18 November 2022

Unleash the market and let Britain lead the green industrial revolution

By Greg Jackson

The following is an edited transcript of Greg Jackson’s keynote speech at the Centre for Policy Studies’ Margaret Thatcher conference on growth

Energy is a kind of £2tn snowglobe that’s about to be shaken. In fact, the shaking has already begun.

And I don’t mean the crisis, at least not the energy crisis – but countries around the world are increasingly working out how they can tackle climate change. And changing the energy systems is a critical part of that.

But I’m not here to talk about climate change. I guess you might expect someone from a renewable energy background, if they’re going to quote Margaret Thatcher, to talk about her famous speech to the UN General assembly. But I’m not, I’m actually thinking about when Margaret Thatcher showed Gorbachev around London in the 1980s and he saw the shops were plentiful and there were no queues. And he said to her, ‘who does your central planning?’ And she said, ‘it’s market forces and price signals’.

Fundamentally market forces and price signals have suited us very well as an economy. They’ve led to so much of the growth across many sectors that we’ve enjoyed. But sadly, they’re largely absent in the world of energy. And I’ll talk a little bit about the opportunity to turbocharge growth through more market forces in energy. And the starting point for that is that even before the crisis, renewable energy was the cheapest source of electricity. Before the crisis, it cost around 5.5p to buy fossil fuel electricity on the grid. The cheapest renewables going today are at 3.2p. So crisis aside, we as a society, not just the UK but around the world, have built in enough renewables. We’ve driven the cost down to the point that it is absolutely unarguably cheaper to consume electricity from renewables than it is from fossil fuels.

Now of course people will say, ‘but Greg, what about the times when it’s not windy?’. The great news is that at the same time as we’re changing the way we generate electricity, we’re changing the way we consume it. And electric car holds enough electricity to power a typical house for maybe five days. Now today, there’s only a few hundred thousand electric cars on our roads, but 25% of the cars sold in London this year were fully electric. Within the decade there’ll be maybe 6m electric cars (though the estimates vary). There will be a lot of electric cars sitting on driveways.

And within maybe 15 years, pretty much every driveway that today has an internal combustion car will have an electric car. And by the way, that’s not going be driven by government policy. It’s because, fundamentally, electric cars are better for drivers. My first electric car, I owned it for three or four years. The total consumption, the total service bill was £120 – there’s just not so much to go wrong.

Of course today they’re expensive cars typically because there’s no second-hand market. We’ve got supply chain issues in every sector, and the market’s not yet to scale, but the costs are plummeting. A decade ago, a two-seater electric car was £109,000. Today, cars are coming down to around £20,000 for a sedan five-seat car. So over the next 10 or 15 years, we’re going to have this enormous well of batteries sitting on people’s driveways. What that means is that when it’s windy, we can charge the cars and when it’s sunny we can charge the cars. And we don’t need to worry as much about intermittency as we did in the world where effectively electricity was about making sure your lights came on in the evening. Now that’s cars.

And by the way, I should say the average UK commute is about nine miles. So if your car’s got a 200 or 300 mile range, you don’t need to charge it every day. With artificial intelligence, we’ll be able to start matching the times and locations that we’re getting cheap energy generation with the electric cars. So if it’s not gonna be windy for a couple of days, the cars that don’t need charging can just sit there not getting charged and then we’ll charge them when it’s windy.

It’s incredibly simple, but complacent thinking has held a back so many organisations. Why did Nokia not invent the iPhone? Well, they did. It’s just that they thought that a phone needed a battery that lasted a week. Whereas what Apple worked out was that if you gave people a good enough phone, they’re happy to charge it every day.

So what we need to do is understand that if we’re going to make the most of the cheapest energy we’ve ever had as a society, we’re going to have to use it differently. Now that doesn’t mean that you’re not able to turn your lights on when you want. Lights use no electricity. Light uses 3W, electric car uses 7,000W – that’s the order of magnitude we’re playing with.

The other thing we’ve got to do is start thinking about how we heat our homes. And there’s this hilarious debate at the moment about heat pumps versus hydrogen. An electric heat pump turns one kilowatt of electricity into three kilowatt hours of heat. It’s magic. A gas boiler or a hydrogen boiler will turn one kilowatt hour of fuel into less than a kilowatt hour of heat. Electrifying heating enables us to make the most this phenomenal efficiency – and once we start electrifying everything we can do things no one’s ever thought of before.

Octopus this year announced a collaboration with an innovative home building company. We’re building homes that will have zero energy bills: they’ve got a heat pump, they’ve got solar panels, they’ve got a battery and a smart hot water heater. It’s all optimised through machine learning. The householders don’t need to do anything different than they’ve ever done before. It’s just they’ll never have an energy bill.

Right now, I could sit here and talk about zero carbon and no one really cares, but a zero energy bill? That’s transformative.

We’re on the cusp of something very special. The first industrial revolution came from Britain and it was powered because we discovered a new form of energy and how to harness it. Now for the last few years you’ll hear politicians of all stripes talking about Britain being a leader in renewables. But sadly, that lead is slipping. It’s slipping very, very rapidly and it’s slipping because we’ve got an ossified energy system. It takes a year to build a wind turbine. The actual physics, the engineering takes a year, but the planning process, and that’s assuming you’re allowed to do it – and the grid connections takes up to seven years.

And on top of that, our national grid is not fit for purpose. I’m not talking about the company – but the physical infrastructure is not fit for purpose, and neither is its governance. We have a monopoly system. If you want to connect new forms of generation, you join a queue that sometimes has coal power stations – they’ll never get built, but they occupy a queue place. And if the grid won’t connect you, if they say it’s gonna be a few million quid and however many years, or that they won’t do it at all, you’ve got nowhere else to go.

Some countries are beginning to make their grids contestable. If you can’t get a connection, then you can commission or build your own. And I think that’s the kind of market forces we need to start unleashing to drive benefits for consumers here in the UK, and for businesses, from the fact that we have this early lead in the world of renewables. But we need competition.

Let me give a couple of examples of just how bonkers our current system is. There is an energy crisis, we need all the energy we can get – and yet when it’s windy in Scotland, we turn off the wind farms and we pay hundreds of millions for the privilege because our grid isn’t capable of bringing that electricity to England where the consumption is. And we’re not giving Scottish people cheap power to make the most of it. There’s no price signals, there’s no market forces and there’s no option to change this infrastructure at the pace that we need. There are whole swathes of West London that being told they’ve got restrictions for the next decade on developing data centers and warehouses because we don’t have the grid capacity. How can we not have foreseen that West London might enjoy some economic growth?

What about all that offshore wind we building? We don’t yet have the grid connections to bring onshore. So wherever you look, we’re held back by insufficient, out of date governance for critical infrastructure. And the reason this really matters is because we’ve now got access to cheaper energy than ever before. It’ll get cheaper every year. The technology keeps bringing the costs of renewables down. The ways in which we can use it are bringing costs down. But if we can’t bring this to market, first Britain will fall behind other countries, British consumers and businesses won’t get access to what they get elsewhere. Secondly, we will miss the opportunity to genuinely be a global leader, to build the businesses that understand how to deliver this to countries around the world.

We’ve got them today, but we’re rapidly losing our advantage. The technology that enables people to make the most of cheaper energy with electric vehicles, electric heat pumps, homes that don’t have energy bills. The companies that can build the technology that the rest of the world needs for this could all be born here in the UK, and we could drive employment and growth here and export it around the world. Or, if we’re not careful, we could be the laggards, the ones who get there too late. It’s all going to happen eventually. The question is do we lead and benefit? Or do we drag our feet?

For me. this summed up by a joke someone from the IMF told me: God said to Moses, ‘I’ve got good news and bad news, which do you want?’ And he said, ‘just give me the good news. I need some good news.’ And God said, ‘you can wave your hand part the sea and your people can walk to safety.’ And Moses said, ‘That’s such good news! Nothing could be bad after that.’ And God said, ‘but first you must do an environmental impact assessment.’

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Greg Jackson is CEO of Octopus Energy.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.