Will the government give consumers the energy system they want?
Small scale technologies are shaking up the existing energy paradigm, where the only consumer choice is to decide which big and distant power company to buy from. This ignores rapid developments in solar panels, onshore wind, electric vehicles (EVs) and battery storage. People are increasingly choosing to be energy owners, and are able to take back at least some control over energy production.
Our new report looks at how the energy system and, most importantly, the government are not keeping up with the pace of change. Policy makers assume that large energy businesses will continue to be the dominant players in energy markets. This is half right: consumers will still depend on big power stations and big grids to provide cheap, reliable power, especially in the winter. We aren’t going to enter a world where small can do it all. But even if they only supply a fraction of UK energy needs, small scale energy technologies will disrupt the markets and regulations that currently govern the power system. As a reminder of what this could mean, just a ten per cent fall in market share for the US coal industry was enough to cause its near collapse.
Technology is marching on relentlessly. By 2020 it will make economic sense for businesses to draw their power from solar rooftops instead of the grid, and this will be true for homeowners too by 2025 at the latest. Tesla is already the largest selling luxury car manufacturer in the US and has surpassed General Motors to become the US automaker with the highest market value.
To understand what’s at stake, imagine two different visions of the future.
21st century technologies in a 20th century energy system is a recipe for disaster
The first vision, business as usual, could lead to chaos, with grid congestion, expensive short notice network upgrades and inadequate generation at peak times. Without change, just six electric cars charging in close proximity at peak times could overload the grid and disrupt local power supplies; and, today, one in five of the UK’s local grids are unable to accept feed-in from distributed energy like rooftop solar.
If we get it wrong, the result will be emergency policy making and higher bills. Experiences from abroad show this route will not be an easy ride. In Nevada, attempts to clampdown on rooftop solar’s effect on the local power system were met with a ferocious consumer backlash, ultimately leading to a reversal of the clampdown and the grid administration being sacked.
Chaos is not inevitable
The second vision is where policy keeps in step with technology. Actively governing the transition to a new system which incorporates small scale technologies will give UK consumers the freedom to choose while cutting costs.
California is already using smart EV charging infrastructure as back up to help keep the lights on at peak times, and Germany has incentives for coupling battery storage with residential solar PV to give consumers what they want without disrupting the grid.
This grid back up potential is a real opportunity for the UK: EVs and heat pumps could provide 82 per cent of National Grid’s frequency response needs by 2030; battery-coupled solar could provide net system benefits and EV batteries alone could help to keep the lights on for seven hours at a time by 2025.
How the government can support consumer energy choices
Business as usual, as the market is currently structured, will not deliver a smart, consumer led energy system. It is the government that will decide which energy future we end up with.
If the government wants to give consumers real choice over energy generation and consumption it must actively govern the transition to a smarter system. Action is needed in five areas:
- Govern energy infrastructure to support small scale energy choices. Large scale energy will continue to be essential, but policy is needed to make it investable and help it to support small energy technologies while providing low carbon bulk power.
- Create an independent body to guide system design through robust technical analysis and option testing because the transition will be complex and policy should be informed by experts.
- Transform distribution network operators into distribution system operators, so that local grids can be managed smartly and to reduce the need for expensive grid upgrades.
- Enable small scale technologies to provide system flexibility, so that the UK can replicate California’s EV success story and realise the potential of small scale energy to deliver system benefits.
- Use automation and aggregators, to allow small scale technologies to support the grid rather than disrupt it. The government should require EV chargers, solar, batteries, appliances and grids to be smart by default.
As technology prices continue to fall, the UK can have both a vibrant market in consumer led technologies and economically viable large scale energy infrastructure. But this can only happen if politicians actively govern the system to support the energy future which is rapidly unfolding.