De-risking Early Movers
By Dominic Brennan, Senior Technical Adviser, Industrial Energy Transformation Fund, Department for Energy Security and Net Zero.
The UK often lays claim to ‘Early Mover’ status on the global stage, and not without good reason. The world’s first national grid opened in the UK in 1935. Later, in 1956, Calder Hall was the world’s first nuclear reactor built to produce domestic electricity. More recently, the UK was the first to set legally binding carbon budgets, with over 40% of its power being generated from renewable sources in 2022.
But is simply creating early movers sufficient? Without the collective weight of the UK following the example of early movers, any momentum gained can be quickly lost.
Unlocking early movers is a common challenge the world over. The UK faces the perennial problem of being left in the lurch as companies move abroad (typically to the US) to grow their valuations. Dreaming of more than being an incubator, there is sentiment among industry to capitalise on the skills and knowledge embedded within UK early movers.
Chris Skidmore in the 2023 Spring issue discusses the two action paths that the UK can take: leading or following. Leading gains first mover advantage, inward investment, new supply chains and pipelines, and lower costs of wider deployment. Following, meanwhile, trades financial risk for the risks of offshored jobs and lost infrastructure investments. Yet, leading often falls at the first hurdle: financing.
Andy Cox, Head of Energy Transition at Howden Group, echoes this hurdle. In the 2023 Autumn issue, Andy discusses why financing steep costs of capital remains a barrier to unlocking early mover technology. The solution? By instead shifting the risk to more stable counterparties, obstructive volatile market trends can be dampened.
The UK Government often can act as this stable counterparty. By financially supporting energy intensive industries (EIIs) on their path to Net Zero, volatile market trends can be moderated, enabling the rollout of necessarily disruptive new technologies. The Industrial Energy Transformation Fund (IETF), one such market de-risking vehicle now nearing its final phase, has assisted EIIs across the spectrum in unlocking solutions to their Net Zero challenges.
More than simply being the training wheels of industry, the stability of government backing can establish a pipeline of Net Zero-enabled industries and supportive technologies.
Unfortunately, stability is not absolute. Ever the incubator, the UK faces conceding its early mover momentum to larger players. The sheer size and comprehensiveness of the Inflation Reduction Act in the US grants stability where the UK Government may perhaps struggle. The c.$6B offered by the Advanced Industrial Facilities Deployment Program (a distant American cousin to the IETF) suggests just this point.
It is not simply the available funding that develops business, but also the stability of the system into which they will develop. Government funding exists to no longer be needed, and so what comes after an early mover?
The UK must do what it may culturally struggle with: advertise its wins. Capitalising on the momentum of early movers is essential to bring wider industry up to speed with its Net Zero commitments. Within and across industries, companies must platform their learnings and share their teething problems.
To really benefit from this momentum, the UK must facilitate this platforming across the whole system of industries.
A systems approach is necessarily comprehensive, and only by doing so may we uncover oversights. Enabling carbon capture will reduce process emissions, but what of the environmental impact of its solvent wastes? Up-rating local grid connections on the path to electrification will abate site emissions, but what of electricity price uncertainties driven by, e.g., locational marginal pricing?
Externalising risks simply kicks the can down the road.
Stability need not be limited by the UK purse. A comprehensive, certain pathway provides confidence to adopt solutions demonstrated by our early movers. There is fierce appetite among EIIs to electrify despite the current large costs of electricity, relying on good faith that electricity costs will fall in line with gas.
Government funding is essential to leverage the UK’s in-house knowledge. Equally essential is cultivating an environment wherein these solutions can take root.
Going forward: de-risking the market requires a stable, unified system. Platforming our early movers will pay dividends only when these early movers can be adopted across the breadth of industry. Reaching this point needs certainty as much as it needs funding, and so only by broadening and deepening its commitments may the UK retain its Early Mover trophy.
