The energy revolution and future challenges for UK energy and climate change policy Contents

Annex 1: Committee visit to California and Washington, 11–16 September 2016

Monday 12 September

California Environmental Protection Agency and Air Resource Board

The California Environmental Protection Agency (CalEPA) is California’s environmental authority. It develops, implements and enforces laws regulating air, water and soil quality, pesticide use and waste recycling and reduction. We met with Matthew Rodriquez and Alexa Kleysteuber, Secretary and Deputy Secretary for Environmental Protection, respectively, as well as Edie Chang and Margaret T Minnick, from the CalEPA Air Resources Board.

We learned that California pursues aggressive climate policies because it is already seeing the effects of climate change. It has put in place a range of programmes, including:

We discussed the strong cross-party and popular support for low carbon policies in California and the details of the cap-and-trade system (including the potential for aviation to be brought in at a later stage). We learned that while the ETS led to higher wholesale prices in California than neighbouring states, retail prices were low thanks to successful energy efficiency programmes. We also discussed the challenge of creating a narrative around decarbonisation and framing it as an opportunity. California has been able to take advantage of the perception that new technologies and opportunities are taking place, and has been able to maintain an industrial base while attracting venture capitalists. California has been leading in terms of job development, particularly following the growth of the solar industry, with a GDP increase of 2% driven by the clean tech industry. However, we heard that putting exact numbers on the lag between the announcement of political will and the arrival of dividend was not straightforward. We were particularly interested to hear that the state of California has a goal of installing 1.3GW of electricity storage by 2020.

Governor’s Office

We met with Ken Alex, Senior Policy Advisor to Governor Jerry Brown and Director of the Governor’s Office of Planning and Research. We learned about California’s energy sector developments since the energy crisis in the 2000s. We discussed several of the Governor’s policies, including:

California Energy Commission

The California Energy Commission is California’s foremost energy policy and planning agency and one of several entities dealing with oversight of energy and environmental issues. We met with Robert Oglesby, Executive Director, and several members of his team. We discussed the CEC’s role on both the generation and the efficiency side of energy policy, and California’s electricity generation portfolio, including the phase-out of nuclear and reduction in fossil natural gas, the shrinking share of large hydro-power in the state’s energy portfolio (about 14%, with no new hydro as other generation resources grow) and the drive to higher proportions of renewable generation and increased energy efficiency. We discussed the growing importance of storage in California’s electricity grid. There is 1.3GW of storage to be procured over the coming years and more will be needed. We heard that a portfolio of storage, demand response and integration of generation resources would be needed, and that there was a drive to go beyond the California energy system.

We heard about the ways in which California invests public money and stimulates investment to create opportunities in the energy sector, in particular to generate a zero emission transport landscape. We learned about the range of research programmes supported by the CEC and the interplay between federal and state funding for R&D. We touched upon the question of risk versus return when investing in innovation and of annual oversight.

We discussed the importance of long-term targets, intervening milestones and clear market signals to provide both policy direction and investor confidence to drive innovation. We heard about how recent and upcoming legislation will provide these signals, in particular the 2030 renewables target and energy efficiency in buildings. Challenges in the water sector were also touched upon.

Tuesday 13 September

Cumulus Energy Storage

Cumulus Energy Storage is a UK-US technology company focused on low-cost grid-scale rechargeable Copper/Zinc battery storage. We met Darron Brackenbury, Chief Operating Officer, and Michael Hurwitz, Chief Technology Officer. We discussed the benefits of storage for the deployment of renewable energy, for the electricity grid market and energy intensive industries, in terms of flexibility, load shifting, grid balancing and costs saved. We heard about some of the hurdles to the deployment of storage, including technical understanding of the systems in which batteries can be deployed, and the challenge of dispatching stored electricity over the longer timescales required by the grid.

Cumulus Energy’s copper-zinc batteries are designed to be deployed at grid-scale and are roughly 12 months to production. We learned about the battery technology in more detail (including comparisons to other batteries such as Lithium or Vanadium), the company’s funding, research and development and production line. Most R&D is being carried out in California, due to the access to a huge talent pool of engineers, from hardware to software specialists.

We discussed California’s 1.3GW storage target and what it sets to achieve: give the correct signals and help create the appropriate infrastructure for further storage deployment. The CEC triennial plans—with comprehensive documentation and clarity over funding—go a long way in providing policy certainty and the appropriate framework for investment. However, we heard that a California electricity system consisting solely of renewables, storage and demand-response was still a long way in the future, and would require half of electricity demand to be matched with storage. While there are many demonstration projects, there is yet no commercialisation of grid-scale storage.

We were interested in perceptions of the UK as place to drive innovation in this sector and heard that while UK energy policy was going in the right direction, there were concerns about market access following the EU referendum.

We also discussed costs, both in terms of the uncertain costs of batteries linked to the changing grid infrastructure, and opportunities brought by storage to get a better price on renewables

California Public Utilities Commission

The California Public Utilities Commission (CPUC) regulates privately owned electric, natural gas, telecommunications, water, railroad, rail transit, and passenger transportation companies. We met with Marc Monbouquette, Regulatory Analyst in the Energy Division of the CPUC.

We discussed the role of private utilities in innovation and operation, and the need to identify optimal opportunities for the electricity system to take on more load. We heard about the drive to change the regulatory system from cost-based to performance- and incentive-based.

We were interested to hear more about the Community Choice Aggregation programmes (CCAs), overseen by the CPUC. It is important to identify places where distributed energy can invest and there is a need to invest in community infrastructure and dispatch and control tools. We learned that the PUC was working out how new planning processes feed into the investment network and the smart grid. It is important to let the market respond to identified needs on the system where distributed energy can be being most ideally located. We heard that the ability of the grid to cope with novelties was important, and that this may require updates. We heard that increasing amounts of distributed energy meant that it was important to look at the grid more organically, identify where customers are using distributed energy and use this information in forecasts to feed into network. The question of who pays for grid infrastructure improvements was an important one.

Advanced Energy Economy

Advanced Energy Economy (AEE) is a national trade association of business leaders in the clean energy technology sector. Its business focus it is to build markets for its member companies through advocacy at federal, state and city level to enable growth in the advanced energy market. We met with Graham Richard, CEO of AEE, and a number of the organisations’ members. We discussed the US market for clean technologies, and the need to focus on market growth, jobs and economic growth—rather than climate—to drive emissions reductions. We heard that the single biggest driver for clean energy was price, and hedging against natural gas prices. A second important driver often forgotten is the battle for talent and the appeal of clean industries and companies to the young workforce. Corporate goals are also an important driver.

We heard about the current climate change and environmental legislation in California, and the ongoing struggle to extend policies (in particular the cap and trade programme extension, with ongoing discussions on how revenues should be spent causing regulatory uncertainty). We discussed the role of AEE in helping large companies wanting to buy clean power to tackle regulatory barriers. For example, it has helped companies to keep track of all regulations affecting storage by building a database using predictive analytics to search every piece of legislation. Companies can use this resource for business development analytics to understand where a piece of legislation may be blocking a clean energy development.

We touched on the role of storage, and the idea that customer control as well as the market and grid are the drivers of storage. Demand side measures (both demand reduction and demand side response) were also discussed, including barriers to the penetration of DSR contracts and the difficulty of getting large loads to respond rapidly to the needs of the grid. California has the largest market for demand-side management programmes but it is highly fragmented.

We heard that success in advanced energy is a whole systems approach, moving away from siloes and regulatory policies and towards an integrated system thinking—to get to a system where shifting to low carbon technologies and sources is more appealing to shareholders and rate payers. We discussed the growing importance of sociological and consumer empowerment drivers, in addition to the traditional trilemma of cost, sustainability and security. Storage is most demanded once all five drivers are considered. We discussed the drivers for the change in consumer attitudes towards clean energy—and the acceptance of green technology. California’s 500 000 advanced energy jobs and the 17% growth in the sector last year has been turning a cost into an opportunity. Once again, we heard that consistency in policy support and signals was key. A robust unified business voice advocating solutions is also crucial to the shift to low carbon systems, with a strong alliance of leadership from the private sector, public sector (mayors in particular) and non-profit foundations.

The Breakthrough Institute

The Breakthrough Institute is an eco-modernist thinktank that looks at the role of technology in addressing environmental challenges. We met with Ted Nordhaus, founder of the institute, and Alex Trembath, Director of Communication. We heard about the institute’s perspective that the clean energy debate has been overly focussed on environmental consciousness and ideas of behaviour and consumption in the developed world, and has ignored the fact that the bulk of future carbon emissions will result from populations in developing nations reaching the right level of development and access to energy.

We discussed the penetration of different renewable technologies worldwide, and the requirements for a decarbonised grid, including the need for dispatchable baseload following and baseline. We were interested to hear about the idea of a capacity factor threshold, whereby once annual generation reaches a nominal cap factor on a grid for a particular renewable technology, there is a non-linear increase in the difficulty of further penetration. We heard that while storage was an important part of the solution, radical breakthroughs will be needed before the seriousness of the capacity threshold issue can be eliminated.

We discussed the origin of the fracking revolution in the United States, whereby the development of the shale gas industry benefitted from well-established and stable institutions. We also discussed the nuclear industry and how other industries drive radical innovation. We heard that smaller, specialised, innovative businesses were a key driver.

Wednesday 14 September

Tesla Motors

Tesla Motors is an American automotive and energy storage company that designs, manufactures, and sells electric cars, electric vehicle powertrain components, and battery products. We met Daniel Witt Manager for Business Development Policy and Sarah Van Cleve, Energy Storage Policy Manager. We also had the opportunity to tour the Tesla factory itself.

We learned about the history of Tesla, the development of its products, and its mission to accelerate the world’s transition to sustainable energy. We heard about Tesla’s aim to show that electric vehicles could be competitive, that such technologies could have implications for the wider energy sector, and that there was a need to change consumer behaviour alongside developments in the vehicle fleet.

We discussed pathways to scalability and the learning still to be done to not only scale sales and services capabilities but also fuelling capabilities. We discussed ways to make electric vehicles available to a wider demographic and the need to focus efforts on appropriate policies to charge and leverage investments existing in the electric infrastructure.

We heard about Tesla’s ambitions to look at other forms of transport, including long-range shipping and buses and the link to behaviour change and shift away from personal vehicle ownership. There are also opportunities at the grid level to turn vehicles into a stationary storage industry and facilitate the introduction of renewables. We discussed other Tesla products such as the Powerwall and Powerpack that have the opportunity to provide frequency regulation as well as load shifting. There is a potential to aggregate individual owner’s benefits and it is important to ensure that utilities and energy markets have the right tools in in place for customers to sell back electricity to the market to support the wider grid infrastructure.

Nest Labs

Nest Labs is a producer of self-programming, self-learning, sensor-driven, Wi-Fi-enabled thermostats, smoke detectors, and other home automation systems. Founded in 2010 by former Apple engineers, the company was acquired by Google in 2014. Centred around the home, Nest’s mission is to provide safety, security and energy management. We met Nest’s CEO, Marwan Fawaz, and a number of members of his team, including Scott Kohler (Product and Regulatory Affairs Counsel), Ben Bixby (Director, Energy and Enterprise) and Tom vonReichbauer (Chief Business Officer).

We learned about the range of Nest products, in particular its self-regulating, self-programming thermostat that can adapt to consumer habits. We discussed questions of interoperability and the drive for a universal operating system and open interface for home efficiency to maximise market take-up of the range of products available. We touched on issues of data privacy and Nest’s principles of transparency, whereby clear privacy boundaries mean that data is used strictly for product development and management of energy devices, not to advertise or market products. We heard that the first phase of their study in the UK found an average of 6–8% savings in households and discussed the interplay between smart thermostats and smart meters.

We discussed the importance of consumer engagement, both regarding the products themselves and the control capabilities, and discussed the role of sellers in communicating the benefits of smart thermostats. We noted that opportunities across the housing stock, such as social housing, were immense but that appropriate engagement and utility-led energy solutions were key. We heard that the product was cost effective, paying for itself in two years, and that an appropriate financing mechanism for households who are not able to pay costs upfront was now needed.

Thursday 15 September

UniEnergy Technologies

Founded in 2012, UniEnergy Technologies (UET) is a company specializing in developing and delivering electrical energy storage solutions for the evolving electrical grid and utility sectors. The battery technology is based on a new vanadium electrolyte formulation. We met Dr. Gary Yang, Chief Executive Officer, and Rick Winter, President and Chief Operations Officer and had the opportunity to tour UET’s facilities.

We heard that the storage industry was now at an “inflexion point,” with an increasing role to play due to the growth in renewables, the decentralisation of the electricity system and the need for more resilient, consistent and predictable power. Extreme weather events in USA have already led to losses of $200bn.

We discussed political consensus and consumer buy-in for spending on new low carbon technologies and the need to look at economic and social increases in productivity, public health and other co-benefits of a decarbonised power grid. We heard that there have been significant policy shifts in the United States and other countries such as Australia and South Africa, not only at the political level but also at the corporate one, with large companies such as Google or Microsoft wanting to “go 100% green”. These corporate policy shifts also require the buffer capacity that is made possible with storage, thereby helping the industry. We learned that the US military is also looking at decarbonising military bases around the world.

We discussed the vanadium battery technology and heard that UET’s industrial-scale product was a field-proven fully-integrated package suitable for plug in deployment and linking with local utilities. There are 20 installations in total, including in Germany and Italy. The company is now at an inflection point with its production ramp and is working towards full factory integration. The fully integrated system reaches 75% efficiency, which is lower than lithium systems but provides stable capacity that does not fade over time. We heard about the importance of comparing whole systems efficiency and cost, as well as duration of use, when comparing technologies.

We touched upon questions of regulation and of the UK issue of double-charging for storage. We heard that the multiple benefits of (frequency, ancillary, backup, reliability) need to be monetised and that this could be helped by a carbon tax. We also discussed the need for government support to get low-carbon projects off the ground and deal with the 5–10 years return on investment typical for renewables.

Helion Energy

Helion Energy is a company carrying out applied research on a new nuclear fusion technology. Its goal is to develop a technology that is scalable, low cost and efficient and build the world’s first commercial fusion plant. We met Dr David Kirtley, Helion founder and CEO and Chris Pihl, Chief Technology Officer. We also toured Helion Energy’s laboratories and met several researchers from their team.

We learned about the physical process of stellar fusion and the different technologies that have been developed so far to recreate this physical process and harness it to produce energy. We heard about the benefits of fusion as a potential electricity generation technology (fuelled by isotopically heavy water, large energy content at low cost, clean products, lack of waste or carbon emissions, absence of the possibility of catastrophic failure or nuclear proliferation concerns), and about the main challenges to the development of the technology (difficulty to start the reactions, technical complexity, high capital costs). We were told that while the physics were well understood, the engineering and development timescales were very long.

We discussed different fusion start-ups, the various programmes and funding for nuclear fusion, and what regulatory barriers could exist in the future if the technology is commercialised. We also touched upon the public perception of nuclear technologies and how the difference between nuclear fusion and fission could be communicated.

Friday 16 September

University of Washington Clean Energy Institute

The Clean Energy Institute is a research institute at the University of Washington. Its mission is to accelerate the adoption of a clean energy future with a strong focus on next generation solar energy and storage systems, as well as their integration with the grid. We met with Professor Daniel Schwartz, Director, Professor David Ginger, Associate Director, Professor Daniel Kirschen, Associate Professor Jihui Yang and Dr Sarah Holliday, along with a number of students and staff of the institute. We also met with Brian Young, the Governor’s Clean Technology Industry Sector Lead. We had the opportunity to tour several laboratory facilities.

We learned that energy had contributed greatly to the economic development Washington State. It has a unique electricity profile: it is the 20th largest electricity system on Earth and the grid averages 75% of hydropower. Hydro and other renewables have made electricity in the state some of the cheapest in the world, with the carbon-free nature of the state’s portfolio attracting businesses. The Department of Commerce wants to create the right environment for companies creating cutting edge clean energy products to develop in Washington State.

We heard that the institute’s research covered three strands: Basic research on advanced materials and manufacturing, education and workforce development (including outreach and PhD and postdoctoral training, and research and education infrastructure. We discussed the institute’s drive to involve business and the private community with early stages of research, and give young students and researchers opportunities to take their work into the marketplace and become the next generation of innovators and company leaders. We heard that clean energy economy research was one of the fastest growing components of Washington State and that the societal value placed on research will be important for increasing funding in the future. However we also heard that rate of returns on investment in clean tech were lower than in software development, which made it challenging to attract investment in a software capital like Seattle and required private investment to come in at regular intervals to drive innovation.

We heard about the drive to create a new geography for clean energy innovation, whereby those bringing in initial funding and people can identify where this can be done at lowest risk for them and their investors. With its liquid work environment, the Silicon Valley will provide opportunities for students and young researchers, and public funding should reflect this. The Department of Commerce is putting money into the CEI because of its outward-facing, entrepreneurial focus. Other unis also have entrepreneurial centre but CEI brings it to next higher level. The University of Washington also has a centre for commercialisation that helps mentor start-ups and spin offs.

We heard that it was difficult for academics to quantify the impact on return of an R&D project. While the gross value added of such investments is hard to determine three years into the centre’s life, it already has value in being a point of entry for big businesses such as Amazon or Microsoft. We heard that communication was an important part of the institute’s success, with researchers publishing material beyond traditional scientific papers and CEI having a strong outreach and communication programme to reach a wide range of communities.

The institute focusses much of its research on solar energy, because it has the largest technical potential of US renewable and is the most scalable of renewable technologies. While its growth has been impressive, it is still important to make solar cheaper and distribute it more effectively. We heard that Capex costs were an issue for solar, and that new technologies will be an opportunity to drive down this cost. We heard about research on new PV materials and the need to look beyond one single material and towards the entire device when comparing technologies.

We heard about the institute’s research on the grid, including the role and meaning of smart grids, the impact of the penetration of renewables, and the need for greater flexibility on the grid (through the ramp-up of conventional generation, demand response, storage—the best but most expensive solution). We discussed questions around how much flexibility was needed, how to optimise it and what market mechanisms can be used to deliver this flexibility.

We discussed research on electricity storage, and the issue that investors struggled to know where and how much they should invest. We heard about two important federal Government projects in the area of battery storage, motivated by legislation: EV everywhere (whereby the number of plug in hybrid vehicles on the road should be larger than traditional combustion engines by 2022) and the Clean energy standard (aiming for 80% of electricity generated from clean sources by 2035). We were told that major challenges for battery storage were to improve safety, provide a high energy density and lower the cost. We heard that system costs today were a third of those ten years ago, showing the opportunity for rapid cost-reduction if research funding is available.

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14 October 2016