An Industrial Strategy for the 21st century
By Matt Finch, ECIU Business and Economics Analyst
So we’re finally beginning to find out what the future of industry in this country will look like - and, by extension, future employment, education and the regions (as Londoners patronisingly call the rest of Britain) . The Government released a consultation document on its plan of action for business today; a plan that has the ultimate aim of either ‘making Britain great again’ or ‘desperately trying to stave off a Brexit-induced decline into averageness’ (depending on your viewpoint, obviously).
Things we know
We already knew that the 21st century industrial strategy will look nothing like the 20th century industrial strategy - not only has the MP for the City, Mark Field, previously said that government will not pick winners, but leading business group the Institute of Directors has stressed that individual companies should not receive cash handouts. So no repeat of British Leyland then (phew!).
With hindsight, calling it ‘Modern Industrial Strategy’ would have been better. And turned BEIS into the BEMIS - way easier to say.
We also know that the strategy will have a long-term focus (indeed, the term ‘long term’ found its way into the paper 61 times). This is good news for clean energy lovers, as clearly the world, via the Paris Agreement, is on a long-term decarbonisation path. It simply does not make sense for any new post-Brexit industrial strategy to focus on industries that will become fossils in the upcoming decades - and that has been acknowledged. Indeed, green energy has its own section, titled “delivering affordable energy and clean growth”.
What this section makes abundantly clear is that "security of supply" is now the dominant side of the trilemma, with cost of energy clearly number two. Thankfully, the paper does stress its commitments to the Climate Change Act, so at least decarbonisation hasn’t been forgotten.
Intriguingly, the paper also wants to “secure the industrial opportunities for the UK economy of energy innovation” - so smart home and demand-side technology companies are rubbing their hands with glee. Obviously though, innovation can be found in any industry (so if you’ve secretly been working on plans for a nuclear fusion plant, or space-based solar array, then now’s your time).
There is a clear commitment to a number of specific energy industries. Singled out are nuclear, offshore wind, electric vehicles and energy storage.
The UK is already in the leading pack when it comes to nuclear. The UK has 15 reactors that generate about one fifth of our current electricity needs (70 out of 228 TWh in 2015), but almost half of this capacity is due to retire by 2025.
These numbers are minuscule compared with France, which has 58 reactors that almost equal its domestic electricity needs - 424 out of 454 TWh in 2013. This enables France to be the world’s largest net exporter of electricity, earning it a jealousy-inducing €3billion a year as a result (something that won’t have escaped the notice of the boffins at BEIS).
There are already plans to build new UK reactors at 6 sites (Hinkley Point C being the most notorious of these). UK universities are amongst - if not the - world leaders when it comes to nuclear R&D, with specialist centres at Oxford, Cambridge, Imperial, Manchester and Birmingham. Nuclear power will clearly be a cornerstone of energy policy for many decades - so much so that as part of the industrial strategy the Government has asked Lord Hutton to report on how the UK nuclear industry can improve competitiveness and skills.
Over 91% of the world’s offshore wind power is currently installed off northern Europe. The UK has the largest amount of capacity - just over 5GW, representing 45% of all European installations. Germany follows with 3.2 GW (around 30%). In 2014, the UK’s offshore wind turbines produced 13,404 GWh of electricity out of the world total of 24,890 GWh. It goes without saying, but it really helps that the UK is an island nation that has the windy North Sea right next to it. Still, we’ve definitely capitalised on that advantage.
Whilst we may be the clear leaders on capacity, the businesses that are installing, owning and running that capacity are mainly from elsewhere in Europe. Denmark's Dong Energy is the biggest owner of European offshore wind turbines with 15% of all installations, followed by E.ON (9.6%, German), RWE Innogy (9%, German) and Vattenfall (8.8%, Swedish). SSE is the UK's top ranker, with 3.2%.
If we talk solely about the UK's turbines, the picture is the same - the majority are foreign-owned. The leading manufacturer of turbines, Siemens, is German.
Whether this is good or bad really depends on your outlook - all of these companies have extensive operations in the UK, employing tens of thousands of people, and collectively they are the majority of the world's offshore wind experts. So the expertise is here, but the profits go abroad. Surely an industrial strategy will want to change the second part of that sentence.
It should also be noted that there is no mention of onshore wind - far less costly compared with its watery cousin. If cost of supply is so important, then you have to ask: Why is the Conservative party standing by its ‘no new onshore windfarms’ manifesto commitment?
All those offshore turbines create electricity, which is brilliant when we need it, but a bit of a pain when we don’t. So being able to store that electricity would be really useful - and energy storage is an (potentially THE) essential component of our future energy system. Storage takes many forms, but will increasingly come to mean batteries, and despite batteries having been around for hundreds of years, this really is a fledgling industry.
Nevertheless, the UK is the European utility-level storage leader, with 35 installed stand-alone projects, and 56% (IHS Markit figures) of EMEA’s grid-level storage pipeline. Including behind-the-meter capacity, we have 3.23 GW. However, Germany is Europe's clear leader when it comes to behind-the-meter applications. It has an estimated 22,500 installations, and it should be noted that Bloomberg New Energy Finance expects this sector to ultimately become the larger of the two from 2021 onwards.
The Government has asked Sir Mark Walport to “review the case for a new research institution to act as a focal point for work on battery technology, energy storage and grid technology”.
One remarkable facet of the paper was that the Government is actively inviting sectors to come forward with proposals on how Government can help them to improve, and although the storage industry is relatively new, clearly the department of Business, Energy and Industrial Strategy had storage in mind when stating this (see box).
We knew, from minister Nick Hurd’s comments during a recent BEIS committee session, that electric vehicles (EVs) would be a major component of our industrial strategy. They are described as a 'triple win': EVs are good for tackling our carbon addiction; good for tackling our air quality problem; and there's an obvious industrial aspect here for the UK - and especially the Midlands (perhaps Mr Hurd had read ECIU's previous blogs, here and here, on this subject?)
Everyone in the car industry knows that electric vehicles are the future, and the Government knows this as well - the trick is to ensure that EV uptake is at least in line with the 4th and 5th Carbon Budgets and the forthcoming emission reduction plan, and - crucially - that EV domestic uptake is achieved at the lowest possible cost to Government (and by extension the taxpayer).
This paper is clearly just the start, but we already know some of the winners and losers of the future British economy. Clearly energy was always going to play a part, but now we know some of the key components that Government will back - and we also know that the drive towards a low-carbon economy will continue unabated.