The future direction of the UK’s energy policy, and indeed overall economic direction, has been thrown into doubt not only by the ‘Brexit’ vote, but also by subsequent decisions taken by Prime Minister Theresa May.
In January, May called for a complete withdrawal from the European internal market and has since expressed the firm view that the UK should also quit whole swathes of the customs union. However, some experts believe that leaving the European Union (EU) could hamper growth of the UK’s fast-growing renewables sector and provide a lifeline to fossil fuels.
But while fossil fuels may get a short post-Brexit reprieve, the effect is likely to be temporary. A new report released by British think-tank Policy Exchange calls for a radical reappraisal of the UK’s electricity supply system and the creation of a ‘smart grid’ that will support renewable resources. A “smarter, greener, cheaper system”, it says, will not only save the country up to £8bn by 2030 but will also lead to its “decarbonisation”.
Author of the report, Richard Howard, said, “Making the power system smarter will also mean it can provide cheaper and cleaner electricity…The Government needs to encourage the use of cleaner technologies such as demand response and storage. This approach is not only greener, but could also lead to savings worth £90 per household per year by 2030.”
A flexible energy grid
The key to creating a smart grid is flexibility. Professor Sir David King, special representative for climate change at the Foreign and Commonwealth Office, said: “In order to move to a low-carbon power system, incorporating more renewable energy, we also need to create a smarter, more flexible power system,” adding that the government should “encourage smart technologies such as storage through changes to policy, regulation and market design”.
But devising and adhering to a future smart grid road map could prove to be easier said than done, as the report identifies a number of regulatory and policy barriers that hamper the development of new renewable technologies. These include what it calls the lack of a “level playing field” to help reduce reliance on dirtier forms of power generation, such as diesel.
In the short-term, the government needs to clamp down on the development of diesel generators by regulating their emissions and exposing them to carbon taxes, and to review capacity market rules to ensure that clean technologies are able to access three-year capacity contracts on the same basis as power stations undergoing refurbishment. Additionally, it needs to introduce regulatory changes to remove the ‘double-charging’ of environmental levies on storage while, at the same time, encouraging distributed network operators (DNOs) to consider new approaches to managing their networks, such as demand response and storage.
In the longer term, Policy Exchange calls for a reform of the wholesale power market to value and encourage flexibility. It suggests moving to a ‘nodal pricing’ model, which it says would better reflect the geographical patterns of demand and supply across the country, as well as the physical constraints within the network. Also, it calls for a major overhaul and simplification of the balancing services managed by National Grid, and the network charging arrangements.
Getting smart with electricity demand
Smart meters, advanced controls, improved communications and decentralised generation and storage are enabling power consumers to become more self-sufficient in energy, and actively manage their demand. For example, many large-scale industrial and commercial businesses now shift their power consumption away from peak times to avoid higher prices, while also generating additional revenue by providing power to the grid.
The UK’s electricity needs are also changing, with total electricity demand declining by 15% over the past decade. Indeed, Policy Exchange doesn’t envisage envisage demand increasing until perhaps 2030, “if and when heating and transportation are electrified”.
However, once the UK has left the EU, a process that is expected to take at least two years after the triggering of Article 50 this March, it may no longer be bound by the renewable energy, air quality and other environmental protection targets agreed upon under the terms of the 2009 EU Renewable Energy Directive.
Under the directive, a binding target of 20% final energy consumption from renewable sources by 2020 was set for the EU as a whole. The UK’s national target within that is 15% but, at the end of last November, a draft Energy Union Package aimed at updating and tightening the provisions of the directive, with targets to 2030, was unveiled by the European Commission. By removing itself from the directive’s constraints, Brexit’s proponents and some of the energy industry argue that the UK is now ‘free’, in principle, to allow its energy mix to follow a markedly different growth trajectory than what would have been the case under EU rule.
Lower costs driving the energy market
Despite this, there are solid grounds for believing that after a short post-Brexit hiatus, renewable energy will overshadow fossil fuels in the energy mix as part of a digitalised electricity system as, although renewables and nuclear have high upfront capital costs, they also have low or negligible running costs. Also, the growth of renewables, in particular solar and wind, is pushing down market prices on average, which is expected to continue.
One authoritative source at the Policy Exchange refuted the suggestion that the UK’s post-Brexit energy mix will be markedly different, saying: “The UK climate change commitments are enshrined in the Climate Change Act 2008 so, Brexit or not, the commitment to reduce emissions by 80% from 1990 by 2050 is not going anywhere.” He added that, “How this target is achieved might change if the EU Renewable Directive is abandoned but in terms of reducing CO2 it does not change anything.”
Meanwhile, the UK’s electricity capacity margins remain tight, which has given both government and utilities reason to be concerned. The UK power grid is in a state of transition and Policy Exchange concedes that many elements, including its current technical design, policy and regulatory framework, and charging regime, are “not suited to work with a high share of renewable energy”.
However, the organisation says, this is changing. “Smart grid features are being implemented and, as we introduce more flexibility in the grid, it will become easier to bring more and more renewables in,” says Policy Exchange. This will need to be achieved through a mix of storage, DSR, OCGT, and small gas and diesel engines; however, given that the government has removed its previous support for renewable energy it must, at the very least, create a level playing field in energy generation, in order for renewables to compete.