Fixing the system: how to take a systems approach to Net Zero

I spend a lot of time with systems engineers. They are an annoying bunch, by and large. Always telling me (or anyone else who dares venture an opinion, for that matter), that we have not considered all the elements of a problem. That we need to think about the whole system (they even say it like it is in italics). Even if you demonstrate you have thought about the whole system, they then suddenly tell you it is actually a systems of systems problem. And then you give up and go spend some time with economists for a bit of light relief…

But despite the relentless tedium of their company, if I could give my former Government self — close to the minister, ambitious for decarbonisation that maintains popular support, massive worrier about the risks of a rapidly changing energy sector — one piece of advice, it would be this: ‘spend more time with systems engineers’. Because good strategy, and a good strategy for future energy policy, would benefit hugely from adopting a systems approach.

The energy system or energy systems (see, I was listening) is/are hugely complex (note the important difference between complicated and complex). The interactions between different actors and parts of the system bewilder even seasoned energy sector observers or participants. It is part of what makes energy and climate such an enthralling intellectual challenge.

And guess what? It is going to get a whole lot more complex. Not just the challenge of decarbonisation and all the various aspects of that gargantuan problem, including a whole load of behind-the-meter technologies which we have not had to worry about too much until now. But also the landing of digital technology on the sleepy analogue system we are used to today (the urgent code changes of the last few weeks give a little postcard from a future that is closer than I thought it was). And doing all this while keeping the same remarkable reliability we have all got used to. One system engineer described the level of complexity we are facing in the coming decades as: “changing the engine of a plane, while keeping the plane in the air”. That seems hard.

And this is when systems engineers perk up. You see, they like the hardest problems. They like the things that make most people’s eyeballs hurt. Building functioning nuclear submarines; keeping enormous lumps of metal in the air; providing energy on demand to millions of people at a reasonable price. I once spent a wonderful couple of hours as one of Energy System Catapult’s systems engineer told me how she would approach Brexit (apparently there are real trade-offs. Who knew?). Systems engineering is a discipline that has developed an approach (and a set of tools) for managing and tackling complex problems. And getting to Net Zero must be one of the most complex problems out there.

A huge amount of our work at ESC is trying to grapple with this complexity, whether it is our analysis for credible pathways to 2050 using our whole system modelling capability, or working with some of the remarkable projects grappling with the practical realities of building smart local energy systems on the ground (as part of the Prospering for the Energy Revolution Industrial Strategy challenge).

All this work highlights the big, overlapping challenges that make up the various aspects of the Net Zero macro-challenge:

· Rapidly changing technology

o How the introduction of digital technology into the energy system, fuelled by greater data availability, will create new opportunities and risks (new digital monopolies, anyone?)

o How decentralised, behind-the-meter technology (EVs, heat pumps, smart controls, fridges balancing the energy system etc etc) will integrate smoothly

· Aligning the morass of different and inconsistent carbon incentives across different parts of the economy

· How to ensure the citizenry/consumers/voters/people welcome unfamiliar low carbon technology or adopt more sustainable lifestyles

· How to knit these technologies and consumer propositions together so that they provide greater demand-side flexibility to the system; oh, and how to reform energy markets in order that the new technologies can capture the new value they are providing (more ESC work on this coming soon)

· How to reorganise your regulatory structures so that it recognises and is agile to the breaking down of the traditional silos between transport, heat and power.

And that is before you get to all the huge sector-by-sector challenges (mass uptake of EVs, making nukes cheaper, more efficient manufacturing processes, making energy efficiency and low carbon heat desirable). But innovation in technology is not enough (contrary to some techno-optimists). It is important to understand that integrating these new technologies is as big an innovation challenge as maturing the technologies themselves.

And, if I am frank, it is not clear whose job it is to think about these problems. With huge respect to my former colleagues, many of whom are brilliant, BEIS and the wider Government is just not set up to do this. Ofgem has some of the responsibilities, both parts of National Grid, including the ESO (which is doing really interesting work on this problem, recognising its centrality to its 2025 carbon free grid ambition and longer-term challenges from a changing grid). But no-one has the clear mandate to start a systemic approach to these problems.

As Dieter Helm said in his Cost of Energy Review: “The system questions will not be answered adequately by purely private markets. For this there needs to be a new architecture.”

So, if you wanted to take such a systemic approach to the problem, what would you do and what tools would you need to be able to do it properly?

On what you would do, it is tempting to jump straight for the institutional answer. Atkins, in their excellent Engineering Net Zero report, called for a system architect. Dieter argued for the DSOs to be a key institution (and we are already seeing significant progress from them), alongside market reform for firm power auctions and carbon pricing. I am sceptical of starting with the institution, as I said in this blog. In some people’s minds ‘a systems architect’ has the whiff of the CEGB (although good system thinking is as much about designing and aligning markets to reveal solutions as it is about central planning). Instead, you need to start a process including all the key players, including industry, led by BEIS with clear ministerial and cross-departmental and Ofgem buy-in, to work through the practical decisions needed as we design, implement and continuously evolve the architecture of the system. Call it a Net Zero Energy System taskforce.

A systems approach would: identify a clear set of requirements; break down the problem into manageable pieces; lay out options; start to understand the trade-offs and compromises between different solutions; and then begin to implement, before testing and refining. It will speed up innovation, not slow it down.

So, if we were going to take a systems approach to Net Zero, what might be the set of tools that would need to do it properly?

· Not just techno-economic models, which are important, but market simulation tools (ideally integrated with physical system simulation tools). This allows you to simulate and test alternative future market designs, as well as checking how the physical system would work in such a market. They are common in many other industries, such as aerospace. These would give policymakers much greater confidence and save money vs changing the rules to find out what might happen. And it would help engineers thinking about how you make this stuff work in practice.

· Improved agile code governance. This is one of the most exciting (what has happened to me?) parts of what was announced last July by Greg Clark. We need an approach that can respond quickly to changes, whilst maintaining a coherent view of how the architecture of the system needs to develop (informed by the taskforce, perhaps).

· A place to test new market/policy arrangements in the real world with real customers. We have prototyped such an approach with our Living Lab, which allows people to test new products and services quickly in real homes. It is the ideal kind of environment to also test new policy ideas or regulation, including how you integrate all these new smart technologies so they are interoperable. This could see the energy sector replicate the success of GSM standards in telecoms and the accompanying testing environment. That arrangement helped release an extraordinary wave of smart phone innovation.

· Whole system local area energy planning to inform infrastructure investment, and to keep costs down.

· A series of city or town-scale Net Zero ‘pathfinders’. As the entrepreneur Michael Liebreich said at our recent Innovating to Net Zero event, this would also have a galvanising political effect: “Instead of trying to get every town in the UK on a nice glidepath to Net Zero, why aren’t we having a competition, where we chose three towns — Norwich, Dundee…. it could be wherever. And they have to demonstrate within 5 years that they are on track for Net Zero… and then they will get a load more money. Because demonstrating Net Zero in two or three places is a tonne better at inspiring and building momentum into the system, than reducing by 7.2% everywhere….”

All of this could help make the UK the home of the next wave of low carbon innovation, and crucially low carbon digital innovation in the energy system. Where brilliant companies like Origami, Octopus, Logicor, Senergy, Extreme Low Energy, Neuville, Ventive, Equiwatt, OrxaGrid, Digital Engineering, Electron, OVO, PassivSystems, Sunamp and many, many other (see our map here) can thrive and create new jobs, while at the same time creating better outcomes for consumers. Oh, and helping save the planet.

And what if we fail to take a systems approach to Net Zero? Well, it is likely the transition will be more expensive, the system could fall over a lot more than it does (see August last year as a warning), or would struggle to get going again when it does fall over, and we would fail to capture the economic opportunity from being the first country to get this right. And we would struggle to get close to Net Zero, or give confidence to other countries that getting there was feasible, let alone desirable.

Delivering a Net Zero energy system will be enormously challenging given the scale of action needed, and the range of technologies that need to be improved, deployed and integrated. Doing so requires a systems approach, which is why — it pains every fibre of my being to say it — we may need to listen more to systems engineers…