Three Big Ideas #22
Getting electricity prices in the zone, Musk’s spikiness, and growing green shoots
Welcome to our weekly Three Big Ideas roundup, in which we serve up a curated selection of ideas (and our takes on them) in entrepreneurship, innovation, science and technology, handpicked by the team.
⚡️ Eamonn Ives, Research Director
Household energy prices are set to rise by more than expected this coming April, taking the average bill to £1,849. People would be right to groan – in the United Kingdom, we already ‘enjoy’ some of the highest electricity prices in the world and the gap between ourselves and many of our close competitors is growing year on year. Of course, these high prices weigh heavily on Britain’s businesses too, especially those in energy-intensive industries like manufacturing.
One way the Energy Secretary Ed Miliband thinks we can remedy this is called ‘zonal’ electricity pricing. This approach would do away with the current national price for electricity, and instead split Britain into a number of zones where costs could differ between them. On its own, zonal pricing wouldn’t change the underlying realities of supply and demand that ultimately determine the price of electricity. However, it absolutely would trigger second-order effects that boost supply and shift demand to a more appealing equilibrium.
A growing problem with our national price for power is that we now often have to pay for renewables to stop generating so that they don’t overload the system with too much electricity. This is because while we talk of a national grid, we don’t truly have one, because the transmission infrastructure to transport power from where it is abundant to where it is scarce is woefully lacking. As we have installed more and more wind turbines and solar panels, the cost of these ‘curtailment’ payments have increased considerably – to around £1 billion last year.
Zonal pricing would send a signal for significant consumers of energy to move to where power is plentiful and therefore cheap – such as Scotland – and it may well blunt NIMBYism in areas where power is scarce and therefore expensive – such as the South East of England – given that people would more directly bear the costs of their opposition.
Of course, as I’ve pointed out before, the real route to cheaper power is to reform planning rules to enable developers to build more energy infrastructure more easily, but zonal pricing should be seen as a useful complement in that mission. Just as we’d think it bizarre to have a nationally enforced price for pints of beer or gallons of petrol, so too should we look upon national electricity pricing with similar scepticism.
🚀 Philip Salter, Founder
Elon Musk is back in the spotlight (was he ever out of it?) after Seth Abramson estimated on X that his IQ is only between 100 and 110. Back in the real world, however, there is more than enough evidence that he is a great engineer, entrepreneur and technologist. Founding, building and running Tesla, X, SpaceX, OpenAI, Neuralink, xAI, PayPal – and now to a large degree the US Government – doesn’t happen by chance.
If you don’t like his politics this might be hard to read, but as Noah Smith, who definitely doesn’t like his politics, writes: “Maybe saying that Elon has a 110 IQ makes you feel like you beat him in your little online fantasy world, but out there in the actual world, he is still ripping up your national institutions at breakneck speed.” Nate Silver weighed in yesterday, stating two truths that many people struggle to hold in their heads at the same time: while Elon is obviously pretty bright, this shouldn’t be conflated with moral judgment.
Nate has a more interesting point too. While most traits we’d associate with intelligence are positively correlated, Berkson’s paradox teaches us that two positively correlated variables appear negatively correlated when you restrict your view to only a subset of the population. In sports, this often results in the very best attackers in a particular sport being more likely to be weaker at defending. You don’t normally win the lottery in life twice. Of course there are exceptions, but they, as the saying goes, prove the rule. This explains Musk’s spiky intelligence.
Nate ends his excellent article by applying it to entrepreneurship. Clearly VCs in Silicon Valley and around the world are pattern-matching to the sorts of founders that fit the spiky attributes of someone like Musk. Those who are more balanced are passed over, or are attracted to professions like medicine. This leaves us with an important question: How spiky (in both senses of the word) do founders need to be to succeed?
According to Nate, this pattern-matching comes at a cost: “For every founder who gets a round of Series A funding, there are probably 10 or 100 would-be founders who would do roughly as well if they got the same chance.”
🌱 Jessie May Green, Researcher
When America pulled out of the Paris Climate Agreement in the belief that it was crippling their economy, many feared other nations would follow suit. Yet, a new report from the Confederation of British Industry (CBI), which sheds light on the UK’s green economy, gives hope to the view that growth and decarbonisation needn’t necessarily be in conflict.
The CBI’s report reveals that the UK’s green economy is growing three times faster than the overall economy. The net zero sector demonstrates a multiplier effect, with every £1 it generates creating an additional £1.89 in the wider economy. The sector has grown in terms of foreign direct investment (£20.1 billion in financial year 2023/24), gross value added (now totalling £83.1 billion) and employment.
Net zero businesses now support almost one million full-time jobs. These are impressive in terms of their productivity, with each generating £105,500 in economic value (38% above the UK average), and they also pay employees more (£43,076 a year on average). The net zero economy disproportionately supports jobs in areas outside of London and the South East. This is important.
In September, the UK closed its last coal power plant. The preceding succession of pit closures left a void in the primary and secondary jobs sectors, as well as in regional identity for many areas of the UK. Where coal mining once dominated, perhaps green manufacturing can move in. Batteries in Cornwall, EVs in Sunderland, offshore wind in Scotland, onshore in Wales – it’s already happening, and if the Government really does manage to reform planning rules, it will only accelerate.
Mitigating climate risk is essential to long-term economic growth – a sentiment shared by insurers and farmers alike. While others may be retreating from their climate objectives, Britain should pull out all the stops to position itself as the place for green industries to succeed.
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