and then we get sort of paralysis because we never know which one we pursue.

And actually, it's much better to kind of test these things at an early stage and know, okay, these ones are working. But there's still more innovation to come. But actually, we've got a sort of we've a bedrock of of a way forward.

And that's absolutely right. And that's why we use our models, why we used our living lab, our test facilities so that people can get that and our expertise so people can get that feedback quickly. One of my favorite examples is a company called Caldera who do heat storage, thermal thermal heat batteries, and they were focusing initially on the domestic market. They thought there'd there'd be potential and there still is potential on there when you're talking about people off off grid and people who've off the gas grid, who people who've got space, etcetera.

But actually, partly because of their price, partly because they've got a good team and they were thinking it through, we're helping them on this journey. They kind of pivoted toward nondomestic market. Saw a bigger opportunity, saw that they were actually fulfilling a need that wasn't elsewhere and actually the technology match. We sped up that journey rather than banging their heads on the wrong doors for a long time.

Mhmm. And that helped them. They just got ten million quids worth of investment, etcetera. That's the magic for us.

That success is helping the people who are launching SMEs, innovators, helping them navigate to to a few to where they're providing the value to the system and also helping them grow, helping them get, you know, hire new people, all of those things.

And maybe last question on this. Of those sort of two hundred fifty that come through, what does the what does the the pie chart look like? How many go on to be successful and raised? Ten million? How many kind of go, actually, you know what? We tested it. The idea is not gonna work.

What does the So it's it's it's I'm try I'm trying to I'm trying to visualize it myself with the office in Birmingham.

We've got a kind of innovator wall. Right? And we have, you know, of those two hundred fifty, big chunk of them up there.

And there's probably there's probably a good ten or fifteen out of two hundred are up on that wall who no longer exist, something like that. Okay. But it's most of them, and this reflects the wider market circumstances, are in that kind of getting potential to scale kind of stage.

Okay.

And that's the hardest bit. Mhmm. That's the thing where you gotta worry about your cash flow, obviously. You're not sure about the markets. But right now, for lots of them, the kind of the market pull is not quite there, particularly in flexibility, distributor space. Now all the modeling, all the analysis will tell you it's gonna be huge in five, ten years time, but they're in that kind of wait and see space. So you've got you've got some who haven't failed or people have exited for what for whatever reason.

You've got some who have raised money. You've got some who are now, you know, really good kind of twenty, thirty million pound a year businesses found their niche, etcetera, going forward. But I'll be honest, I haven't got anyone who is kind of, you know, absolutely smashing through the kind of unicorn stage but that's partly reflects the market dynamics in the market situation.

Okay.

Interesting. And in terms of the most promising innovations, so when we look at say the road out until a net zero system, what are the things that get you most excited?

So I'm not gonna talk about the upstream technologies like we have a view on SMRs and CCS and all of those things but that's not the area where I get super excited by. I get excited by people are gonna provide great low carbon heating solutions in homes. So actually being able to control their heating well, which is a massive problem. Most people's thermostat is a is a nightmare if they have a thermostat.

So the the combination of digital technology and low carbon heating technology and providing a better, more controllable solution, that's really exciting. You've got companies like Homely and Geo who are all in that kind of smart control space, passive or another one are doing really well. So that's a market that's about to take off. And then the other one that I get super excited about is is is the kind of interface between where the networks are and where the kind of consumers are.

So that kind of, you know, grid edge space which again was one of the most boring parts of the energy system for a long time, now the most exciting. Got a company up in Northwest in Chester called EA Technologies has been around a while. They're thinking about better monitoring of low voltage network and and then thinking about how that's gonna be controllable, how that's gonna allow us to avoid some of the network build, all of those questions. So you've got you've got two areas which I'd say, you know, very pregnant with possibility.

Yeah. Okay. No. Really interesting.

I think that we we definitely kind of feel the same way about some of those innovations and particularly some of the stuff that's kind of in the home. I think in part in part because if somebody innovates a interconnection that allows it to say run at a slightly higher efficiency percentage, someone in their home doesn't necessarily see it. Yeah. They don't really feel that the transition is happening.

Yeah. I suppose if you're in your home and all of a sudden instead of being stifling thirty one degrees in summer and then freezing at thirteen fourteen degrees in winter, actually you have the ability to at low cost be able to have a better quality of life. I think that's a massive that's a massive outcome if if that can be if that can be done. Yeah.

So so super interesting. Maybe going I think you've of focused on some of the consumer focus pieces. Maybe going to some of those bigger the bigger parts of the network and the wider net zero strategy. Yeah.

Like what are what are the things that we're missing? Like how can we fix some of the problems that we have in in in the system?

Well, if you you spend a lot of time with people who are trying to come up with innovative solutions in the market, the number one thing that it always comes back to is is the incentives are in the wrong place. And that matters if you're in the domestic side, but it matters all the way up and up and down the grid. Right? And that's not just about the electricity.

That's about the whole energy system. So we have good incentives in place through things like the CFD and carbon pricing on on electricity. You know? And so guess what?

That's the area we've seen biggest progress. We have absolutely terrible incentives. In fact, we're effectively subsidizing pollution in areas like agriculture, low carbon heating, industry, etcetera. And if we don't have those incentives in place where doing the low carbon thing is rewarded, then we're not gonna get anywhere.

Right? Because the market for people who are gonna pay for a for a heat pump when it's more expensive to run than than elsewhere. They it's just just tiny. Right?

You know, that kind of that kind of green caucus as it were, you know, you're probably talking about five to ten percent in the market even even then.

So the most important thing and the thing we're furthest away and I, you know, I put it quite starkly. I don't think we're serious about net zero until we're serious about getting the incentives right for for low carbon. The low carbon choice therefore being the being the right choice. And I I used to be a political adviser. I fully understand why those choices have been made. The politics is tough. But again, if we're again, if we're not gonna do that, we're not gonna capture the benefits for the companies and we're not gonna make the transition at the pace that we need to.

Yeah. And also it's potential to be sort of significantly more expensive. So I think we are very aggressive within the electricity system in terms of getting as much carbon out of the system as possible. And to get that to a a sort of net zero system, the costs, you know, you pick up the low hanging fruit first.

Right? So you so you deal with your, say, middle of the summer generation first by adding solar. You can deal with your wind generation by adding wind, and then you can add things like storage to sort of better manage the supply and demand balances. There are then harder and harder periods to deal with.

So this all ends up in a period where you get potentially two or three weeks in the winter where you don't necessarily have any solar, any wind. And it would be very expensive to get a battery big enough to cover all two weeks. So so you then get to this point where you say well, okay, how do we deal with that? Well, we could do things like retrofit CCS on or we could do some hydrogen to power.

Yeah. And those are some exciting options.

But to your point about agriculture or transport, if we are having to spend say five hundred pounds per ton of c o two to get that done when actually we could be doing something that's lower hanging fruit over in agricultural transport Yeah.

Then like what what the hell are we doing? Yeah. Why are we spending so much effort on that final piece of the puzzle when actually the electricity system could be more impactful by making connections available and running at lower cost to enable agriculture, to enable transport? That would move us a lot faster than getting rid of that final two weeks of it.

I think that's absolutely right. There's there's a couple of points I'd raise from that. First first of all, you know, things that we have very strong confidence about is that electricity is gonna become a much more important vector than it has been. I mean, it's already very important, but it's become much more important. It's gonna be important for transport, for heating.

Every time I spend any time with people doing industrial decarbonization, they're leaning more towards electrification and and other areas to support that. So your key is gonna be how are we gonna provide a reliable, low cost electricity system, which is gonna drive the transition in the rest of the economy. That's absolutely essential. And your second point is absolutely right, is not trying to plan exactly where we think the where the decarbonization should happen.

Actually, well, let's get some market signals and we'll reveal choices between different parts of the economy. And you know what? Bet on innovation because people will find clever ways of producing food with a lower carbon footprint. You're already, you know, seeing that in lots of sectors. They'll find ways of making plane flight more efficient so that will reduce carbon, etcetera. But if they haven't got an incentive to do so, they'll really they'll really struggle. And yeah, you still need subsidies and early stage support for innovations, absolutely.

But if you've got that market pull, then you got much better chance of success.

And one of the most glaringly obvious parts of this feels like the in in the heat pump sector. Yeah. So the the higher cost of electricity relative to gas. Yeah. And that being as wide in GB as is for almost anywhere in Europe and how that limits the rollout of heat pumps within GB. Is that something you think that we can address or is that kind of too baked into the kind of the fabric of things that we're never gonna be able to change it?

Well we absolutely have to address it.

I mean you know, again we spend a lot of time talking to heat pump innovators, they wanna know whether they're gonna have a market of a hundred thousand heat pumps a year which we've got at the moment or whether they're gonna have a market of one point five million which is what the boiler market is, that kind of replacement You're talking about installs per year?

Yeah, installs, yeah. So in the UK you do, it's been a significant improvement, we've got up to basically one hundred thousand a year installs.

And if you have the gas boiler market which is one and a half million replacements a year and that's what we need to get to do that. And if you're an innovator, you're thinking, well, have I got a market that's that big or that's that big?

And so therefore am I going be able to get investments, scale up and all of those things? And right now the sell is tough. Know, if you're someone say, okay, get a heat pump, you get a kicker from the government of seven and a half grand, great. But unless you're getting a high level of efficiency, it's gonna be more expensive to run than your gas gas boiler. Now if you're lucky enough like me, get a kind of really good installer.

Wes at West Hampstead Plumbing and it'll get me a scope of four on a nineteen twenty's not very well insulated home and we should be aiming for that standards, another area of innovation. And so probably net net, I'm saving money on a on a basis but the system was expensive. So again, we've got to get these incentives right. So you've got a mass market offer which is gonna be that's gonna be cheaper to run than gas boilers. And right now we're loading all of the costs onto electricity and so including some historic costs to do with early stage innovation of wind and solar which help bring the cost down but is innovation spending and why should kind of bill payers be facing the costs of subsidizing the early stage innovation? Like right now is these are mass market technologies and they should be they should be, know, the cost the cost should be paid through there but you know, think about what you do to get bills down, taking some of those costs off would be would be essential.

And when you talk just to explain it to people, the coefficient of performance of four, what does that mean?

Sorry. That means that's the how efficient your your heat pump is. So heat pumps, this extraordinary property where they take one unit of electricity and they take energy from the from the air or from the ground and the kind of average at the moment is about two point eight three units of heat from the air compared to the electricity. So they're getting, you know, you're getting three units of heat out for one unit of electricity in.

Right now the way that prices are between electricity prices and gas prices, you need to be getting kind of three point eight I think something like that or higher in order for the running costs to be to be equal.

Okay.

So it's almost like this magical property where they can borrow or they use one one unit of electrical energy Yeah.

And they turn that into four units of of heat energy Yeah. In in your home but in others, can vary. So as you said, the average was two point eight.

Yeah. We did we just did a huge trial, seven hundred and fifty heat pumps trial, lots of different homes, lots of different building types. So flats, old buildings, of Victorian buildings, new buildings, etcetera. And the average, which kind of reflects where the industry is now probably was an efficiency of of two two point two point eight, so two hundred and eighty percent.

Now lots of people we talk to in the in the industry go that's rubbish. You absolutely could be for some better training and other interventions could be getting that much higher. That's again an area of innovation. And again you think about the system, if you could get that efficiency higher, you'll need to build new generation and new transmission will be reduced.

But it's uncertain because it's kind of are you gonna have high quality installs? Which is why, you know, part of the reason energy is such a fascinating question because one success in one area is gonna have knock on effects for the rest of the system.

Okay. And let's stay on the heat pump within the home or the concept of adding a heat pump to within the home to essentially reduce the cost of heating your home.

Within this government, how do we get cost down for consumers?

Yeah. So this is probably one of the top political questions that the government has to has to face, know, my old political adviser hat on, you know, certainly be worrying about immigration and how that works, but getting the cost of energy down, the cost of electricity particularly is is a huge challenge. And you've got you've got a few options in the in the kind of short term, medium term, and and long term. In the short term, beyond fingers crossed, let's hope the gas price falls, which which would be welcome for everyone.

Your real only policy choice is whether you can move some of the policy costs on electricity somewhere else, ideally into general taxation so that you would you take off probably hundred quids worth of cost from those early stage innovation sports, so the renewables obligation, the feed in tariff which supported people having solar panels on their roofs, etcetera. If you put those into general taxation, you took them off, you'd probably save a hundred quid off any everyone's electricity bill. You'd make manufacturing and industrial energy more competitive or they they're doing some protections related to that.

And you could probably offset some of the cost by that by actually introducing some kind of carbon price on the gas side, the kind of heating gas heating side at the moment, which right now we are, as I say, subsidizing people to pollute through gas boilers, etcetera. So even if you started that really low and increased it, now that short term, the various other minor things you can do but short term, that's the only game in town. I think that that will be resisted by parts of government particularly the treasury but if you want a political win and by the way you then also want to incentivize all the things we've talked about in terms of innovators, that's the most important choice that you've got going forward.

Medium term, you can they've very sadly, very disappointingly just taken zonal pricing off the off the table. But you've got to find a way to take advantage of zero marginal cost technologies, whether that's renewables or nuclear and the kind of emerging flexibility technology is not really emerging anymore, but batteries and the kind of huge success we've seen in that area. You've got to find a way that consumers can benefit from that low cost area. Now the more renewables you put on the system, that'll help reduce the wholesale costs.

But the question is how much are you paying for those new renewables? How much are paying for those transmission? And, you know, we've fought a pretty bruising battle to do with do with zonal pricing and and that introduction, we're now kind of licking our wounds and working out what some of the alternatives might be but there'll be second best alternatives. There'll be things that you will do after you've already decided the kind of fixing the system after the fact rather than fixing it before the fact.

Yeah. I think it's I think that's a really interesting part. So essentially, you're saying there would be some, say wind generation or it could be gas generation, it doesn't really matter what it is. But effectively some generation that exists say in Scotland is the classic example where effectively you have too much generation and not enough transmission capacity to get it down to the south. And so effectively you either turn down that generation which is either in nearly all cases is a cost to consumers and consumers across all of the country. And so you're saying we need to find some way of getting more demand into that region. And so if not a market that sort of bakes it into the wholesale price, like how else could we do that?

You know, there are various there are various different ways that you could that you could look at it and being proposed. First thing I'll say is just a really important clarification is we're gonna have to build a lot more transmission and distribution. Right? We're gonna double, maybe treble the size of our electricity system over the next thirty, forty years.

We're gonna need to move that energy around They've already baked in more efficiently.

Eighty eighty projects ish?

It's a huge number. What's gonna be really important for costs is are you keeping that number of projects to a minimum and are you doing it at the right pace that matches where the demand? So which is why strategic planning is a really important introduction in energy system, which we've kind of been missing for ages and we've advocated for. But it's not a substitution for markets and market signals, which gives you as you see in markets where which have much more granular locational signals like Texas, for example, you see technologies to solve the problems you're talking about coming forward and actually, you know, absolutely absolutely booming.

So things are on the table. You'd so you've got kind of better strategic planning, although I would be really, really cautious, and I saw your excellent episode with various members of the NISO episodes with members of the NISO team. Like, let's be cautious about how much we can plan. If we've been sat here in this conversation fifteen years ago and you said solar's gonna go gonna absolutely tumble in price by, you know, whatever percentage it is at the moment, batteries are gonna do the same, wind's gonna fall.

There would have been a lot of skepticism around at that point and so you would have planned your system differently. We've gotta be humble about what we know ten, fifteen years, twenty years out about technology. So better planning is a really important part of whatever happens. We're gonna need better signals in kind of the balancing market, so what happens after the wholesale market, that kind of the the way that we kind of fix the problems that are being created by the wholesale market.

We need to think about interconnectors and how we use those flexibly. We've got to think about how we use new technologies, smarter technologies to get the most out of the distribution system, the transmission system, all of those things. And we've got to think about all of those together to to move forward. There's there's loads to go after.

As I say, I'm still pretty bruised from the zonal debate, but from a technology point of view, you're optimistic. So it's a case of right how can we get market signals to encourage those to come forward.

Yeah. And I think there's a really sort of interesting thing going on within industry at the moment where you have half of industry let's say wanted zonal and let's say half wanted national and just just in theory. There's a there's an element of when the decision gets made, it was so hard for and so tribal Yeah. That it almost feels like you might just say, oh look, you know, you asked you asked for it, you've got it.

And there's an element of actually, okay, now we need to have a much more nuanced debate around how we actually do this. How how do we bring the best elements of of a zone or market or the the the elements of market design into something that is a reform national so that actually we can do the whole purpose of all of this, which is to get cost down for consumers.

Yeah. I think that's right and that's certainly the the there's there's the temptation to kind of for those of us who who who lost this this the arguments to step back and say, okay, you know, good luck and and and to do that. But one one thing I would say is that the way that the the process work that got us into this kind of titanic struggle between zonal and reform national market actually forgot that there's reforms beyond that, the wholesale market, which are really, really essential to do with, you know, reducing from a half hour window of trading down to five minutes. There are other options to do with CFD reform that you might have more locational signals, etcetera.

The things that we need to do with Europe in terms of interconnectors and working through that. There's loads of innovation that we should be kinda considering, etcetera. So the the oxygen did get sucked out that debate by the kind of, you know, the the almost Serious. Debate about what she's right or wrong.

So actually, there's an opportunity to come to come forward. But I might think might take a couple of weeks off just to Yeah. Just to Yeah.

There was there was sort of definitely tunnel vision.

Maybe maybe to go kinda one step further. So on the to go from sort of national to zonal to to to nodal Yeah. I think the one temptation for consumers might be, hey. Look.

We've we've heard about energy cost being being reduced. And I I just I don't believe Ed Milivan is gonna get this done. So I'm gonna take it into my own hands. I'm gonna go solar, battery, heat pump, EV.

I'm gonna pay some capacity charge to the network but that's that that's me done. Yeah. I've I've kind of you've had your chance to fix the system. I've now got things that are cheap enough.

I'm just gonna do it myself.

Yeah. I think that's I think that's gonna happen. And by the way, I think it's gonna would would have happened anyway without without Zonal going forward. And I don't think people actually spend any time really thinking about whether this is one in the eye to the government and Ed Miliband in particular.

I just think people respond to respond to signals, and they'll be thinking, right. If I'm lucky enough in a position where I've got capital available where I can either use my electric vehicle, I can use solar, I can get a low cost battery and the costs are just incredible seeing that. And I can see actually a very small residual energy bill possibly, you know, and even the low carbon heating system probably, you know, kind of five, six, seven year payback I've seen on some people who've optimized their system well, although that's the you still have to be a bit of a kind of your own engineer to work out all of that and and some of the companies that are gonna make that easy for consumers are gonna thrive.

I think that's gonna happen anyway, right? Just because of the cost reduction curves going forward. Your question is how are we gonna make sure that's not just rich people who benefit from that? How do we make sure people who don't have as much money are gonna benefit from that transition?

But that's the way the technology is is leaning.

The system question therefore is how does that how do you make you know, how do you solve that two weeks, three weeks, no wind problem? Like that's the biggest innovation challenge. We see it from our modeling. What's the right balance of technologies which gonna which which is gonna solve it. But that much more distributed vision of where the energy system is gonna be, I think is inevitable. I don't think that as a as a sector in the UK, we've really woken up to how that's gonna happen or how quickly that's gonna happen.

But let's let's take on those those kind of two those two final questions I think. So the first one is I have let's say I've got ten thousand pounds I decide to you know, do things to my house, solar panels, heat pump, battery, EV. Yeah. Like ten thousand pounds is not gonna do all of that actually. Sorry because you've got an EV in there which is depends what you buy.

But essentially there's there's cost in there. But I decide to do my own house. How do how do you make that fair for everyone within the system? So how do you make sure that they're not just kind of sitting outside the system not paying any money and just effectively when their little home system runs out of juice, they just lean on everyone else and they kind of Yeah.

Are leaning on a very socialized cost. So that's that's one one question. Then the other question is totally the other end of of the scale which is actually from a grid scale point of view. One thing that gets mentioned on this is things like CCS or hydrogen.

Why have they had such a sort of checkered history up until this point and and like how do we actually get those things to work or or do we get those things to work? I mean, the answer could be no.

So how are gonna solve fuel poverty and Yeah. Sorry. What we're do about upstream technologies? Couple of couple of little questions just to work through.

Absolutely the right ones. So on the on the vulnerable side or the the fuel poor side, there's there's a couple of things to say. One, you know, the way we design schemes at the moment is we are not great identifying the people who are real in real vulnerability. We've done a brilliant program over the last few years called warm home prescription, which uses which combines kind of health service data.

So people who've got emphysema, COPD, and helps you identify the people who are most in need. So joining up with the health service and the energy system, we're kind of at the early stages of that, but again, using good data, using digital platforms could be absolutely transformative. So we identify the people who really benefit from help. And by the way, we save a load of money because if you keep people out of hospital, that's where the super expensive costs in your health system are, etcetera.

So we should be tilting our support schemes towards that. We should be being more relaxed about the technological mix which are support scheme scheme support. So you're still gonna have a big role for energy efficiency and other areas, but also that people are able to get solar and batteries and a kind of combination of that technology going forward. And the third thing to say is innovators will fill this space if they think there's a pool for for vulnerable consumers.

Right? And why am I confident about that? So people will think we'll work with social housing partners to deliver it. They'll think they'll join partnerships with private sector so you've got a kind of zero upfront cost which is paid back over a particular period of time and is a really important and we're seeing innovators in that space.

Again, it's it's an innovation in business model, not an innovation in technology because we'll be better at monitoring whether heat systems are working well or or smart systems are working well in people's homes, etcetera. You know, you saw it with double the double glazing market like people people got a demand for things, people will work out a way of sorting out the finance up front, etcetera. So again, it's focusing on good consumer outcomes. So that's the kind of, you know, vulnerable fuel poverty bucket.

Your your other kind of system question is how are you gonna solve for, yeah, the kind of, you know, peak heat challenges, etcetera, but also other sectors. And that's why, you know, our modeling would still see a very big role for nuclear, still see a big role for CCS, particularly related to other other technologies. You kind of asked why why CCS had a checkered history. Well, I mean, you compare it with renewables and people say, well, look where CCS is and look where renewables are.

And you go, yeah, but renewables in UK have had, best part of ten billion quid a year for the last thirty years thrown at it, right? And CCS, if we're honest, we're through various different canceled competitions and it's an early stage technology, it's working elsewhere but it's still at the kind of innovation stage.

And I was in a room where one of the competitions was canceled after a very brief conversation. It's it's absolutely, you know, we've got to get some of this stuff in the in the ground. And this is part of, you know, back to your innovation question at the start is the transition is huge. You know, transforming the economy, the entire economy energy economy to a low carbon system is is an absolutely massive undertaking. It's much much cheaper than we thought it was gonna be fifteen years ago, there's been great progress in technology but it's there's still big gaps and we still absolutely have to be making progress on technology across the board. And CCS is a crucial part of that because it's a it's a technology which has loads of great system properties. It's useful for power and kind of dispatchable power.

It looks potentially really important for industry and heavy industry and how that works, but you've got to get that geo geography of that working, etcetera. So it's a kind of classic systems technology which everyone feels a bit uncomfortable about because there's no one's quite, you know, absolute first choice. But if you think about how you get the system cost down, it's potentially a really important one. And the only way you'd learn about it is you have to deploy these things.

You can look at the models and etcetera but to learn about the technology, you have to build some stuff. And for lots of bits of the energy energy transition, we're still in the let's build stuff and learn from it. Hydrogen for power, you know, great. Looks good in the model.

Well, let's actually work out whether we can do it. Can you get the storage right? Can you get the development of the of the pipeline that you're gonna need? All of that working well together.

It looks like it's important and it's all back to are we really serious about this transition, right? And if we are then we need to be pushing all these innovations across the board.

These are such battlegrounds like the CCS battleground and hydrogen to power thing and then I think to the point around innovation is actually could we have taken five million, ten million pounds, which obviously sound like a lot of money and they are. But could we have taken them and and pushed harder earlier with full transparency and seeing whether these things actually had more of a chance? Yeah. I think that that as data could have been very very useful in terms of steering people's plans.

Other parts of the world do this quite well. Think sort of AEMO in Australia did a pretty good job of being really transparent around funding and innovation funding. Would love to see something similar to that in in GB. We we do have an element of it, but I don't think we're quite as transparent as as as as their approach.

The bits of that improved actually, one of the things that I kind of was involved in starting when I was in in government was much greater transparency on where the innovation is spent both by government but also by Innovate UK and the research councils and UK research and innovation. There's there's actually, you know, you're talking about billion billion and a half is spent every year on net zero innovation broadly science and innovation across those institutions. It's not coordinated well enough. There's been big improvements in that but it's still not coordinated well enough. And what that means is you end up spending little little pockets of money on little projects whereas I think we're probably at the stage where we've got a good sense of where the big innovation needs are. They're around long duration energy storage.

So, you know, batteries are a huge success but what are we gonna do for inter seasonal? They're around some of the nuclear innovations. They're around hydrogen for power. They're around CCUS and they're around the broad set of technologies and it's huge around flexibility and how we're gonna harness the potential of digital technology to make this system work. Now we don't know which of those areas will win, but we've gotta be making progress on all of those. And that means coordinating how we're spending innovation money as well as getting market signals right.

Okay. Moving on to final two questions.

Okay.

First one is, is there anything that you'd like to plug?

Yeah. I'd like to so we do loads of brilliant work at the Catapult. One I'd like to plug at the moment is platform that we've created called Net Zero Data. So one of the challenges particularly around local areas and the decarbonization of local areas, which we've done a huge amount of work on is getting good data about the energy system locally.

So where should we put solar and renewable assets? Where should we think about low carbon heating, etcetera? And part of the problem has been is really hard to get data, it's all in disparate places, etcetera. Over the last few years, we've worked really hard to bring all that data together and we put it on a platform called NetZero Data.

We've joined up with innovators like Advanced Infrastructure, kind of visualization platform out of of Cambridge and so that we can provide the tool, the data and the tools so that people can think about the transition in local area, where we're gonna need EV charging etcetera. So have a look at net zero data, very low cost way of accessing all that data.

Okay. Great plug. And the final question, is there a contrarian view you hold something that you believe that the majority of the market doesn't?

I think CFDs contracts for difference to support renewables have had their day.

I think it's been one of the best innovations in terms of driving innovation in in solar and wind and all the progress and growing those industries. I think and this was part of the zonal pricing debate.

I think that that is not a sustainable way going forward. I think I'm I think the number of people who think that in the energy industry is pretty slim and certainly anyone who's in the kind of CFD contract but I think we need a total reimagining of how we're encouraging low carbon generation and I think CFDs were absolutely perfect for what they did and we need as was the original intention to find a way of evolving our markets out of there.

Okay. And just so so we have Fuse on this as you might imagine and it's because when you're looking at batteries, right, you're always looking for these kind of sharp signals in the market. So the highest price, the lowest price. CFDs do this really weird thing where you get lots of zero pound price intervals that come into your market.

And then because you don't pay out contracts for difference when the price goes negative, the behavior around the kind of zero pound price point is really can be really sharp. And so you can get some very different prices between your day ahead market, which is the reference price, and then markets that get closer to delivery. And and it just throws up this world of kind of weird things and to take it kind of one step further on outside of the battery world, you've also got the interconnection world where you have things like we can we subsidize wind in the UK for zero pounds, which we then export to another country at at which pays some money to the internet interconnect capacity and the person who's bought the interconnect capacity, so they get some money.

But effectively, money goes from GB subsidizers to other grid and I think that is like that's a huge concern, right?

It's at you know, the price signals not working properly in the market, right? They're not there there, you're getting inconsistencies. The CFD example is a is a good one. Right?

We've we've made a political policy decision around zero being, you know, the number that we we we, you know, don't pay out in the same way for all sorts of perhaps sensible on the face of it reasons, but that hasn't has an effect on the market, which we probably didn't intend. You know, negative negative pricing is a really important signal into the into the market, and it's giving people information that they can respond to. And if you dull those signals, then you'll get less of the response than you actually than you actually want. You know, what's that cliche in energy, you know, the best or indeed in in economics like the best solution for high prices is high prices.

And that's the same with with low prices, negative prices. Right? People will take advantage using their technologies of these different signals and we should be relaxed about allowing that to happen.

I think very contrarian for energy markets. Contrarian on this desk, I agree with you. So yeah.

Oh, well, that's that's good. Well, let's let's let's win an argument.

Let's go and win the the policy argument.

I think it's it's it's one of those where whenever I've kind of been on a panel and suggested it, I probably get the most kind of no way that's absolutely gonna kill the energy market.

That's that's that's that's key for panels. This, you know, that's what you need.

Exactly.

Good. Guy, you very much for coming on. It's been a real a really captivating sort of coverage of all things systems thinking and where the market's going. So yeah, thank you for coming on.

Thanks Ed, it's been brilliant.