New Thinking Blog: UK Energy Security and Supply Chains

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on Jan 15, 14 • posted by

New Thinking Blog: UK Energy Security and Supply Chains

Richard-Hoggett-blog-smallerUK Energy Security and Supply Chains

Richard Hoggett, IGov team, 15th January 2014

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This blog draws it findings from a recent open access paper on technology scale, supply chains and energy security.

The need to decarbonise our energy system, ensure energy security and maintain affordability are the central goals of UK energy policy. Although, both David Cameron and Michael Fallon have clearly indicated they see energy security as being the main priority within this trilemma. The UK is not alone in this stance, as energy security is a central and high priority policy goal for all nations and many describe it in respect to the uninterrupted availability or provision of energy for vital services, although in reality the issue is far broader. To ensure security at affordable prices, energy systems need to be able to withstand shocks, such as natural events, failures (technical, human and market); as well as longer term stresses such as resource competition, ageing infrastructure and changing patterns of global demand and supply. All of these factors can also combine.

I recently blogged on some of the findings of the above paper to show how smaller scale technologies like PV might be better for the UK’s energy security, than large scale alternatives like new nuclear. This blog sets out some further findings in relation to energy security and supply chains for large and small scale technologies.

At a macro level, energy systems are a supply chain, made up of multiple and interrelated sub-chains relating to suppliers and customers, based on different fuels, technologies, and the infrastructure that connects them; as well as the materials, labour and equipment needed for the development, manufacture, installation and operation of the system. These have evolved over many decades to meet society’s needs for energy services and they are complex and dynamic and are shaped by the policies, rules and regulations that are in place. They face a range of risks which vary with time, scale and location, and these increase as a result of globalisation. Shocks and stresses can be experienced by individual companies and/or on a system-wide basis, impacting supply chains at multiple operations over wide geographic areas. As such a focus on supply chains has considerable synergies with studies of energy security.

The issue for the UK is that our currently supply chains, which are dominated by fossil fuels, are prone to inertia and are increasingly struggling to provide energy security, affordability or reductions in greenhouse gas emissions. We need new low carbon supply chains that are adaptable and flexible to changing system conditions and other technology developments.

From a technology perspective there are a range of factors that can influence the development of a supply chain, including bottlenecks or constraints, from the source of raw materials through to decommissioning that can, without mitigation, impact on the scale of development, deployment or operation. These are important because technologies can only develop as fast as the tightest supply chain bottleneck allows. There can also be more pervasive cross-cutting issues that impact across different technology supply chains, including policy confidence, sufficient skills, and access to materials.

At a high level, risks increase if a supply chain is reliant on a limited number of companies, technologies or markets, whereas resilience increases if the number of companies, networks, connections, etc., is large, as this creates alternative options for bringing forward a low carbon technology at an affordable cost. This requires policy makers to put in place effective technology and wider policies for rules and regulations that create an environment that increases the ability or willingness of companies to participate within a supply chain.

The link to technology scale

Many of these issues relate to technology scale and it is apparent the current Government is bent on maintaining the status quo of working with large incumbents in a centralised system; not least through the development of nuclear power (and now shale gas). For a number of reasons, a focus on smaller scale supply chains like PV, might be more sensible approach to ensure energy security.

For nuclear its development is reliant on a global supply chain for construction, operation and maintenance, and decommissioning and this supply chain is particularly complex, given the need to meet high safety and reliability standards. The high costs and specialist skills needed for many of the components for a nuclear plant means only a few companies are able to provide them and this creates a potential bottleneck for new build, not least in the UK, as we are a small market player that will be dependent on the global supply chain for any new plant. Arguably the very high costs of building a new plant (as well as decommissioning) also create investment bottlenecks, with the UK developing multiple incentives to try and ensure new construction. The supply chain is also top heavy, including a limited number of global vendors, system integrators and heavy forgers in the top tiers, as well as suffering from a lack of skilled workers and global competition for them. As such the supply chain is not particularly resilient or flexible and these constraints, as well as wider policy uncertainties, impact on the willingness of companies to enter the supply chain or invest in skills.

By comparison, smaller scale technologies, like PV, tend to have much more diverse and resilient supply chains. For PV, there are far more companies operating within the top tiers of the supply chain and fierce competition between them, that has resulted in dramatic price reductions in recent years. PV is also highly modular and can be deployed quickly in a variety of different applications and scales, providing flexibility. As it is less complex, its supply chain capacity and capability can be quickly expanded, either in response to a bottleneck or to anticipated demand.

The lower barriers to entry for smaller scale technologies give them a considerable advantage over there large scale alternatives. Given that it is easier for companies to enter the supply chain for less complex technologies, constraints can more easily be overcome, innovation rates tend to increase, costs come down more quickly and the technologies themselves can be more quickly deployed and improved. From an energy security and low carbon transition perspective, there is therefore something inherently more secure about smaller-scale technologies – something little policy attention is given to.

A final point, is that large scale centralised technologies reinforce the existing rules, regulations and institutions that are in place. These are likely to hinder an effective low carbon transition as well as continuing to frame energy users as consumers, taking a passive role in decision making in our energy future. Smaller scale, building and community level technologies are far more likely to re-engage people, something that will become increasingly important for energy security, carbon reduction and affordability.

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