Shock to the sys­tem for Big Oil to adapt or die

The news that Shell’s boss is shop­ping for an eco-friendly car sug­gests in­dus­try is ready to face up to re­new­ables, writes Jil­lian Am­brose

The Sunday Telegraph - Money & Business - - Front page - The Sun­day Tele­graph

IDEN­TI­FY­ING a tip­ping point is not al­ways easy. But when one of the world’s most pow­er­ful oil bosses says he is in the mar­ket for an elec­tric car, there can be lit­tle doubt. Ben van Beur­den, the Royal Dutch Shell boss, last week de­liv­ered the clear­est in­di­ca­tion yet that the bur­geon­ing elec­tric ve­hi­cle in­dus­try is al­ready has­ten­ing the de­cline of global oil de­mand. “When that will be is not cer­tain. But that it will hap­pen, we are cer­tain,” he told in­vestors.

It was not so much a foil to the group tre­bling se­cond quar­ter prof­its as a state­ment of in­tent: for “Big Oil” it is time to adapt or die, and Shell in­tends to adapt.

The An­glo-dutch gi­ant is al­ready shift­ing its fo­cus from drilling for oil to nat­u­ral gas, but within the next year Shell will un­veil early plans for a deeper pres­ence in re­new­able en­ergy and the elec­tri­cal chain to tap the boom in elec­tric ve­hi­cles.

“Ev­ery­one is re­peat­edly sur­prised at how fast elec­tric cars are com­ing for­ward,” Pro­fes­sor Di­eter Helm told

in April. The num­ber of new reg­is­tra­tions of plug-in cars has grown from 3,500 in 2013 to more than 100,000 at the end of May. “But the po­lit­i­cal pres­sure to adopt this tech­nol­ogy is in­creas­ing all the time. It’s not due to con­cerns over cli­mate change – it’s city air pol­lu­tion,” he said.

And so it was in the UK last week when the Gov­ern­ment’s bid to tackle the coun­try’s wors­en­ing air pol­lu­tion fol­lowed the ex­am­ple set by France two weeks ear­lier in pledg­ing to halt the sale of com­bus­tion ve­hi­cles by 2040. At the same time, gov­ern­ment put the bat­tery boom front and cen­tre in its in­dus­trial strat­egy with £246m of fund­ing for re­search and de­vel­op­ment.

The news added to a flurry of sim­i­lar an­nounce­ments from Volvo and BMW. All of Volvo’s cars will be elec­tric or hy­brid ve­hi­cles by 2019. BMW will pro­duce the first elec­tric Mini, and in a boon for the post-brexit Bri­tish econ­omy, it will be built in Ox­ford­shire.

Bat­tery Bri­tain may re­quire a fun­da­men­tal shift for Europe’s oil ma­jors, au­to­mo­tive gi­ants and em­bat­tled re­finer­ies – but for the en­ergy in­dus­try the bat­tery boom is noth­ing short of the big­gest break­through since the re­new­ables rev­o­lu­tion in the late Nineties.

“There is no doubt that bat­ter­ies com­pletely and ut­terly meta­mor­phose the mar­ket in that they make the un­con­trol­lable con­trol­lable. It makes the ar­gu­ments against re­new­able en­ergy fall away,” says Nick Boyle, the founder of Europe’s largest so­lar op­er­a­tor Light­source. The new en­ergy re­al­ity is not sim­ply about con­sumers tak­ing power from gen­er­a­tors, but means the roles of pro­ducer and con­sumer will flip and, in some cases, merge.

Light­source is al­ready pair­ing so­lar pan­els with bat­tery packs to al­low cus­tomers to ef­fec­tively be­come their own en­ergy mar­ket. So­lar pan­els cre­ate en­ergy which can be used at cheaper rates than elec­tric­ity from the main grid, or stored in the bat­tery to use later. If the bat­tery and elec­tric ve­hi­cle are both charged a Light­source cus­tomer could sell their power back to the grid. By cre­at­ing a net­work of house­holds and busi­nesses which can gen­er­ate power and re­duce de­mand, Light­source could cre­ate a string of vir­tual low-car­bon power plants.

“We’ve al­ways said that we would like to equip a mil­lion homes with so­lar pan­els and bat­ter­ies. If you use a 4kw panel that would be 4GW of ca­pac­ity,” says Boyle. This is the equiv­a­lent scale of Hink­ley Point C plus a gas-fired power plant, but only when the sun shines. “But if you add a 6kw bat­tery you’ve cre­ated an ex­tra 6GW of storable elec­tric­ity which could be used to bal­ance the grid.”

In the com­pany’s sprawl­ing City of­fices a team of coders are de­vel­op­ing com­pli­cated al­go­rithms which draw on weather fore­casts, de­mand pat­terns and whole­sale prices to au­to­mate the ebb and flow of power from panel to bat­tery to grid. The cus­tomer is ul­ti­mately in con­trol of the things they want to be, but for the rest tech­nol­ogy can step in to cut bills by mak­ing each home its own gen­er­a­tor, trader and Na­tional Grid.

“It’s not about hard­ware any­more. It’s about soft­ware. And this can move at such an in­cred­i­ble pace and will only get quicker,” says Boyle. “It seems like we’re of­fer­ing some­thing im­pos­si­ble. But this is only be­cause many are still us­ing a yard­stick of how they bought en­ergy in the past. You al­most need to draw a line un­der what has come be­fore and start again.”

Redesign­ing the elec­tric­ity sys­tem is no easy un­der­tak­ing though. Basil Scarsella, chief ex­ec­u­tive of Bri­tain’s largest elec­tric­ity dis­trib­u­tor, UK Power Net­works, says the in­dus­try is “on the verge of a change as sig­nif­i­cant for elec­tric­ity as the ad­vent of broad­band was for telecom­mu­ni­ca­tions”.

The net­work op­er­a­tor con­nects 18 mil­lion peo­ple across East Anglia, Lon­don and the South East to the elec­tric­ity grid and has al­ready had ap­pli­ca­tions for 16GW worth of bat­tery stor­age. Fol­low­ing the Gov­ern­ment’s bat­tery back­ing it has launched a fast-track on­line ap­pli­ca­tion process to con­nect even more home bat­ter­ies.

“The good news is that we don’t need to build a whole new stack of gen­er­a­tion,” says Rob Doe­pel, a part­ner at EY.

“There could be a 10pc in­crease in de­mand, but this doesn’t mean we need to in­crease our ca­pac­ity by the same amount. The ma­jor­ity of cars are likely to charge overnight when many plants stand idle. So we can use our ex­ist­ing fleet more of­ten.”

The surge in bat­tery use could help to meet the ex­tra de­mand cre­ated by elec­tric ve­hi­cles in the first place. Fresh in­vest­ment in wind and so­lar could emerge – with­out the help of sub­si­dies.

The greater in­vest­ment will be needed in up­grad­ing the wires and sub­sta­tions of the elec­tric­ity dis­tri­bu­tion net­works. There are three ma­jor ob­sta­cles to over­come: first, less than half of UK house­holds have an of­froad garage and many do not have a per­ma­nent park­ing spot to host a con­nec­tion.

For those who are able to charge at home the net­work will be un­able to cope with fast-charg­ing units with­out trip­ping a fuse if other ap­pli­ances are run­ning. Fi­nally, a sim­i­lar ‘pinch­point’ looms at the lo­cal sub­sta­tion level which will re­quire re­in­force­ment from net­work op­er­a­tors to cope with the de­mand with­out trig­ger­ing black­outs. “There should be more than enough time to meet these chal­lenges,” says Doe­pel. “By putting for­ward a long-term time­line, in­vestors have the cer­tainty to bring these so­lu­tions for­ward. We have a ma­jor op­por­tu­nity as UK plc to re­ally be world lead­ing in en­ergy from a ca­pa­bil­ity and ex­port point of view.” Peter Dick­son, a part­ner at fund man­ager Glen­n­mont Part­ners, says Euro­pean in­sti­tu­tional in­vestors are al­ready eye­ing de­vel­op­ments in Bat­tery Bri­tain and the same funds which trans­formed the re­new­able en­ergy in­dus­try over the last 15 years are ready for the next phase of the low-car­bon tran­si­tion. “It was highly at­trac­tive: a fixed in­come type in­vest­ment with eq­uity level re­turns,” he says.

“The in­sti­tu­tions are very hun­gry for op­por­tu­ni­ties af­ter years be­ing sat­is­fied by the re­new­able en­ergy in­dus­try. And there’s no short­age of cap­i­tal.”

Mean­while, Van Beur­den is un­der­stood to be plan­ning to plug in his new Mercedes-benz S500e in Septem­ber. BP was not im­me­di­ately avail­able to com­ment on what Bob Dud­ley might drive next.

‘Peo­ple look at how they used to buy en­ergy. You need to draw a line on what came be­fore and start again’

Plain sail­ing: wind farms are now an in­te­gral part of the en­ergy sys­tem, while BMW an­nounced last week that it would pro­duce its elec­tric Mini in Ox­ford­shire

The UK is to halt the sale of com­bus­tion ve­hi­cles to tackle an air pol­lu­tion cri­sis

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