The Demand Side of Energy Security

Blog 4 April, 2024

Authors:

Louis Fletcher, Stefan Bouzarovski, Gavin Bridge, Marie Claire Brisbois, Michael Fell, Tim Foxon, Caroline Kuzemko, Mari Martiskainen, James Price, Steve Pye, and Natalie Ralph

 

Earlier in the month, the Secretary of State for Energy Security and Net Zero, Claire Coutinho, announced that the government would support the construction of new gas-fired power stations to “maintain a safe and reliable energy source”. Energy security has moved towards the centre of political discourse in recent years, and its invocation by the UK government to support fossil fuels is now familiar.

These measures are habitually justified on grounds of ‘security of supply’. Yet, on any impartial analysis, demand is of equal importance to supply in balancing the energy system. A demand-side view of energy security is a long overdue corrective, the benefits of which are brought inescapably into focus by net zero. Accelerating fossil fuel demand reduction can help mitigate our exposure to volatile international markets while cutting greenhouse gas emissions. Rebuilding the entire energy system with low-carbon technologies within a single generation is a herculean task, but one that we can moderate through demand reduction and flexibility. More than this, a demand-side view of energy security foregrounds often-ignored questions about the role of energy in our collective life, and what purposes we want the energy system to serve. In what follows we flag four areas where a demand-side view of energy security can stir new thinking, solutions and politics.

1: Demand-side policies can accelerate the managed decline of fossil fuels

The North Sea is a declining basin which can, at best, slow the UK’s growing gas import dependence, not reverse it. Even then, this modest production would be undertaken by private companies to sell on integrated global (oil) or European (gas) markets at prevailing prices. If the UK’s exposure to volatile fossil fuel markets cannot be solved on the supply-side, the obvious answer is to expedite the reduction of fossil fuel demand. James Price, Steve Pye and Oliver Broad at UCL have used modelling to produce internally consistent, system-wide pathways to net zero to show that it is feasible for the UK to cut fossil fuel demand far more sharply than envisaged by the Climate Change Committee in the pathway it uses to set the UK’s carbon budget. With ambitious policy the UK could, for example, reduce its gas demand by 93% by 2040. Fossil fuel demand reduction, rather than the expansion of indigenous supply, is the key to ‘energy independence’.

We also know that, in any pathway to net zero, the most likely source of disruption to the UK’s gas system is not faltering supply, but falling demand. This will pose serious challenges to the commercial and technical viability of critical infrastructure on which we will continue to depend in the medium-term. As demand for gas falls and households and industry progressively shift to electricity, a smaller and smaller base of customers will have to bear the costs of the gas system. It is far from clear how the fragmented private owners of the UK’s disparate gas infrastructure will respond to declining throughput. Fossil fuel demand insecurity will define the transition to net zero.

2: Demand-side policies can moderate conflict for critical minerals

One of the reasons that energy security has been catapulted back into the political foreground is that net zero is increasingly seen by lawmakers in the United States as part of a ‘Second Cold War’ with China. Green industrial strategy has become an instrument of confrontation, whose armoury includes cross-border tariffs, country of origin legislation, the relocation of supply chains to allied shores, and international climate finance.

Clearly, these dynamics reflect geopolitical tensions that transcend the energy system. But much of this discourse feeds on competition over the ‘critical’ minerals necessary for the manufacture of low-carbon technologies, and here, demand reduction can complicate the conventional narrative. Consuming less can ease the competitive pressure to expand and open mines. In the US, it has been estimated that policies to reduce the number of electric vehicles on the road, and the size of their frames and batteries, could enable an 18%-66% fall in national lithium demand. This might involve modal shifting – moving from cars to public transport, cycling and walking, as well as destination shifting – reorganising urban spaces to support lifestyles less reliant on cars. Innovation can also play a role by driving material efficiencies and developing less critical mineral dependent technologies, such as lithium-ion phosphate and sodium-ion batteries.

Critical minerals are traded globally and a fall in demand anywhere would benefit consumers everywhere – it is a global public good. Just as the International Energy Agency was born in crisis during the 1970s to coordinate oil demand curbs across OECD countries, so diplomatic efforts today should do the same for critical minerals during the transition to net zero. We have already seen the first shoots of ‘critical mineral diplomacy’ with the signing of a patchwork of bi-lateral and pluri-lateral agreements. But these efforts have centred on supply-side security, and largely conceived as a response to China’s perceived control over critical mineral supply chains, they risk augmenting global divisions, instead of alleviating them. A coordinated demand-led approach offers an important, though not necessarily mutually exclusive, alternative.

3: Demand-side policies can ease the path to a green grid

Demand-side action can reduce how far and how fast renewables have to be rolled-out to meet growing demand on the grid. The government wants to green the grid by 2035 (and the Labour Party by 2030). At the same time, the electrification of society is expected to increase total demand on the grid by 50% over that period, and peak demand by even more. The intermittent output of solar and wind power, waxing and waning with the weather, will also pose new challenges. Strains on the physical transmission system are already apparent, with billions paid out to wind developers to curtail their output because there is not enough high-voltage cabling between Scotland and England, and a 10-year queue for new connections to the grid.

One answer is to use demand-side flexibility to flatten the peaks of electricity demand. Smart metres, and supportive pricing structures, can facilitate a shift in energy consumption away from peak hours – encouraging consumers to, for example, charge their electric vehicles in the depths of the night, or switch on their heating in the hours before it is needed to benefit from the thermal inertia of buildings. But the most straightforward way of preventing the electricity system from buckling is to moderate the growth of electricity demand in the first place. Intelligent demand-side policies can reduce the rate at which we need to expand electricity generation by as much as two thirds, and cut the amount we need to invest in the system through to 2050 by 40%. This is an easier and cheaper route to net zero, which would lessen the transition’s impact on land use, biodiversity and local communities.

4: Demand-side policies force us to re-examine what energy can and should be used for

Demand reduction brings into focus what energy is used for, re-politicising an often invisible and technocratically managed part of our collective life. It forces us to make judgements about the relative value of specific forms of consumption, and directs our attention towards inequalities of consumption. In the UK, the top 10% of energy users consume nine times more energy than the bottom 10%. Strikingly, the top 10% of users expend more energy on road and air transport than individuals in the bottom 60% of users consume altogether. By contrast, for most people it is housing, not transport, which makes up the majority of their energy footprint. This invites an obvious comparison. Which is more socially valuable: one person’s tenth flight of the year, or another person’s ability to warm their home over winter? Clearly, one is essential, the other is not.

A jump in demand has the same functional impact on the energy system’s balance as a fall in supply. In this sense, high consumption is a driver of energy insecurity. Currently, a well-off minority is responsible for a starkly disproportionate share of consumption – putting pressure on supplies and prices for everyone. By the same token, inequality is a potential reservoir than can be drawn down to free-up supply in the future.

This also points to the fact that many of the ways in which we can reduce energy consumption are highly valuable for completely unrelated reasons. Air pollution from the combustion of fossil fuels is a leading driver of global ill-health, walking and cycling are good for our well-being, home retrofits are labour-intensive and could drive huge job creation, and many low-carbon technologies – like heat pumps and electric vehicles – have lower operating costs than their fossil fuel equivalents. These are all ‘co-benefits’ of energy demand reduction. Many features of our energy systems are not products of design, but the accumulation of a historical interplay of factors, that gradually develop an inertial hold and path dependency. Andre Gorz once pithily observed that “the spread of the private car has displaced mass transportation and altered city planning and housing in such a way that it transfers to the car functions that its own spread has made necessary”. The transition to net zero, and the pressures this places on our energy use, gives us an opportunity and a reason to re-examine these inherited systems.

A new perspective on energy security

It is worth recalling what the conventional view of energy security looks like. A good barometer in this regard is the British Energy Security Strategy, published in the wake of Russia’s invasion of Ukraine in 2022, in the eye of the European gas crisis. For most of its history “the UK was what we now call energy independent”, the first line of the strategy tells us, sustained by the “great coal fields of the North, the Midlands and South Wales”, and then “a steady flow of oil and natural gas extracted” from the belly of the North Sea. But “as the years passed we drifted into dependence on foreign sources”. To escape the throes of the energy crisis, the UK now has to reclaim its lost security, and establish “a power supply that’s made in Britain, for Britain – that’s what this plan is all about”. That means more renewable and nuclear power, but also designs to “fully utilise our great North Sea reserve”.

The UK government’s continuing focus on security of supply is far from anomalous. ‘Energy security’ originated as a concept in the Western response to the OPEC oil crisis of 1973-74. An offshoot of ‘national security’, it foregrounded the cross-border flow of oil from exporter to importer nations in a context of geopolitical competition. Even though it has expanded over the last half-century to include broader concerns, its supply-side bias remains potent.

In this context, some may be wary of the connotations of ‘security’. But the fact is that ‘energy security’ has enormous purchase on our politics and collective imagination, which is currently being monopolised by a supply-side view that risks giving succour to nativist fossil fuel production and combative geopolitics. This is a language that can be redirected, and leveraged to make the case for overlooked demand-side policies that can help deliver a more secure, just and peaceful transition to net zero. Proposing a new agenda on ‘demand-side energy security’ is, therefore, not just an invitation for new thinking and policy, but a much-needed intervention in our public discourse.

In February a joint workshop was held at the University of Warwick between the Energy Demand Research Centre (its Energy Security challenge) and the UK Energy Research Centre (its Geopolitical Economy of System Transformation theme), organised by Caroline Kuzemko, Stefan Bouzarovski, Natalie Ralph, and Louis Fletcher. This blog is a preliminary write-up of some of the ideas to have emerged at the workshop. More is to come.