Key points
The UK Electricity System Operator National Grid ESO is stepping into gear and developing reforms that aim to deliver a zero-carbon grid by 2025. This has signalled ambitious goals as part of the ESO’s “road to net zero electricity markets” and has shown there is much work to be done, with plenty of opportunities for those who are looking to make the change and penalties for those who aren’t.
Andrew Normand, new business manager at Encora Energy, explains how industrial energy users can benefit from the decentralised energy revolution…
The energy market is changing fast as it moves rapidly towards a more decentralised model driven by demand side technologies, new markets, deregulation and increased renewable generation.
This new market offers significant opportunities for industrial energy users and raises the question of how they can best interact with the market so they can play a major role in helping the UK to green up its electricity supplies and meet carbon emissions targets.
In the last ten years there has been much faster adoption of renewables into the market than previously thought likely. Last year renewables produced a record 41% (or 120.3TWh) of Britain’s overall power output and this trend is being replicated throughout Europe, according to energy market data analyst EnAppSys.
Large amounts of offshore wind, solar and other renewables have pushed electricity generation away from the big fossil fuel-fired centralised plants and spread it much wider with small plants coming into the mix.
This has led to significant changes in the energy market – but in some ways this was the easy bit. Renewables displaced some of the fossil fuel plants, but while some remained there was enough stability to keep everything running even when the sun and wind weren’t there. It was all able to happen without users needing to worry about what was happening around them. The next period of change will require end users (both domestic and industrial) to make much bigger shifts and to do this well they must have a much greater understanding of the market.
In the next decade, vast amounts of energy generation at the edges of the grid will need to be brought into demand centres, while the final elements of the carbon intensive power supply will be removed from the system. Take-up of electric vehicles (EVs) will increase as petrol and diesel vehicles are phased out, and a comprehensive EV charging infrastructure will need to be built. National Grid ESO has a huge and delicate job of managing the new demands to keep the grid capable and stable, and they will need help.
All of this will require increased investment in infrastructure, an efficient data-connected grid, changes to the way markets operate and significant demand-side response. More importantly, it will provide opportunities for those who understand the market and change their energy use, and penalties for those who don’t.
Some of these changes are already known and are making their impacts felt right now. Recent transmission and distribution changes as part of Ofgem’s Targeted Charging Review (TCR), for example, mean that firms won’t be able to avoid costs just by simple triad avoidance and luck. The changes also mean that users will no longer be able to receive payments for helping suppliers to avoid balancing charges.
Every connection into the grid will have an impact, large or small, on this balancing act and the energy profile, technology, trading flexibility, storage, generation and use will all be relevant
The key for industrial users is to work out how to maximise these opportunities by engaging with the energy market in the most effective way – to the benefit of both the user and the market itself.
Recently there are several companies that have started to make this leap and have great intentions. One temptation has been to jump on the latest technology bandwagon. There’s plenty of talk around emerging technologies – hydrogen, solar, wind, electrical battery storage and heat storage – that can act “behind the meter”.
Adoption of these technologies could amount to significant cost implications, either positive or negative, if not considered correctly or at all. Some technologies are more fashionable and stimulate plenty of conversation, but all have pros and cons to suit different situations and uses.
If you’re an industrial user, the question you should be asking is not: “should I install technology type X on the site of my industrial premises?” It’s more: “which technologies will help me to interact with the energy market to generate maximum benefit?”
When evaluating requirements, the industrial user needs to consider the following key areas:
- total energy needs (heat and power) and flexibilities. For example, are there ways of reducing unnecessary energy consumption?
- route to market – trading of excess power, importing and storage of power and use of energy flexibility
- knowledge of the market
- potential incentives and subsidies
- technology feasibility and choices – knowing the range of options out there is vital to be able to make informed choices
- investment and economic evaluation – all done on the back of these informed choices
These considerations then enable the industrial user to undertake a comprehensive study that takes into account:
- the management of energy consumption patterns to minimise costs (time of use etc)
- the potential for use of “behind-the-meter” generation to cover and even export in high-cost periods including using renewable options such as solar and wind
- the use of combined heat and power to maximise energy efficiency across all requirements
- automatic demand-side response or turn-up services to further lower cost if beneficial
- energy storage (both electrical and heat-based) to manage energy use at critical periods and the potential benefit from price arbitrage or grid services
- the sizing and application/ modification of grid connections. This includes making provisions for power export and grid parallel running and minimising the effects of the recent transmission and distribution changes as part of the TCR
From there, the industrial user could better understand:
- the market implications of various potential solutions
- the viability of trading excess power from behind-the-meter generation to reduce overall costs
- the value of building relationships with suitable suppliers/ traders and financiers to manage energy costs and CAPEX outlay
- supply contracts and power purchase agreements (PPAs)
- the utilisation of the capacity market to subsidise power generation and exports
- investment requirements, return on investment and overall economic analysis
- the technical requirements of the proposed solution – for example,
o feasibility of generation and storage options
o suitability of export as well as import grid connections
o practicalities of the project’s development, construction and operation
So, what are the key benefits of all of this? By truly understanding an increasingly decentralised market and interacting more effectively with it, industrial users can find ways of reducing their costs, increasing their energy efficiency and capitalising on new revenue streams. They can unearth opportunities to make money from their energy assets by selling excess power, capacity and/or stability services to the grid.
The wider benefits of decentralised energy include a reduction in transmission losses and increased security of supply, with users not having to rely on large power stations dozens of miles away for their supplies. In addition, with decentralised energy systems increasingly powered by renewable energy, this will help to drive down carbon emissions.
Before these multiple benefits can be reaped, however, industrial users must understand the market and how to interact with it. Encora Energy works with several partners, including EnAppSys and multiple developers and traders, to help users gain a holistic vision of their role within the market and understand the technical and economic feasibility of generating revenue streams in an increasingly decentralised market.
