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The end of power utilities? Maybe not just yet…

By Dave Elliott

Local generation is challenging the power utilities in the US and elsewhere. Some of the implications of that trend are reviewed in a useful series of studies by the US Lawrence Berkeley National Labs on Future Electric Utility Regulation which look at Regulation in a High Distributed Energy Resources Future i.e. in the context of a potential future with a high reliance on energy efficiency, peak load management, distributed generation and storage.

One of  Berkeley Lab’s  studies (No.1 in the series) focuses on regulation of Distributed Energy Resources in terms of  advantages and disadvantages from the perspectives of utilities and customers and the potential role (if any) of the big power utilities in the future. The report says that the emergence of distributed energy resources (DERs) that can generate, manage and store energy on the customer side of the electric meter is widely recognized as a transformative force in the power sector’. It suggests that, as DERs become competitive in price and performance for many customers, ‘utilities will face reduced sales volume, more elastic customer demand, and greater opportunities to substitute DER optimization for traditional utility assets and services. It expects that ‘dramatic reductions in the cost of regulated distribution networks will be sought by all stakeholders’, and, although that could be good for all concerned, it raises the question of whether utilities will or should bother trying to enter DER markets, given what might be diminishing returns.

Certainly it says that it is not a straightforward decision, quoting Gregory Aliff, Beyond the math: Preparing for disruption and innovation in the US electric power industry, (Deloitte 2013): ‘A decision to transition to a higher overall risk profile will likely involve significant internal debate and high probability of negative reactions from the financial markets and shareholders. This barrier may ultimately be deemed insurmountable – and as a consequence, new business alternatives may be severely constrained.’

That has evidently already been judged to be the case in Germany, where companies like RWE and E.ON have in effect lost monopoly control of the consumer electricity market as prosumer self-generation  and local energy co-ops have spread, with PV solar especially challenging the utilities’ gas-fired plants in the lucrative peak demand market. The big utilities have had to retreat to servicing this new decentralised market (which accounts for around 40% of Germany’s renewable capacity) and managing the grid. The Berkeley report seems to suggest something similar may happen in the US – but with the added issue of trying to ensure that consumers stay on the grid. There’s evidently concern about ‘grid defection’. That would make managing the system (e.g. balancing variable renewables and variable demand) much harder, potentially undermining the role of DERs and making life hard for the utilities.

Instead, the Berkeley Lab report says that ‘by facilitating DERs, utilities can both lower their costs and increase the benefits they can offer customers who deploy DERs, providing an incentive to remain connected to the distribution system rather than defect from it’.  It adds ‘the fundamental role of the utility will evolve to support this lower cost, higher value service that can be provided when customer-facing DERs are coordinated to not only provide customer services, but to create value for the distribution utility and grid as well. However, that evolution may occur in different directions. One points towards a major utility presence in sourcing, financing and optimizing DERs for customers. The other points towards a major role for competitive firms in not only providing DERs through competitive channels, but also in competing to tailor DERs’ performance and optimize the total value they can create in this emerging, three-sided market comprised of customers, distribution utilities and the grid itself.’

The report also suggests that, in the US context, regulators may in any case not let utilities enter DER markets, quoting a comment in a recent New York Public Service Commission Order: ‘Markets will thrive best where there is both the perception and the reality of a level  playing field, and that is best accomplished by restricting the ability of utilities to participate’. Before the New York Public Service Commission, Order Adopting Regulatory Policy Framework and Implementation Plan, Case 14-M-101, Proceeding on Motion of the Commission in Regard to Reforming the Energy Vision, Feb. 26, 2015, p. 67.

The Berkeley Lab report seeks to steer in between rival views. One says that, having lost their market monopoly, the utilities will fade away, the other that their supply system will always be cheaper than DERs, or if not, that utilities would be best suited to deploying DERs. Instead, the report says that the utilities will not disappear, but they will have to change their role, from monopoly suppliers to energy service companies and new decentral market enablers, with only limited involvement in generation themselves, as opposed to supporting local distributed generation by others.

Maybe so. They do after all have the expertise, even if they may have lost the trust of consumers. And their traditional markets. Though the exact balance between the various possible elements of the new role that utilities might play is unclear, with the report suggesting that in one, utilities successfully evolve to play the major role in using DERs to provide services to customers, while in the other, ‘these functions are increasingly performed by competitive firms using advanced and largely decentralized digital technologies, and the utility “sticks to its knitting” in terms of providing and maintaining infrastructure needed to deliver basic energy and capacity services, while depending on DERs to entice its customers to remain connected to the system and help the utility maintain sustainable cost levels’.

 Either way, though, their role will be very different from now – and that’s a conclusion that has emerged after just an initial wave of successfully grass-roots decentralized power initiatives. Who knows what may come next, with, for example, pressure for municipal-level energy projects beginning to emerge and some US prosumers banding together in local shared ‘community solar’ micro-grid schemes and peer-to-pear trading:  and It does seem that we are moving away from centralised monopoly power. Though against some opposition, as this report from the US indicates:

Battles over net metering, with utilities trying to limit their losses, may lead more consumers to consider going off-grid. A recent Wired article claimed that, with domestic self-generation, smart meters and local storage  ‘the national grid itself may become less important’, in that ‘we could be living in a world where consumers have super-efficient homes and are mainly generating on site’.  Certainly some say off-grid systems can be viable in some locations:

That may happen to some degree in some countries and locations but, overall, the reality seems to be that grids, linking to larger geographically-spread generation projects, will remain vital for balancing local variations in supply and demand, although utilities will have to adapt to a new pattern of energy generation and use.

*The Berkeley Lab reports: Report No 1: Corneli/Kihm, Electric Industry Structure and Regulatory Responses in a High Distributed Energy Resources Future.’ Report No 2 in this ongoing series looks at market design and distribution issues, including local peer-to-peer exchanges between projects and consumers.

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Sustainable heating and cooling for buildings

by Dave Elliott

 ‘40% of Europe’s energy use and a third of the greenhouse gas emissions can be attributed to buildings and much of this relates to heating and cooling. For example in the UK, 38% of all CO2 emissions are related to space heating. These emissions can be avoided or significantly reduced through a combination of holistic design, integrated renewable energy and high efficiency.’  So says a report on Sustainable Heating and Cooling of Buildings from Leonardo Energy, the European Copper Institute’s think tank, offering a good analysis of the options for reducing buildings’ energy consumption  and carbon emissions. (more…)

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Is small and local beautiful – or just token?

The coalition government has talked a lot about decentralisation and supporting small-scale local projects. The preface to DECC’s Microgeneration Strategy consultation says: ‘There will be a role for small-scale electricity producers in homes, schools, offices and factories around the country to complement the substantial new investments needed in large-scale Carbon Capture and Storage, nuclear and renewable electricity such as offshore wind; a new supply of locally-produced power that spreads the risk and can help make us all more self-reliant. And there will be a step-change in the use of renewable micro-technologies such as heat pumps, as we tackle the single biggest cause of greenhouse gas emissions, the heating our homes.’

The deployment of micro-generation options like micro-wind and PV solar, has been left mainly to the small existing ‘Clean Energy Payback’ Feed-In Tariff scheme and, for housing, the ZeroCarbon Hub, an agency the government has commissioned to deal with the issue.

In theory, micro-gen will be picked up as and when building and construction companies get to grips with the governments requirement that all new build houses must be ‘zero net carbon’ by 2016.

However, there is still some uncertainty as to what that actually means. Under pressure for clarification, the Labour administration had indicated that, although the aim was for houses to generate all their own power, some power could still be imported, and the upshot seemed to be that new-build houses were only expected to have to cut emissions by 70%. But now an even more flexible approach seems to have emerged, with only 56%, being required. Evidently, 70% was seen as ‘particularly challenging and may not be achievable in all cases,’ according to the ZeroCarbon Hub. What that means in terms of how much of their net energy they must get from on-site renewables, still remains a little unclear. The Building regulations are also being ‘rationalized’, so it’s all still rather muddy. See:

The same goes for the proposed Renewable Heat Incentive, now delayed until June. But, when it comes into force, it could stimulate solar heating, and the use of biomass and biogas in micro CHP units, plus heat pumps and even fuel cells, at the domestic level.

Although it’s mainly aimed at remedial domestic energy efficiency projects, some micro-gen options may also eventually get some support from the Green Deal, which aims ‘to radically overhaul the energy efficiency of homes and small businesses’ by making energy efficiency affordable for all, whether people own or rent their property’. The details emerged in the Energy Bill in December. The scheme is expected to start in late 2012.

The Green Deal is basically a short-term credit system – money is loaned by participating commercial organisations for upgrades, but paid back continually through a charge on their energy bills. As DECC explains: ‘The upfront finance will be attached to the building’s energy meter. People can pay back over time with the repayments less than the savings on bills, meaning many benefit from day one. It will help save carbon, energy and money off fuel bills.’

DECC added that it’s estimated that there are 14 million insulation measures like loft, cavity and solid wall to be carried out; and that the most energy-inefficient homes could save, on average, around £550 p.a. by installing insulation measures under the deal. When the occupier moves on, not only will a more efficient property be left to the next occupier, the charge will also be left behind.

According to Chris Huhne, the scheme could support 250,000 jobs over the next 20 years, from the projected £7 bn of Green Deal private-sector investment per year, assuming all 26 million households take up the Green Deal.

All the above schemes focus mainly on domestic-scale projects and upgrades. Larger community-scale energy supply projects are the focus other schemes like the Community Sustainable Energy Programme (CSEP) – an £8 m open grants programme, run by the Building Research Establishment as an award partner of the BIG Lottery Fund. The Feed-In Tariff also provides support for local community projects – up to 5 MW. And DECC has a ‘Community Energy Online’ information service.

However, overall, the government does not seem to see community-scale projects as very significant. The new revised National Policy Statement on Energy says: ‘The government does not believe that decentralized and community energy systems are likely to lead to significant replacement of larger-scale infrastructure.’

This despite the fact that an earlier report by the Energy Saving Trust (‘Power in Numbers’) suggested that there were significant economies of scale: ‘Little to no benefit is observed in progressing from individual action, i.e. single household, to the five household level, even after the implementation of additional policy support. It is only when action occurs at scales above 50 households, and ideally at or above the 500 household level, that significant carbon savings become available.’

Community-scale projects could, it says, economically meet 4.3% of total UK energy demands if householders were to act collectively. That’s 13% of total annual UK household energy demands.

Community projects might get some support from the changes that are proposed in the governments new Localism Bill, which gives councils, communities and individuals a greater say in local planning decisions. But equally it might lead to opposition to the adoption of new technologies large and small ‐ some have seen it as a NIMBY’s charter. The bill introduces new rules allowing for local referendums where local people, councillors and councils can instigate a vote on any local issue, including planning proposals; and new powers to allow communities to give planning approval to chosen sites on local land.

It makes sense to use local energy sources to meet local energy needs wherever possible, and there is a lot of enthusiasm for a more decentralised community-based approach, as well as for domestic scale projects. The latter may have it limits, but done properly it can make a useful contribution, not least in alerting householders to their energy use and associated lifestyle energy and eco-issues. Community-scale projects by contrast should also be able to make a much more significant contribution on the supply side, if given proper support. So far though that seems rather patchy. However, Housing Minister Grant Shapps announced recently that the government would look into developing a community energy fund to ensure that new homes built after 2016 are carbon neutral.

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