When the iPod and iTunes were launched in 2001, they changed the music industry forever. Imagine sitting on the board of HMV in 2000, laying down plans for a major investment in new, high-street megastores which – unbeknown to you – will shortly have their revenue base pulled from under their feet. That boardroom is where we are with the UK government’s energy policy.
The iTunes of the energy sector is solar power and batteries. The costs of solar panels are tumbling and solar-generated electricity is already the same price as electricity bought from the grid in most sunny countries in the world. Citibank has projected that solar will reach so-called grid parity in the UK as soon as 2020. The Wall Street analyst Sanford Bernstein predicts that within a decade solar will have fundamentally transformed the nature of energy markets across the globe as its costs continue to fall.
Cost reductions in batteries support rapid advances in solar because batteries can store solar-generated electricity and enable it to be used when the sun isn’t shining. Barclays predicts that solar and battery combinations will reach grid parity for 20% of US consumers in four years.
After the iPod came the iPhone. In the energy sector, we have smart technologies that integrate digital and communication tools into devices such as meters, thermostats, appliances and lights, enabling demand for electricity to be managed and reduced in real-time.
These technologies can substantially increase the efficiency with which electricity is used and produce significant reductions in bills. The smart energy technology sector includes some of the world’s biggest technology companies including Google and, of course, Apple.
The record stores in the metaphor are the utility companies; their centralised business models, based on large-scale fossil-fuel power stations, are being undercut by solar, batteries and smart technologies as well as by other new technologies such as onshore wind. The value of the largest 20 utilities in Europe has been cut in half over the past six years owing to the current and projected impacts of these new technologies. At the same time the credit ratings of utilities across the world are being downgraded.
Our government should be seizing the opportunity from these new technologies. This requires major reforms to how the energy system operates and is regulated, so that they can compete on a level playing field. For example, the networks that are used to transport electricity were constructed to support large-scale forms of generation, and not to integrate small-scale solar and onshore wind or smart technologies that adjust when there is demand for power.
Instead, as our new report shows, the government is focused on supporting large-scale generation technologies, on which the dying traditional utility model is based. The government plans to levy £7.6bn a year from energy bills by 2020 to fund investments in low carbon generation. But it is prioritising nuclear power and offshore wind farms while restricting investments in solar and smart technologies. We need nuclear and offshore wind power but not to the exclusion of the new distributed technologies.
Developments in solar, onshore wind, batteries and smart technologies give us reason for great optimism. They hold the key to a cheaper, cleaner and more competitive energy system that works better for consumers. But they are being held back by policy that is proppoing up the large scale utility business model. It is time to break with the past and embrace the brighter future that these technologies offer.
Reg Platt is a senior research fellow at the Institute for Public Policy Research
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This article is part of the Guardian’s #bigenergydebate series. Click here to find out more about this project and our partners.
