E4 l localenergy_3
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A top level presentation considering the emerging roles of cities and towns in supplying cost effective, sustainable energy.
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E4 l localenergy_3
- 1. The Local Energy Agenda Providing low carbon sustainable power to the towns and cities of the future Andre Burgess, Partner, EMVC Solutions 5th November 2014
- 2. © EMVC Solutions About us • EMVC Solutions was established as a platform to develop business opportunities in the emerging world of smart local energy systems • The work is underpinned by the drive to integrate relevant data and has been divided between innovation and practical service delivery. • Current work includes the development of a scalable systems and business model to take advantage of the advances in Smart Grid technology and associated market opportunities for a social housing group.
- 3. © EMVC Solutions Fit for purpose? • The era of the centralised electricity system model is coming to an end. – There is a crisis of trust in energy companies – Low-income consumers are being overcharged – Resilience of the system is being undermined – A green finance gap has emerged – The British economy is missing out on benefits from low-carbon subsidies – Cost effective local generators are being held back • The utility business model is under strain – £100 billion investment in generating and infrastructure at least required by 2020
- 4. © EMVC Solutions The energy market isn’t working In 2013, the gas bills of customers who had not switched supplier since the market was opened to competition were on average £76 higher than those of customers who had switched (IPPR 2014). The electricity bills of customers who had not switched supplier since the market was opened to competition were, in 2013, on average £27 higher than for customers who had switched (ibid).
- 5. © EMVC Solutions The energy sector is transforming... – Ed Davey – 30% of households to be with independent suppliers by 2020 – Energy efficiency and distributed generation undermine the large scale utility business model – Energy supply is undergoing a revolution with ‘smart’, distributed electricity accompanied by rapid cost reductions – Increasing primacy of demand side reduction and energy efficiency
- 6. © EMVC Solutions Local Organisations - ‘Communities’ - want to supply energy Trust People trust their communities to give them a fair deal on energy. A recent study indicated three times more people felt they would get a fairer deal from a community energy company than a big energy supplier. Local benefits Community energy schemes are an effective way of getting people engaged with energy issues, it helps increase support for new energy projects and provides opportunities for local supply chain and jobs Influencing behaviour Behavioural change is a key ingredient in reducing energy consumption. Research has shown that top-down energy efficiency advice from government or large companies is often met with a mix of confusion and distrust. Through their local presence, expertise and representation, communities can encourage grassroots change far more successfully. City Council In the South West Want to launch a local energy company to generate income to fund energy projects and other local services Housing Association In the South West Want to be able to offer tenants ways to reduce energy bills beyond just energy efficiency measures Community Energy Co- Op In the North East Want to use profits from local generation to fund a discounted tariff for residents DELIVERS Source – Ovo Energy
- 7. © EMVC Solutions Municipal Energy i.e. the public and community, as well as private, ownership and managerial control of local energy generation, distribution networks and delivery of energy efficiency works. • Local Government is well positioned to take a leading role: – Localised energy supplies increasing energy security and resilience to energy price fluctuations. – Resolution of social issues associated with energy costs such as fuel poverty. – Local economic benefit via income generation and increase in jobs and skills within the green energy sector. – Trust in local authorities as suppliers is three times that of the Big Six. – As the son/daughter of ECO develops, local authorities will be well placed to integrate local supply with local energy efficiency on an area basis – Assets: Resources / Finance / Influence / Legitimacy
- 8. © EMVC Solutions What can a local energy company do? What can Cities do? Support investments in local generation create community benefits Generate income Reduce bills for residents and tackle fuel poverty Have a stake in the new, smarter energy system A Local Energy Company Source – Ovo Energy
- 9. © EMVC Solutions 4 ingredients for Local Energy Services •Smart grid tech including meters can be used to see real- time energy usage, and facilitate demand management programmes. •Providing Energy Company Obligation funding and as a coordinator for local installers. •Incorporating front and back office supply business, including trading and marketing •Buying energy from local generators; including investing in renewable generation and integrating existing generation facilities. Power Generation Energy Supply Smart Grid integration Energy Efficiency
- 10. © EMVC Solutions The Barriers • National government policy – for example, how subsidy mechanisms have been designed, how subsidies are allocated between technologies, and issues with planning. These must be addressed at that level. • Upfront costs – and achieving sufficient scale to justify these • Risk – including energy procurement and reputation • Complexity - this can be offset by a range of emerging business models – regulatory compliance – industry codes – energy supply is just one of many priorities • The uncompetitive approach to PPA’s hampers the market. By engaging in energy supply, cities could become a new source of PPAs for Distributed Generation, thereby incentivising developments in their area. • To further encourage developers, cities can offer additional support – for example, help with project coordination and planning – alongside a PPA.
- 11. © EMVC Solutions Business model options White Label Partnership Licence lite Joint venture Fully licensed supplier Takes responsibility for delivery and meeting licence conditions. works with one or more third parties to set up and run an independent supplier Becomes a ‘junior supplier’ with responsibility for some aspects of delivery and meeting licence conditions, while a partner ‘senior supplier’ is responsible for the rest of the business works in partnership with an existing, licensed supplier and takes responsibility for some operational aspects of the supply business in its area licenses use of its brand to an existing supplier who uses it to market to customers in the local area
- 12. © EMVC Solutions Funding Routes • Public works loan board • Municipal bonds • Green Investment Bank • Local authority pension funds (101 schemes, £150 billion in assets) • Crowd funding opportunities and partnerships
- 13. © EMVC Solutions Don’t run before you can walkCO2reduction Asset upgrades Micro Grid Renewable Low Carbon Smart Grids Step 1 Reduce Demand Step 2 Optimise Generation Step 3 Active Demand Management hree stage solution 100 90 80 70 60 50 40 30 20 10 0 Asset upgrades Micro Grid Renewable Low Carbon Smart Grids
- 14. © EMVC Solutions Smart Grids - a more efficient way to run our energy system Copyright © Encraft Ltd 2014 T: 01926 312 159 | www.encraft.co.uk The fundamental reality is that there is a more efficient way to run our energy system Building Neighbourhood Country City Now Optimised Passive Future Invisible Infrastructure Optimised Optimised Optimised Optimised Source – Encraft ltd Energy Supply and Demand is optimised within a community first
- 15. © EMVC Solutions The ‘killer app’ for the electricity sector? • Smart grids open up new revenue streams for communities beyond energy saving – Generation and supply Moving to demand-based pricing – Demand response/system balancing Rewards for avoided investment - DNO’s Frequency response - STOR participation – Capital investment savings / maintenance optimised – Security of supply – Trading The catch is that many of these require minimum scale and some kind of legal structure
- 16. © EMVC Solutions Thank you Andre Burgess andre@emvcsolutions.com
Notas del editor
- – distributed generation difficult for utility investment, independent generation and power purchase agreements : Rapid cost reductions and innovation are occurring in ‘smart’, distributed electricity technologies that disrupt how electricity systems traditionally operate and spell the end to the dominance of the large‐scale utility business model. These technologies – including solar photovoltaics, onshore wind power, batteries, smart thermostats and appliances, and highly efficient lights – hold the key to a cheaper, cleaner, more competitive and secure electricity system, that works better for consumers. and innovation are occurring in ‘smart’ distributed electricity technologies (DETs) that disrupt how electricity systems traditionally operate. and innovation are occurring in ‘smart’ distributed electricity technologies (DETs) that disrupt how electricity systems traditionally operate. : : exceptionally low levels of trust in energy companies (Edelman 2014) stops some consumers engaging in the market to look for a better deal, and undermines public confidence in clean energy projects. the Green Investment Bank (HOC 2014) estimates that investment totalling £200 billion is required in the power sector and supporting infrastructure alone up to 2020. The additional investment requirement in residential energy efficiency improvements could be as much as £125 billion (EBR 2014 forthcoming). However, the Environmental Audit Committee has recently warned that under half the annual investment required in the power sector (£8–£10 billion out of £20 billion) is currently being delivered, and utilities are ill-equipped to make the investments off their own balance sheets (ibid). : in 2012, 50.4 per cent of offshore wind generation and 69 per cent of nuclear generation was owned by nine foreign state-backed companies. Even where the generation is not foreign state-owned it is often owned by companies from outside of Britain. At the margin, foreign owners are more likely to use supply chains, employ management, make investments and carry out research and development from their country of origin than from Britain. Their shareholders are also likely to be foreign, which means that any dividend goes overseas. : smaller-scale electricity generation is increasingly cost effective, supports growth by smaller energy companies, delivers local jobs and skills development opportunities, and creates opportunities for consumers, business and local authorities to own a stake in the low-carbon transition. Project developers have continually faced problems selling their energy to the largest six energy companies (‘Big Six’ – British Gas, EDF Energy, E.ON UK, npower, Scottish Power, SSE), whose business models are fundamentally threatened by the rise of local generation.
- – distributed generation difficult for utility investment, independent generation and power purchase agreements : Rapid cost reductions and innovation are occurring in ‘smart’, distributed electricity technologies that disrupt how electricity systems traditionally operate and spell the end to the dominance of the large‐scale utility business model. These technologies – including solar photovoltaics, onshore wind power, batteries, smart thermostats and appliances, and highly efficient lights – hold the key to a cheaper, cleaner, more competitive and secure electricity system, that works better for consumers. and innovation are occurring in ‘smart’ distributed electricity technologies (DETs) that disrupt how electricity systems traditionally operate. and innovation are occurring in ‘smart’ distributed electricity technologies (DETs) that disrupt how electricity systems traditionally operate. : : exceptionally low levels of trust in energy companies (Edelman 2014) stops some consumers engaging in the market to look for a better deal, and undermines public confidence in clean energy projects. the Green Investment Bank (HOC 2014) estimates that investment totalling £200 billion is required in the power sector and supporting infrastructure alone up to 2020. The additional investment requirement in residential energy efficiency improvements could be as much as £125 billion (EBR 2014 forthcoming). However, the Environmental Audit Committee has recently warned that under half the annual investment required in the power sector (£8–£10 billion out of £20 billion) is currently being delivered, and utilities are ill-equipped to make the investments off their own balance sheets (ibid). : in 2012, 50.4 per cent of offshore wind generation and 69 per cent of nuclear generation was owned by nine foreign state-backed companies. Even where the generation is not foreign state-owned it is often owned by companies from outside of Britain. At the margin, foreign owners are more likely to use supply chains, employ management, make investments and carry out research and development from their country of origin than from Britain. Their shareholders are also likely to be foreign, which means that any dividend goes overseas. : smaller-scale electricity generation is increasingly cost effective, supports growth by smaller energy companies, delivers local jobs and skills development opportunities, and creates opportunities for consumers, business and local authorities to own a stake in the low-carbon transition. Project developers have continually faced problems selling their energy to the largest six energy companies (‘Big Six’ – British Gas, EDF Energy, E.ON UK, npower, Scottish Power, SSE), whose business models are fundamentally threatened by the rise of local generation.
- Many nationwide initiatives have looked at how to reach out to the poorest people and provide them with affordable energy, but these initiatives have often struggled to overcome disengagement among the people they aim to help.
- DECC Solar PV Strategy Part 2, April 2014 “maximise the potential of mid-sized commercial and industrial roofs” “deploy 1GW of solar on government estate” “exciting new technologies, such as building integrated solar” “extend permitted development rights” “straightforwardguidanceforschoolson how to install solar PV”
- Provide specifics on these Energy Supply Our expertise and system infrastructure will help our community energy partners to effectively set up their own supply business, from front to back office, from trading to marketing. Smart Metering Our smart meters can be used to replace either traditional meters or prepayment meters. You and your customers will be able to see real- time energy usage, which can be used to compare portfolios of homes to identify the most energy efficient or inefficient properties. Energy Efficiency OVO can support our community energy partners’ efficiency campaigns and initiatives by providing Energy Company Obligation funding and by acting as a coordinator for local installers. Power Generation OVO can buy energy from local generators. Whether your community is considering investing in renewable generation, or already owns generation facilities, we pride ourselves on offering highly competitive rates for your electricity.
- The challenge to make it all happen But for this potential to be fulfilled there are barriers to growth in DG that cities need to help address. Some of these barriers are beyond the control of cities because they relate directly to national government policy – for example, how subsidy mechanisms have been designed, how subsidies are allocated between technologies, and issues with planning – and must be addressed at that level. Cities can, however, support DG by providing project developers with a new route to market, which is currently hampered by the uncompetitive approach to PPA’s. By engaging in energy supply, cities could become a new source of PPAs for DG, thereby incentivising developments in their area. To further encourage developers, cities could offer additional support – for example, help with project coordination and planning – alongside a PPA. • Feasibility, planning, grid, financing Big 6 Big 60,000 Big 60 million Cities can, however, support DG by providing project developers with a new route to market, which is currently hampered by the uncompetitive approach to PPA’s.
- Energy supply business model options for cities Some local authorities are pioneering an innovative new form of activity in city energy by seeking to engage in the energy supply market. In this report we set out the case for cities to engage in energy supply and identify the following five options. Licence lite Independent energy supplier Virtual energy company Fully licensed supplier: a city sets up and runs an independent supplier, taking full responsibility for delivery and meeting licence conditions – as is being pursued by Nottingham city council. Joint venture: a city works with one or more third parties to set up and run an independent supplier. Licence lite: a city becomes a ‘junior supplier’ with responsibility for some aspects of delivery and meeting licence conditions, while a partner ‘senior supplier’ is responsible for the rest of the business – as is being pursued by the GLA. Partnership: a city works in partnership with an existing, licensed supplier and takes responsibility for some operational aspects of the supply business in its area. White label: a city licenses use of its brand to an existing supplier who uses it to market to customers in the local area.