Electrification is seen as the easiest route to decarbonisation for manufacturers, but it presents many obstacles – not least uncompetitively high electricity costs.
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What Is Electrification in Industry?
In its journey to net zero UK, much of UK industry will be reliant on switching from gas or petroleum to using electricity instead – the process known as electrification.
There is a fairly significant problem with this, however. Namely that the UK currently has significantly higher electricity costs than almost all of its competitors. So while manufacturers may recognise the need to move away from carbon fuels, they are also realistic enough to see that the current scenario makes that increasingly difficult.
What Is the Difference Between Electrification and Decarbonisation?
The failures to invest in electrification have come about because gas prices were for a long time low enough to make kicking the can down the road an easy option for government and industry alike. However, UK manufacturers are now faced with an unenviable conundrum of how to meet decarbonisation targets in an economic climate in which they are already at a strategic disadvantage.
Electrify Industry is a body ‘powered’ by Make UK to represent businesses seeking to decarbonise the UK’s industrial base. Speaking recently, its director of policy Daniel Paterson made it clear that while the body recognises hydrogen and CCS (carbon capture and storage) will play an important role, for many businesses, electrification offers the most sensible and sustainable method of decarbonisation.
But, as he pointed out “If we want to ensure that decarbonisation does not mean de-industrialisation, we need to ensure that there actually is a business case made to decarbonise.”
Challenges Facing Electrification
Easier said than done, of course. Highlighting the scale of the problem, Paterson sees the issues as twofold. “The first is the cost of creating manufactured goods in the UK, if you just look at steel on its own, even with the supercharger, I think in what I'm saying is about, it's about £600 million of additional costs in terms of fuel since 2017/18 to last year just to create the same product.
The second issue he outlines is the so-called ‘spark gap’, which is the term used to describe the difference between the cost of gas and the cost of electricity to run the same industrial process. Says Paterson: “There are very limited circumstances right now to where a business case can be made to a board to invest in electrification, because the cost of electricity in The UK is just so much more than gas. And that is an inhibitor – a drag anchor – to investment in the UK.”
The Need for Skills and Supply Chain Growth
The knock-on effects of this are that, with demand for electrification so low, so is the incentive to invest in the skills and training needed to deliver it. Equally, the lack of a domestic supply chain is attributable to the cost of electricity and thus lack of market.
Add to this the fact that competitors such as France and Germany are further down the electrification road and thus ahead of us in the supply chain queue for technologies, and the picture would seem a bleak one all round.
Opportunities for Electrification
Paterson sees some silver linings, however, saying: “This is actually a great opportunity for UK investment and for the UK manufacturing industry, because if we can address the cost of electricity in the UK and if we can get to grips with a business model to support electrification, that will create a domestic market for the supply chain that you are going to need.”
Furthermore, he continues: “Net Zero is an opportunity for UK industry. Decarbonisation does not need to mean de-industrialisation. It can mean re-industrialisation. We hear a lot of language at the moment about just transition – that is, people moving out of the hydrocarbon economy, whether from a gas engineering point of view or from other points of view, into industry as we'll see it in 20 years’ time. None of that is going to be possible, however, unless we have business model support for electrification.”
Government Policy and Reform
In terms of current initiatives, Paterson points to the work done by the last government on the British Supercharger programme, which decreased network costs for energy-intensive users by about 60%.
However, he says “That’s a good start. It's frankly not enough,” something highlighted by the fact that France and Germany have cut network costs for industry by as much as 90%.
Policy Proposals for Electrification
So, what does Electrify Industry propose to remedy this situation? It does offer a range of policy proposals in its document ‘A Programme for Growth In The 21st Century’, which can be summarised as:
‘Unlocking future growth in UK industry’. Industrial businesses that will come to rely on electricity as a power source make up at least 9.3% of the UK economy. These are profitable businesses making world-class products exported from the UK day-in-day-out. It is vital that a level playing field in energy pricing is guaranteed for our economy to continue to innovate and grow, and to further ensure that businesses are not forced to offshore their production to markets that offer a greater competitive advantage in this area.
Investing to Grow Through Electrification
The UK needs a domestic level playing field in government policy to enable electrification. For decades, UK industry has been driven to combust gas rather than use electricity for heating. Reducing electricity prices will naturally incentivise electrification and, as part of a long-term robust and modern industrial strategy, we can positively incentivise industrial decarbonisation through policies that address capital outlays and longer-term operating costs.
Measures include:
- Reforming the electricity market reform UK
- Addressing the cost of distribution
- Removing the policy costs that have been added to the price of electricity
- Increased provision for capital outlay
Optimising and Growing Grid Connectivity
This is to ensure that companies aiming to electrify their processes are provided with the electricity grid connections that they need. The UK government must convene industry and grid stakeholders to ensure that a collaborative process is undertaken and that the time available is used in the most efficient way. Electrify Industry intends to work with partner organisations to ensure industrial connectivity is at the top of the government’s agenda for the next five to ten years.
Growing the Supply Chain for Electrification
The UK economy must develop and maintain supply chains around electrification. Without these, it will not matter how much electricity the UK is able to produce or the price at which that electricity might be purchased. UK industrial businesses will not have the capability to use electrified processes effectively or efficiently.
As the industrial world looks to electrify, the global demand for electric options is set to grow beyond all recognition. It is clearly necessary for the UK government and industries to work together to accurately predict total demand for process equipment requirements. This can be a catalyst for the creation of a UK supply chain plan ensuring timely and secure delivery of the vital elements needed in the UK industrial transition.
Investment in Skills to Unlock Growth
Its historical reliance on combustion has left the UK weak when it comes to electrical skills. We therefore need to ensure that future skills policy focuses on the energy solutions of today, whether at the first-stage education level or a retraining level. If we are committed to stopping the burning of fossil fuels, people must learn how to heat, create, and make in a post-hydrocarbon world.
Researching and Innovating for Growth
Industry’s historical reliance on combustion has defined research and innovation for many years. However, as the move away from fossil fuels becomes a necessity and the popularity of renewable electricity grows, the challenges that it poses for industry represent a significant opportunity for research and innovation.
One proposal is that the UKRI Catapults could come together to support electrification as they have hydrogen with the Hydrogen Innovation Initiative, but the key requirement is that industry will need to innovate to ensure that fuel switching to electrification retains and grows productivity and quality of product. To ensure the most efficient decarbonisation strategies across industry, national demonstrators and information sharing will become more important and will help de-risk investment in new technology.
Conclusion
Summing up the situation, Paterson says: “Fundamentally, if we want an industrial base 20 years from now, we need to start working on this now. From a policy point of view, it's one of the things that we're talking to government about, one of the things we're talking to the Opposition about, things we're talking about whoever will listen. That is the beginning and end of it for us.
“If we don't solve this problem, we are going to end up in a situation where either we are using energy processes that are not efficient as they could be or should be, or we are going to end up in a situation where we are losing industrial actors we did not need to lose.”