At the time of its announcement Liz Truss’s intervention to freeze energy prices for households for two years was expected to cost the government as much as £140bn. In the worst-case scenario, with the separate six-month initiative to cap costs for companies, charities, and public sector organisations, it could potentially cost a further £48bn.
Whilst Jeremy Hunt had scaled back the schemes, and the recent falls in energy costs have greatly reduced the governments exposure from those worst-case scenarios, that the government even countenanced a short-term fix that brought with it financial exposure greater than the entire annual health and social care budget raises an important question. What could truly be achieved if that level of funding were available for sustainable solutions?
Many of the green and sustainable technologies to deliver the next leaps in energy security and decarbonisation are here today, but often, they must overcome the inertia that makes reversion to fossil fuels seem the easy option. However, if almost £200bn is now a conceivable sum to spend on energy solutions, radical changes become possible.
Incentivise demand reduction
Arguably the most radical change would be to foster reductions in demand. Whilst the recent cold snap saw coal power stations fired up,it also saw National Grid announce a further test of its demand flexibility service which pays customers to use less energy during periods of peak usage.
Some media outlets, in reporting the growing impacts of the energy crisis, have implied that Britain could face rolling blackouts. The truth, however, is very different. Not least because there are very few periods throughout the year when demand is very high. In fact, the greatest 2GW of electricity demand occurs just 0.6% of the time. To put that into context, Hinkley Point C, the new nuclear power station being built at a cost of £25bn, will be 3.2GW.
Incentivising customers, therefore, may offer some benefits of reducing demand at key times, and could effectively pay for itself through lower input costs and avoided infrastructure investment. No doubt that is why over 200,000 Octopus customers happily participated in a test of demand reduction which, over the course of an hour, effectively replaced a gas power station.
But to really achieve the full potential of demand flexibility requires investment in a smarter grid capable of replacing crude ‘turning off’ (or down) with more sophisticated prioritisation of, say, a peak in energy for heating as people return home, versus a short pause in charging of local EVs.
The transition away from fossil fuels
Whilst some demand reduction can be delivered very quickly, the move away from fossil fuels will not be immediate. This is something echoed by Myles Allen, Professor of Geosystem Science in the School of Geography and the Environment and Department of Physics at the University of Oxford, and Director of the Oxford Net Zero initiative.
Allen believes that keeping things simple is the key to solving the energy and climate crisis, stating, “There is a lot that can be done in terms of renewable energy and reducing emissions, but we will not achieve our climate goals by 2050 if we focus solely on the switch-over to renewables and nuclear power.”
In a paper last month Allen argues that carbon capture and storage is an affordable way of ‘stopping fossil fuels from causing further global warming’. The paper calculates that the additional cost of production from fossil fuel companies to remove the carbon from their products, gradually over three decades, would be less than their average increase in wholesale profits since the beginning of 2022.
New Technologies
Ultimately the sun doesn’t always shine, and the wind doesn’t always blow, so investment in renewables will also require investment in energy storage. The most obvious storage technology, grid scale batteries, are now deploying at pace, with more than 400MW installed in 2021, and with the pipeline of future projects growing to over 20GW. Green hydrogen also helps solve the renewable energy storage dilemma by being created and stored when renewable energy generation is high, which thereby raises the question of whether Hydrogen will fuel the data centre of the future?
A challenging market
For over a year now the data centre sector has absorbed ‘energy shocks’ that have put prices to levels that were previously ‘unthinkable’. And whilst the industry has undoubtedly made great progress to lead the way in terms of decarbonisation, becoming both more efficient and sustainable in the last decade, research has shown that data centres still consume between 1%-3% of the world’s electricity. The industry should, therefore, use the current opportunity to ask what other ‘unthinkable’ things should our industry begin to consider, as we move towards net zero?
Sustainable innovation is the answer
At Kao Data we’ve long held the belief that data centres can be a catalyst for net zero, and since our company’s inception we have ensured that sustainability has remained at the heart of our decision-making.
As the world becomes more digitised, the need for zero carbon digital infrastructure has indeed become more prevalent, and the only path to a sustainable future is one where data centres and other critical infrastructures become interwoven with a resilient, renewable energy system.
Amid the turmoil of a volatile energy market, it is critical that our industry must not regress by re-encouraging the use of fossil fuels or begin to pursue the production of non-renewable sources such as waste to energy. We must ensure that both the health and security of our planet remains the priority at all times, encouraging our customers to adhere to the same sustainable ethos.
We believe that the data centre industry must also remain committed to powering customers’ workloads with green, electrical energy, and as such, operators should proactively invest in the technology to drive both the production and provision of owned renewable generation capabilities.
This could mean identifying an alternative means for direct connection to renewable energy production within local ecosystems. For those in the UK, where access to hydro or geothermal power is impossible, this could include the buying of land for solar farms with private wire connection, or by finding a means to partner with onshore wind farms.
For example, at Kao Data, we have worked with our energy provider and the Little Cheyne Court wind farm in Kent to ensure that every electron of energy we consume is matched by an equivalent capacity generated at a specific local UK asset. This, we believe, is key to going beyond the Renewable Energy Guarantees of Origin (REGO) system, ensuring our energy provision is as green as possible, while pushing the boundaries of what’s possible in terms of UK energy procurement.
While strategies to build owned energy production capabilities such as wind and solar may take time to become a reality, we believe it is essential all operators take steps to bring this capability into their portfolios. This will provide the industry with the ability to secure long-term, low-cost, fixed price, renewable power directly for the benefit of the planet and our customers.
Looking forward, our industry must remain committed to sustainability, despite the macroeconomic challenges surrounding it. At Kao Data, it is our belief that sustainable innovation holds the answer, and that now is the time for industry to collaborate and push boundaries in the race to net zero.
This blog was first published in Capacity Magazine in March 2023. To read the article, click here.
Matthew Harris
Formerly a founding board member and Investor Director, Matthew became Kao Data's Chief Financial Officer (CFO) in September 2021. He has extensive experience across a range of private equity backed and listed businesses in the technology, manufacturing and investment sectors and has secured over £250m of funding for portfolio companies.