WMCA published its draft local industrial strategy consultation recently, with a deadline of today for responses. Energy Capital and its board has taken the opportunity to put forward a strong case for energy infrastructure as an enabler in delivering the strategy.

Introduction

This is the collective response of the Energy Capital partnership to the West Midlands Industrial Strategy Consultation. It consists of general comments, followed by individual responses to each of the nine consultation questions.

About Energy Capital

Energy Capital is a region-wide public-private partnership established specifically to support the WMCA in securing devolved powers and funding for investment in the energy sector to support clean economic growth in the region. Its membership is listed in the appendix to this response.

The views expressed in this response are the collective views of the partnership, and do not represent the individual views of any one member. Individual corporate members may also be submitting their own responses.

General comments

We welcome the recognition of the importance of energy, and particularly energy infrastructure, within the consultation document. It was this region’s unique energy infrastructure which underpinned our being the home of the first global industrial revolution; it is affordable, clean energy which underpins any effort to improve social inclusion; and it is the current global energy transition which is creating one of the biggest economic opportunities for the industrial, academic and skills base of this region.

We would also note that it is on the demand side – in the ways we use energy – where some of the greatest opportunities for innovation and clean growth lie. Buildings and transport are the two major determinants of energy demand, so we would like to see greater recognition of the unique opportunities created by the high concentration of buildings and transport infrastructure in the West Midlands for energy infrastructure innovation (for example, through programmes of housing refurbishment and low carbon vehicle charging infrastructure)[1].

 

This opportunity and the impact of competitive clean energy infrastructure on regional productivity and GVA has been widely recognised in independent reports and a mayoral energy policy commission, and we would like to see these reports formally included in the evidence base which underpins the industrial strategy. Three specific documents and links are below:

We’d particularly draw your attention to the last of these – Energy as an Enabler – which makes clear and starts to quantify the impact of energy infrastructure investments on productivity and economic growth.

A key aspect of the current global energy transition which is often overlooked by policy-makers and strategists (used to a one-size-fits-all national energy system) is that energy infrastructure systems worldwide are once again becoming much more locally variable and sensitive to regional geography. This is a fundamental economic trend driven by a range of factors including lower cost and smarter control systems and cheaper storage technologies in both electricity and gas; government policies worldwide; growing awareness of climate change and the decarbonisation imperative.

In other words, to secure clean, competitive energy supplies for industry and mobility; low cost and accessible market opportunities for innovators; and encourage social inclusion and clean growth, it is no longer sufficient to leave planning and management of regional energy systems to national regulators alone. This is likely to result in higher costs, reduced effectiveness and unintended consequences. Any region with any industrial ambitions needs to take a proactive and Place-sensitive approach to securing appropriate, optimised energy infrastructure. Energy infrastructure is a fundamental plank of any credible modern regional industrial strategy.

With this in mind, we particularly welcome the mention of Energy Capital as a leading regional initiative to deliver the national Clean Growth Grand Challenge (p37) and the recognition of the importance of energy infrastructure under improving connectivity and opportunity (p31).

However, we note that local energy infrastructure is listed under improvement to the natural environment (p31) rather than equipping the region with efficient local, national and international infrastructure. This is an absolutely fundamental misunderstanding of the importance of energy infrastructure to regional growth (see Energy as an Enabler, above). Energy must clearly be included in the infrastructure category not the environment category. Environmental outcomes are desirable benefits of (and sometimes constraints to) appropriate local energy infrastructure investment. This is exactly the same relationship as that between housing and transport infrastructure and the environment. Environmental objectives are not the primary objective of regional housing, transport, or energy infrastructure investment. In all cases this primary objective is strongly economic, particularly in the context of an industrial strategy.

Competitive, clean energy infrastructure is fundamental to almost all of the ten headline commitments in the strategy. This is particularly true for the ambitions to be the home of future mobility and transport innovation; the UK’s leading exporting region; a globally renowned advanced manufacturing and engineering centre; and a place built around three nationally-connected cities, including high quality housing.

Given this, it’s essential that energy is recognised primarily within the strategy as a cross-cutting infrastructure sector, alongside housing, skills and transport, and not simply as an industrial sector[2]. Reflecting this, the Regional Energy Strategy should be specifically mentioned as a Delivery mechanism in Figure 2 on page 7 and appropriately within the text. It is the key reference document funded by the region and BEIS which will guide delivery and is currently progressing through regional approval mechanisms.

Finally, the box on funding on page 7 omits the regulated funding streams which are the main mechanism for financing energy infrastructure investments in the UK. This should be corrected. Of the £8bn (£11bn by 2030[3]) a year spent by the West Midlands on energy systems and fuels (excluding buildings and vehicles) but including all gas, electricity and petroleum fuels, at least £3bn[4] (£4.2bn by 20303) is used to finance current and historic infrastructure investments and market management mechanisms such as Ofgem, ECO, RIIO etc. As part of devolution to the WMCA, and in line with global trends and the need to maintain a competitive energy system in the West Midlands and across the UK, control over some of this £3bn per year will need to be devolved to the CA over time.

Answers to specific questions

  1. Have we identified the right strengths and competitive advantages in our sectors?

The list of sectors provided is sensible and supported by evidence. However, there is always a significant risk of this approach being driven by historic strengths rather than those best matched to future challenges.

In this context there might be merit in mentioning the significant changes in sectoral boundaries which are currently creating some of the biggest commercial and economic opportunities worldwide. For example, the merging of the energy, services and construction sectors exemplified by the acquisition of Keepmoat by Engie last year; or the merging of mobility, digital, advanced manufacturing and energy sectors exemplified by the entry of Tesla and Dyson into EV production.

Taking advantage of such opportunities requires a flexible innovation infrastructure and much less emphasis on sectoral boundaries and individual sectors, with much greater emphasis on understanding customer demand, infrastructure and market making. One of the biggest potential competitive advantages the West Midlands has is the combination of concentrated and diverse demand (at scale) at the heart of a decent transport and energy infrastructure. This potentially makes our region one of the most attractive worldwide for the large-scale deployment (and production) of innovative cross-sectoral (infrastructure) solutions. The key to attracting investment will be to be able to offer a combination of a stable policy and market environment combined with rapid, low cost connection to flexible infrastructure (of all types); an attractive place to live and work; and a flexible and business friendly culture which avoids being too wedded to any one sector.

The regional industrial strategy has the opportunity to create such conditions through its approach to energy infrastructure.

  1. Are the challenges and opportunities facing our economy accurately articulated?

In the list of significant future investment on p8, the £15bn of investment in distributed energy infrastructure currently mentioned on p31 should be included and featured much more heavily.

In contrast to most of the other investment opportunities listed, the most significant attribute of future energy infrastructure system investment worldwide is that not only is the value very large, but the technologies and systems to be deployed are widely expected to be radically different from those deployed in the past – for example new battery and thermal storage technologies, hydrogen fuel cells, hydrogen and biogas, smart controls and renewables. The opportunities for innovation, commercialisation and a wide range of West Midlands manufacturing businesses to seize and build competitive advantages in this sector are thus potentially much greater than in most other sectors (and the investment is not optional).

It may be worth noting that a key element of energy infrastructure is buildings, and particularly housing. These account for over 30% of regional energy demand, and are often highly inefficient, with well-built modern houses sometimes demanding less than a tenth of the energy input compared to an equivalent 1950s house (to deliver the same level of comfort and well-being). There are 1.7 million existing homes across the region, and the market opportunity for innovative refurbishment of these properties is significant. Of these homes, the residents of around 200,000 are driven below the poverty line by their fuel bills, and thus often face the invidious choice between warmth and food. Addressing this issue, which is one of the four priority programmes within Energy Capital, not only delivers economic and industrial opportunity at scale; it also delivers significant benefits in terms of social inclusion, health and well-being with consequent indirect benefits to regional productivity and skills.

Also see answer to Q1.

  1. Are these the right opportunities for the West Midlands to take in order to benefit from the Grand Challenges and to make a major contribution to the UK’s response?

Yes. The virtues of a challenge-led approach have been covered under Q1. Energy is well-chosen because approached well it will not only deliver a competitive, clean infrastructure to support growth of all our other sectors and deliver social inclusion; it will also create a platform for West Midlands businesses to commercialise new technologies and compete in rapidly growing global markets.

This point is expanded on extensively in the Regional Energy Strategy and Energy as an Enabler reports produced as part of the evidence base underpinning Energy Capital.

  1. Does the emerging approach to inclusive growth have the potential to meet the challenge?

It does, although energy should be included in the list of infrastructure investments related to place on p24 (‘Taking a Place-based approach – integrating investment in specific sites and growth corridors’). For example, socially-inclusive transport and housing investments in places cannot now be considered in isolation from supporting energy systems investments (such as district heating networks), which will often need to be both innovative (e.g., grid services, smart EV infrastructure) and/or delivered and owned by local people (e.g., energy efficient housing, community solar schemes).

  1. How could your organisation get involved to help?

Energy Capital is formally part of the WMCA governance structure and reports into the SED Board. During 2018-19 it has been funded by partners but from 2019-20 our view is that it should be permanently funded by the government through the WMCA.

  1. Are these the right ten strategic commitments?

A strategic commitment to create world-leading energy infrastructure in the West Midlands to support our manufacturing, housing and mobility aspirations is essential. Hence commitment 10 is welcome.

However, the use of the word ‘transmission’ is misleading and incorrect – it should be ‘distribution’. Energy distribution infrastructure is regional and transmission infrastructure is national.

The commitments should also recognise the importance of (and opportunities in) energy demand-side management, particularly around buildings and vehicles. Buildings and vehicles are essentially integral parts of modern energy infrastructure and commitments in housing, transport and energy infrastructure cannot really be treated in isolation. Some recognition of this would be helpful.

Overall, the commitment should be re-worded to make clear the infrastructure emphasis. Potentially something like:

An internationally-competitive and world class energy infrastructure (including our buildings), developing and making best use of innovative energy distribution, storage, generation and demand management systems and our regional geography to support clean growth and social inclusion. 

  1. Do they reflect the momentum which is underway and the opportunities ahead?

Energy Capital has successfully used the mechanism of Energy Innovation Zones to mobilise and focus demand across the region, with five EIZs now emerging in Birmingham, Coventry and Warwickshire, the Black Country, Rugeley, and UK Central. In excess of £490M of infrastructure investment opportunities have been identified and feasibility studies are already underway for well over £100M of investment.

There is a growing community energy movement, particularly in Warwickshire, South Staffordshire and Birmingham, and a Fuel Poverty task force has been convened with cross-regional support with a view to directing over £150M of investment in housing refurbishment over the next three years.

Almost all these investments can potentially be sourced and delivered competitively from within the region, and almost all are opportunities to innovate and participate at the leading edge of global energy market developments.

  1. Will these emerging actions help your business or community grow and succeed?

As mentioned under general comments, Energy Capital must be included under infrastructure actions (p31), not environmental.

It may also be helpful to refer back to infrastructure actions (energy, 5G, mobility) in the other sections – for example, under housing. This would help reinforce the linkages between the actions.

  1. What else will help your business and/or community grow and succeed?

Regulation is probably the major determinant of competitiveness and speed to market in the energy sector, particularly for infrastructure technologies. The Regional Industrial Strategy and WMCA can help by supporting the EIZs in three ways (all detailed in the Regional Energy Strategy):

  1. Securing regulatory flexes and appropriate levels of regional control over regional energy infrastructure strategic planning and commissioning,
  2. Agreeing transfer of (existing) resources from central government to the region(s) to support such devolved powers,
  3. Establishing substantive investment funds (and legal vehicles) to support large scale innovative energy infrastructure investments on strategic sites across the region. This should include a fund specifically targeting housing refurbishment and another focused on seeding EV charging infrastructure rollout.

Appendix

List of organisations represented on Energy Capital Board and contributing to this response

BCLEP
GBSLEP
C&WLEP
Dudley MBC
Birmingham CC
Western Power Distribution
Cadent Gas
National Grid
Engie
Jaguar Land Rover
Severn Trent Water
Black Country Housing Association
University of Birmingham
University of Warwick
Aston University
West Midlands Combined Universities
Energy Systems Catapult
Climate KIC
Sustainable Energy Association
EEF, the manufacturers’ organisation
West Midlands Growth Company
Transport for the West Midlands

Ofgem, BEIS and the WMCA attend meetings but are not included within this consultation response because of their direct interests in the policies being consulted on.

[1] Energy infrastructure investment will also be required to deliver commitments in housing and transport.

[2] (although it is this as well, and the Science and Innovation Audit naturally focused purely on this).

[3] Using BEIS price assumptions for energy; https://www.gov.uk/government/publications/updated-energy-and-emissions-projections-2017

[4] Based of OFGEM splits of energy costs for domestic and industrial customers.

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