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The electric jolt that roused Big Oil

Jillian Ambrose: 

Identifying a tipping point is not always easy. But when one of the world’s most powerful oil bosses says he is in the market for an electric car, there can be little doubt.

Ben van Beurden, the Royal Dutch Shell boss, last week delivered the clearest indication yet that the burgeoning electric vehicle industry is already hastening the decline of global oil demand. “When that will be is not certain. But that it will happen, we are certain,” he told investors.

It was not so much a foil to the group trebling second quarter profits as a statement of intent: for “Big Oil” it is time to adapt or die, and Shell intends to adapt.

The Anglo-Dutch giant is already shifting its focus from drilling for oil to natural gas, but within the next year Shell will unveil early plans for a deeper presence in renewable energy and the electrical chain to tap the boom in electric vehicles.

“Everyone is repeatedly surprised at how fast electric cars are coming forward,” Professor Dieter Helm told The Telegraph in April. The number of new registrations of plug-in cars has grown from 3,500 in 2013 to more than 100,000 at the end of May. “But the political pressure to adopt this technology is increasing all the time. It’s not due to concerns over climate change – it’s city air pollution,” he said.

And so it was in the UK last week when the Government’s bid to tackle the country’s worsening air pollution followed the example set by France two weeks earlier in pledging to halt the sale of combustion vehicles by 2040. At the same time, government put the battery boom front and centre in its industrial strategy with £246m of funding for research and development.

The news added to a flurry of similar announcements from Volvo and BMW. All of Volvo’s cars will be electric or hybrid vehicles by 2019. BMW will produce the first electric Mini, and in a boon for the post-Brexit British economy, it will be built in Oxfordshire.

Battery Britain may require a fundamental shift for Europe’s oil majors, automotive giants and embattled refineries – but for the energy industry the battery boom is nothing short of the biggest breakthrough since the renewables revolution in the late Nineties.

“There is no doubt that batteries completely and utterly metamorphose the market in that they make the uncontrollable controllable. It makes the arguments against renewable energy fall away,” says Nick Boyle, the founder of Europe’s largest solar operator Lightsource. The new energy reality is not simply about consumers taking power from generators, but means the roles of producer and consumer will flip and, in some cases, merge.

Lightsource is already pairing solar panels with battery packs to allow customers to effectively become their own energy market. Solar panels create energy which can be used at cheaper rates than electricity from the main grid, or stored in the battery to use later. If the battery and electric vehicle are both charged a Lightsource customer could sell their power back to the grid. By creating a network of households and businesses which can generate power and reduce demand, Lightsource could create a string of virtual low-carbon power plants.

“We’ve always said that we would like to equip a million homes with solar panels and batteries. If you use a 4kW panel that would be 4GW of capacity,” says Boyle. This is the equivalent scale of Hinkley Point C plus a gas-fired power plant, but only when the sun shines. “But if you add a 6kW battery you’ve created an extra 6GW of storable electricity which could be used to balance the grid.”

In the company’s sprawling City offices a team of coders are developing complicated algorithms which draw on weather forecasts, demand patterns and wholesale prices to automate the ebb and flow of power from panel to battery to grid. The customer is ultimately in control of the things they want to be, but for the rest technology can step in to cut bills by making each home its own generator, trader and National Grid.

“It’s not about hardware anymore. It’s about software. And this can move at such an incredible pace and will only get quicker,” says Boyle. “It seems like we’re offering something impossible. But this is only because many are still using a yardstick of how they bought energy in the past. You almost need to draw a line under what has come before and start again.”

Redesigning the electricity system is no easy undertaking though. Basil Scarsella, chief executive of Britain’s largest electricity distributor, UK Power Networks, says the industry is “on the verge of a change as significant for electricity as the advent of broadband was for telecommunications”.

The network operator connects 18 million people across East Anglia, London and the South East to the electricity grid and has already had applications for 16GW worth of battery storage. Following the Government’s battery backing it has launched a fast-track online application process to connect even more home batteries.

“The good news is that we don’t need to build a whole new stack of generation,” says Rob Doepel, a partner at EY.

“There could be a 10pc increase in demand, but this doesn’t mean we need to increase our capacity by the same amount. The majority of cars are likely to charge overnight when many plants stand idle. So we can use our existing fleet more often.”

The surge in battery use could help to meet the extra demand created by electric vehicles in the first place. Fresh investment in wind and solar could emerge – without the help of subsidies.

The greater investment will be needed in upgrading the wires and substations of the electricity distribution networks. There are three major obstacles to overcome: first, less than half of UK households have an offroad garage and many do not have a permanent parking spot to host a connection.

For those who are able to charge at home the network will be unable to cope with fast-charging units without tripping a fuse if other appliances are running. Finally, a similar ‘pinchpoint’ looms at the local substation level which will require reinforcement from network operators to cope with the demand without triggering blackouts. “There should be more than enough time to meet these challenges,” says Doepel. “By putting forward a long-term timeline, investors have the certainty to bring these solutions forward. We have a major opportunity as UK plc to really be world leading in energy from a capability and export point of view.”

Peter Dickson, a partner at fund manager Glennmont Partners, says European institutional investors are already eyeing developments in Battery Britain and the same funds which transformed the renewable energy industry over the last 15 years are ready for the next phase of the low-carbon transition. “It was highly attractive: a fixed income type investment with equity level returns,” he says.

“The institutions are very hungry for opportunities after years being satisfied by the renewable energy industry. And there’s no shortage of capital.”

Meanwhile, Van Beurden is understood to be planning to plug in his new Mercedes-Benz S500e in September. BP was not immediately available to comment on what Bob Dudley might drive next.


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