Technology and strike price: smarter planning for a smarter grid

A personal think piece from Energy Technology developer Steve Miller.

If someone told you that for a relatively modest fee, they could help you avoid a multi-billion pound loss, would you listen to them? The answer at Hitachi right now is probably a pained ‘yes’.
In the past few weeks, the Japanese conglomerate has suspended work on the Wylfa nuclear plant near Anglesey. It has also shelved plans for another plant in Gloucestershire. At the heart of this decision was an inability to reach an agreeable strike price with the UK government.

A final offer of £75/MWh was insufficient to keep the project viable. This is much higher than the sub-£60/MWh offered to upcoming renewable projects. But it’s still far below the £92.50/MWh agreed for Hinkley Point C a few years ago. So, what has changed?

One factor is faster-than-expected developments in renewables. Another is growing confidence in the benefits of a smart grid, supported by leaps in battery technology. We can generate more and use it better.

This reduces our predicted future generation costs. Not only will energy be cheaper to generate, but those savings will be realised sooner. And with this pattern expected to continue, so too is the decline of the strike price.

This in turn gives an advantage to shorter innovation and upgrade cycles within technology, which favours some types of generation over others. It is this trend that some observers suggest is rendering new nuclear projects economically impractical.

After Hitachi canning two projects less than 6 months after Toshiba ditched one of their own, it’s certainly a topic for debate. But what are the implications of all this for the energy economy in general?

Running to stand still

First of all, it means energy providers will need to look to new technology to solve this problem. Their margins now must rely on a mindset of continuous improvement.
By staying ahead of average production costs, they’ll be able to protect – and even grow – their profits. Modern generation technology and the smart grid will allow them to do more with less. Using these well will be vital to remaining competitive.

On the other hand, users obviously benefit from efficiency savings because they’re spending less. This often includes investing in self-generation. And through this, consumers are starting to gain a more dominant position in the supply/demand arms race.

But they will need to keep up with the smart grid in order to retain this advantage. We can expect to see differential rates for ‘smart’ users and ‘traditional’ users. And as with all legacy systems, the latter will start paying a premium to support otherwise-defunct infrastructure.

Businesses are already taking steps to avoid reaching this point. This means adapting to change as a process; more increments, shorter cycles, faster benefits.

Change-based economics

Technology refresh cycles are shrinking. With them, the time we have to prepare for change also reduces. The cycle used to be around five years. Then three. Now it’s nearer one. A rolling program of change is the only way to stay in the race.

There are some broad-brush steps that can lead to quick wins. Cloud platforms can realistically shrink deployment timeframes from months to weeks, helping you manage further change. Internet of Things devices and Big Data analytics help identify areas for improvement, as well as quantify their success. Artificial Intelligence is allowing whole new approaches to proactive energy management.

These are just a few examples from a myriad of options, themselves with a plethora of permutations. Central to determining which of these are best for you is expertise. It is vital to know not just what’s available now, but what’s on the horizon. And you then need the ability to act on this.

This is why there’s an emerging ecosystem of consultants, virtual Chief Technology Officers, and digital transformation partners. Engaging one or more of these is often a quick, low-risk first step to whatever the long-term picture may be. Either as educator or implementor. Most often as both.

Being able to at least keep up with this increasing rate of change will be vital for all areas within a business. For serious growth, it’ll be vital in order to accelerate it to your market advantage.

After all, this isn’t just about managing energy costs for its own sake. It isn’t technology for its own sake. It’s about becoming a leaner, smarter, more competitive business. And who knows; you might even save yourself a couple of billion quid in the process.