This blog post was adapted from a speech I delivered to the Cornwall Energy Associates conference: ‘Towards a Smart, Flexible Energy System’ in February of this year.
Labour’s policy for the future direction of our energy system can be summed up by the three Ds – decarbonisation, decentralisation and democratisation.
Not exactly the snappiest of slogans, I know, but what do I mean by each of them?
Well firstly, we clearly need to maintain a steady route of our energy systems towards a process of decarbonisation. We are committed to making sure that the UK meets its climate change targets set both by the recent Paris accords, and by our own Climate Change Act. And we know that energy use – by which we mean of course all energy: heat, electricity and transport – accounts for something like 70% of our greenhouse gas emissions. We are in the process now of contemplating our energy obligations under the Fourth and Fifth Carbon Budgets – Parliament has adopted the Fifth Carbon Budget running up to and beyond 2030 without, on present policies, having the ability to meet the energy goal of achieving an overall carbon output of below 100gms/kWh.
We have got to get to that sort of level both to meet the terms of the Fourth Carbon Budget and have a chance of meeting the Fifth. And that means pushing hard along the route of greater renewable and low carbon generation perhaps aiming for about 60% of electricity and heat to be supplied by renewable and low carbon means by 2030. And to maximise the effect of that low carbon generation, we will need radically to improve both the energy efficiency of the grid in delivering power, and the energy efficiency of our homes and offices, hence saving on the need for new capacity by making our homes and offices far less demanding of energy in their daily operation.
I am, by the way, not convinced that decarbonisation of heat – on which we are lagging currently, with only about 5% of heat provided by low carbon means – can reasonably be effected by electrification. This is because the demand range for gas for heat at present far exceeds the daily and seasonal demand for electricity by about six times. The consequence of electrifying all our heat requirements would be to place an intolerable load on electricity generation, and more importantly, the capacity that would be required to safely serve such an arrangement in terms of peak demand would largely undo the gains that could be made by introducing a smarter and more efficient electricity system.
Not only that, but the cost involved in ripping out all our gas networks and all our domestic boilers to replace them with electrically-driven heat pumps would be very difficult to sustain, even if the British public felt ok with the idea that in many instances their boilers would be taken away, and their gardens would be dug up to install heat pumps. We think that a green gas route to heat decarbonisation is a preferable route. That will involve medium term injection of green gas – biomethane, syngas and hydrogen – into the grid to substantially decarbonise delivery of heat, and in the longer term, move towards full hydrogen supply along with a substantial expansion of district heating programmes where appropriate. And of course there will be an element of heat pump installation, particularly in new build properties.
So to the second D: Decentralisation. The development of a more decentralised energy system becomes possible with the developments we are discussing today – a flexible, smart system which enables energy properly to be produced in smaller units and fed into the system. We see this in terms of self-sustaining local arrangements which involve mini grids and are off the system except for necessary back-up arrangements. It also allows areas of the country – cities in particular – to vertically integrate and run their own local energy retail arrangements for customers. by developing their own local generation, both in terms of actual plant and aggregation for supply of prosumer domestic and small commercial generation, We are already beginning to see this latter development with the emergence of municipal retail companies such as Robin Hood Energy.
It is also on the longer term cards to see Distribution Network Operators becoming instead Distribution Service Operators and entering into partnerships with cities, or those cities taking over taking over grids that serve their areas, balancing their own services locally in the first instance, and trading into a national balancing system in prebalanced blocks. Decentralisation leads of course to my third D but it is worth, in passing, thinking about what the effect of such decentralisation, assuming it was based on smaller blocks of generation, would have on system integration. The reduction of unit size from a maximum of 1.8GW to, say, 0.5GW would decrease system integration costs by about 20% because of the lowered need to hold capacity in reserve to deal with any large plant going out of commission at any one time.
So to the third D: democratisation – that is, to move towards a system where the consumer ceases being a passive recipient of an energy supply but instead becomes either an active prosumer with control substantially of their own energy requirements, or has, through participation in local energy schemes, become a stakeholder in their energy environment. That means of course being a part of a local generating, supply and retail environment at municipal level, or taking a greater part in that local process through active involvement in any of those processes.
Now I do not kid myself that this means that a nation of energy activists will arise – I am well aware of Oscar Wilde’s observation that ‘the trouble with socialism is that it takes too many evenings’ but I do think that a system that relates to its consumers in an active way rather than a passive way has all sorts of benefits for the system itself, in addition to the likely cost and bill benefits to customers. Among other things, it is likely to ensure that energy is used wisely by consumers who can see and be part of the process by which it is sourced and managed. And that, among other things, is something we are going to have to fix over the coming decades – it will not just be about delivering energy more efficiently but changing people’s perceptions of what it is to use energy. We will be entering an era where energy will be a precious commodity, to be used carefully and sparingly, and not sprayed around profligately as is the case today, an approach which is reinforced by the distance energy remains from those who use it
So back to our subject today – a smart and flexible energy system. And the bottom line of all this is that such a vision of our energy future is only possible with the underlying assumption that our systems really are going to change from their present largely uni-directional, centrally balanced and regulated arrangements to systems that use energy more smartly, maximise the actual use of output wherever and whenever it is produced, and enable a proper two-way process to develop in terms of energy generation supply and use.
And developing a smart and flexible system, to my mind, produces multiple benefits in addition to allowing the processes of localism to take place. The ability of smart systems to avoid or reduce investment in network reinforcement, for example – estimated to produce savings of up to £12 billion by 2050. The very clear benefit of avoiding ramping up new generation – perhaps saving the system £5 billion by 2050. The ability to meet binding carbon targets with a far lower deployment of those renewables into the system than might otherwise be the case – also saving perhaps £5 billion on otherwise incurred costs by 2050. The optimisation of balancing on a minute by minute system with smart intelligence on imbalances right up to and beyond gate closure – and by the way, enabling far better visibility of generation into the system from National Grids point of view – producing savings of perhaps £1 billion per annum on present arrangements.
This can come about with efficient use of storage both in domestic and generation environments, enabling a far less variable output from renewables, and at domestic level by allowing for effective load shifting during the day to maximise the use of what goes into the system.
Smart can aid that load shifting as well, by establishing use protocols, usually without the active involvement of consumers, that contribute towards the balancing of the system with minimal additional back up capacity required. And certainly with the advent of electric cars, we are going to need efficient charging protocols based on smarter and two-way responsive local supply systems.
The issue, I guess, that faces us in all this, is: will it just happen as the logic of the system moves forward? We have even now a penetration of variable renewables into the system which suggests to me that we cannot sustain traditional practices of balancing fines, merit order arrangements and so on – or does it need shaping by regulation particularly to make it happen? My view is that we need to regulate urgently to ensure that we stay on this path. We need, for example, to regulate a level playing field for storage even if it looks in its own right to be commercially viable in the not too distant future so that choice editing of technology – without picking winners – becomes built into the system. We need to consider the costs of renewables in terms of their effect on the whole system including where savings result from their presence rather than look at – say – the cost of a CfD alone, and regulate accordingly.
And we probably need long term to contemplate just what our National Grid arrangements will look like in a world of prosumers withdrawing from the system, and decentralisation looping arrangements systematically below the high level grid realm. We will need a National Grid of course, to sustain inputs and distribution of large energy sources and – a key part of the toolbox of smart systems, greater interconnection capacity. But I doubt that in itself a system operator in its own right is going to be profitable as is the case currently. We need to think over the next period of how we are going to support the system operator in the end.
My view is that in the end, we will have to (just as we need to treat interconnections as public goods) contemplate how we recirculate the savings that we will gain from smartening the system both into customers’ pockets through lower and more efficient bills, and into ensuring that a new system has integrity at all its levels.