Why the UK needs an energy security rethink

London at night
Sebastian Blake
Sebastian Blake, Commercial Analyst, Open Energi

Blackout Britain is a headline which has become increasingly common over recent years. Many argue that decades of under investment in generation infrastructure has left the margin between demand and supply in the UK desperately short, raising the possibility of network outages at times of high power demand. Given the blame that would be landed at the Government’s feet were the lights to go out, energy security has been given top priority over the other facets of the energy trilemma; decarbonisation and affordability.

The Government’s solution to this was to devise the Capacity Market as a mechanism to encourage investment in new power plants, with yearly auctions for participants who can provide capacity over the winter peak. Crucially, auctions are held four years in advance of the capacity ‘go live’ date, to guarantee revenue and give investors the confidence they need to build new power stations.

There are, however, major flaws in the thinking behind such an approach. There is much evidence to suggest that the UK is in fact well supplied with power station capacity, that building more stations is unnecessary and that running the system more efficiently on tighter margins is a good thing. And by ensuring there is sufficient power plant capacity to meet the instance of highest demand in the year other potentially greater threats to security of supply are being ignored.

The graph below shows the frequency of the UK grid, which is the primary indicator of the system stability. The network is in balance when the frequency is hovering around the 50Hz mark, however any significant variation either side is a sign of a serious imbalance between generation and demand and could result in a potential shutdown of the network. This isn’t a distant threat: whole towns had to be shut off as an emergency measure in 2008 when grid frequency dropped to 48.8Hz.

Grid frequency graph

In this case, we can see what happed to the frequency when a large supply source – an interconnector between the UK and France – failed, leading to more power being drawn by consumers than was being supplied to the grid. To counteract the resulting frequency drop and avoid a system shut down, a series of automatic measures kicked into action, including turning up thermal power plants (coal and gas) and sending water reserves cascading through turbines of hydroelectric plants.

More recently on the 9th May 2016 there were 37 significant failures across 27 different coal and gas plants as well as the France interconnector; with each one disrupting frequency and testing the grid’s resilience. At one point in the day National Grid issued a warning that insufficient spare capacity would be available in an hour’s time. This is too short notice for a thermal plant to start up (which takes around four hours) so not something the Capacity Market would have helped with.

National’s Grid’s Head of Commercial Operation Cathy McClay has said managing the grid frequency is becoming an increasing headache for our island system. However, the technologies traditionally used to respond in these situations look increasingly unfit for the role. The best new candidate is demand side flexibility – in the form of batteries and demand side response – which offers numerous benefits.

 Energy storage and demand side response offer five core advantages over traditional solutions

  1. Speed of response: Demand side response and batteries can deliver their full power in under 1 second from receiving a request from the network. By comparison thermal plants and hydroelectric generators need around 10 seconds. As the interconnector example shows, this difference is crucial for avoiding a potential network shutdown and will be needed more and more due to continued reductions in system inertia.

 

  1. Decentralisation: Demand side response and batteries are distributed technologies meaning a required level of response can be made up from aggregating together many smaller sites. We have seen how relying on large centralised technologies (like the undersea link to France) poses increased risk to system stability as they represent significant single points of failure. Thermal power stations fail on a daily basis so individual plants cannot be relied upon for response; whereas with distributed technologies this risk is shared across many assets; if one fails the whole service is not compromised.

 

  1. No need for spinning reserve: Traditional providers are only able to achieve the 10 seconds or so when starting from an already running position, hence the generators must be operating at some partial output to provide the quick response. This impacts fuel efficiency by around 10-20%, greatly increasing costs and CO2

 

  1. Flexibility: The network can only absorb as much power as there is demand, so at times of low demand, National Grid must turn down clean and zero marginal cost power from renewable sources like wind to accommodate the thermal generators which must be kept running for frequency response. Demand side response and batteries overcome this problem.

 

  1. Low carbon: By maximising the use of demand side response and energy storage technologies, the UK will be able to achieve further growth in renewable generation; while reducing its reliance on interconnectors and its exposure to volatile gas prices.

 

The high capacity fossil fuel plants which have historically been used to respond to the demands of the grid are increasingly unfit for purpose in a modern electricity network, yet the Capacity Market fails to encourage the development or implementation of smarter, cleaner and decentralised solutions which would provide a more efficient means of addressing both our energy security and other elements of the trilemma.

Neglecting these alternative solutions via the Capacity Market will undermine exactly the thing Government is trying to advance: security of supply. National Grid should be applauded for its efforts to implement change through its Power Responsive campaign – designed to encourage demand side participation in the balancing markets – but many policy makers remain locked into the old paradigm of an archaic industry; no doubt weighed down by the stranglehold of well-established energy incumbency (better known as the Big Six).

For these parties, using distributed assets to balance the system still represents a significant departure from the orthodoxy of constructing and operating a few large centralised assets like Hinkley Point C, which will deliver 7% of all UK electricity when completed.

To achieve a real paradigm shift towards a secure, affordable and low carbon economy, we don’t even need to find new solutions. Distributed and demand side technologies are ready to deliver; we now need to change the supply-focused mind set of our policy makers and operators.

By Sebastian Blake, Commercial Analyst, Open Energi

A smart, flexible energy system call for evidence – Open Energi’s response

Transforming the UK’s energy future

In November 2016 BEIS and Ofgem published a call for evidence for a smart, flexible energy system. Together they recognise that a smarter and more flexible system offers significant benefits for consumers and the economy and that to make these changes successfully will require a co-ordinated approach.

We are pleased to share the letter accompanying our response below:

12th January 2017

Open Energi is delighted to submit this response to the call for evidence.

It is clear that the UK electricity system has a pronounced and immediate need for clean, fast, flexible power. This flexibility is essential to security of supply; providing the first line of defence in the frequent event of successive power plant and interconnector failures – a far more pertinent threat to Great Britain’s energy security than a perceived shortage of capacity. With the National Infrastructure Commission suggesting consumer savings equivalent to a reduction in the average household energy bill of £30-90 p.a, expediting smart power is also essential to delivering energy at a lower cost.

The good news is that Great Britain has a thriving energy technology sector with a vast portfolio of innovations that can step up to this immediate challenge of providing system flexibility. Open Energi, a dynamic UK tech firm, is one such innovator- a ‘scale up’ rather than a ‘start-up’- testament to UK strength in encouraging digital innovation and investment. Open Energi has been providing frequency response through the Firm Frequency Response (FFR) market from demand side loads since 2010 with the technology trialled in domestic refrigerators before that. Our growing portfolio of customers and processes has given us deep experience of connecting to a wide range of assets, including batteries. Open Energi is an aggregator of choice; we have a culture of openness, integrity and honesty which is reflected in the agreements we have with our customers and the methodologies we use to deploy our technology.

Our aim is to help National Grid maintain a safe supply of power to the nation and help the UK achieve its sustainability goals whilst simultaneously creating a new revenue stream for our customers. We are working with over 40 organisations, many in the FTSE 250, whose power loads we aggregate and provision, including Sainsbury’s, United Utilities, Aggregate Industries, Severn Trent, Welsh Water, Hanson, University of East Anglia and Tarmac. Open Energi is also partnered with Younicos, Camborne Energy Storage, Arenko, Powerstar and ITM Power.

But, demand-side energy tech faces major barriers in UK energy markets:

There are different technologies that can provide flexibility and it is clear that these technologies are not treated equally within the current regulatory, policy and fiscal regime (Policy Exchange, 2016)

  • Demand flexibility can be provided by both demand side response and battery storage technologies markets must not discriminate between energy stored in a fridge or a heated liquid vs. energy stored in lithium ion cells. Regulations must also be careful to capture behind the meter storage where electricity is not re-exported to the Grid but is consumed on site. If both technologies produce the same effect at the transmission level then they should be rewarded the same by these markets.
  • UK energy markets continue to favour existing power generators to a disproportionate extent. To fully realise the potential of demand-side flexibility to help balance the grid, save energy and offer lower costs for consumers, we need a level playing field. Without it,there is a very real risk that we will lead ourselves into multi-decade contracts for power plants, paying for a system which is already over capacity and which has no incentive to get any smarter. Ensuring access to the Balancing Mechanism for novel technologies is the most crucial task for regulators to ensure the development of a low cost, efficient future power system; and hence should be prioritised over other policy and regulatory goals.

Industrial and Commercial (I&C) demand flexibility has the most immediate potential for scale as compared to domestic and residential markets which do not currently have the market incentives. Industrial and Commercial demand flexibility must be a priority for government action in line with the ambition of the planned Industrial Strategy.

  • Open Energi has been a pioneer in demand side innovation to achieve a portfolio of 20MW of fast, reliable and clean demand side availability. However, in partnership with our existing I&C customers we could be unlocking 300MW and a full market of 750MW for FFR across the UK grid.

Companies like Open Energi cannot prequalify for the government Capacity Market and cannot compete directly against gas plants in the balancing mechanism. The fast, flexible power they provide is instead only accessible via tenders and procurements.

  • Unlike other energy projects, demand flexibility requires no state subsidy at all.
  • All that we ask at Open Energi is that the regulations are updated to ensure ‘demand side’ (when we turn demand up and down) is given the same treatment as ‘supply side’ (when new power is generated) in the existing energy markets.
  • Flexibility is being unlocked today, but needs to scale to deliver transformational impacts. Our modelling shows there is a massive 6GW of untapped flexibility already available in our energy system, which can be unlocked by smart demand side technology to rapidly provide flexibility to the grid.
  • Open Energi believes that securing independent access for demand-side aggregators to the Balancing Mechanism should be a priority for government; this is the primary market for UK flexibility with over £800mn in transactions p.a., is ostensibly technology agnostic and is suffering from pronounced volatility that is set to increase with the growth of renewables.
  • Open Energi’s ambition to open the markets to unlock flexibility aligns with our belief that it is the role of aggregators to drive innovation through technology development; not simply to act as a market access intermediary. We see this role – as UK innovators – as defining and valuable, no matter how much competition is fostered in the retail supply industry.

Faced with the urgent need for flexibility in our rapidly evolving power system and with the tech needed to solve it bound only by markets that aren’t fit for purpose, there is an immediate opportunity to unleash competition. Applying market mechanisms in the UK could dramatically change the game for energy security on the GB grid as early as next winter. With over 1GW of energy storage prequalified for National Grid’s recent Enhanced Frequency Response tender, of which only 200MW was purchased, it’s clear we have the appetite from investors to bring innovation to market. The challenge now rests with government to make regulation fit for purpose in a modern age of energy technology innovation.

Sincerely,

Lucy Symons

Director of Public Policy, Open Energi

New EEF report: DSR should “be one of the first options” for electricity security

Metal company scores win-win of cash and cost savings

Under Theresa May’s Government BEIS has been tasked with delivering a comprehensive industrial strategy, ensuring that the UK has secure energy supplies that are reliable, affordable and clean, and tackling climate change.

The UK’s manufacturing sector has an important role to play but a report published this week by the manufacturers’ organisation, EEF, found that its members’ confidence in the Government’s handle on security of supply is tepid at best. Only one third of its members agreed with the statement that “the Government has a long-term strategy to ensure security of supply” and just 3.6% felt energy infrastructure had improved in the last two years.

The report “Upgrading Power: Delivering a flexible electricity system” makes a series of recommendations for Government to help manufacturers play a part in boosting UK energy security and improve how our electricity system operates. Demand Side Response (DSR) is identified as one of the first options that should be looked to in achieving electricity security.

As the authors note “Continuing to be over-reliant on supply side options and leaving DSR options untapped is rather like having the heating on at home, deciding it’s too warm and then opening a window rather than turning the heating down. Both actions will achieve the intended outcome but the former wastes energy and money.”

In a recent EEF survey only 9% of respondents took part in some form of DSR activity – compared with 29% in a recent cross-sector survey conducted by Ofgem – citing varied reasons from insufficient financial incentive to those that had utilised all of the available flexibility on their sites. However, by the far the most common reason given was the complexity of the system and resulting lack of understanding within manufacturing companies.

The report found that even manufacturing companies well versed in the DSR markets find the system bewildering and unwelcoming to new entrants. One company commented that “it is genuinely stressful to be in a regulatory environment alongside the big six”, further noting that energy companies have entire departments to deal with these markets, whilst even a large manufacturing company may have only one individual covering energy.

Those manufacturers who are engaged in DSR activities adopt a common approach and hierarchy to maximise potential savings and revenue streams. Where possible, companies will seek out opportunities to reduce exposure to higher power (wholesale) prices first, followed by minimising their network costs (Triads and Distribution red band charges) and finally participate in specific DSR products.

To help unlock the estimated 9.8GW of DSR flexibility available in the UK EEF recommends first increasing the number of businesses acting on straightforward price signals through time-of-use tariffs. Beyond this it calls on the Government, National Grid and Ofgem to look at what can be done to reduce the complexity of specific DSR services and regulatory barriers to entry.

Finally, it highlights the forthcoming ADE code of conduct for aggregators as an important step which will improve manufacturers confidence in these companies. Open Energi strongly supports this move. Aggregators occupy a position of trust and have a responsibility to educate businesses and be open and transparent about the benefits that exist.

Donna Hunt, Head of Sustainability at Aggregate Industries summed this up in a recent interview with edie, saying “businesses want to see what the value-case is. They need the confidence and trust in it. It’s not new technology but it’s perhaps not at scale yet. That’s a big reason why Aggregate Industries is proud to be out there talking about how it works. We should be doing more of it because we need a more responsive energy system that works for everyone.

“We need to prove that value-case, share knowledge and open doors. We just need there to be a level playing field between the aggregators to remove the confusion so people are clear about how they can engage.”

Unlocking the full potential of DSR is going to take time but National Grid is looking to source 30-50% of balancing services from DSR by 2020, creating a potential revenue stream for businesses of around £1 billion. As the world strives to find ways of delivering energy which is clean, affordable, and secure, the more that can be done to facilitate DSR participation – from business of all sectors – the better.

EEF Report: Demand Side Response Recommendations

  • The Government should investigate how to maximise the DSR benefits for manufacturers of smart meters, half-hourly settlement and time-of use tariffs.
  • National Grid, as part of its charging review and in consultation with industrial energy consumers, should seek to reform the Triad charging system to deliver greater predictability for industrial energy consumers.
  • The Government should explore the incorporation of DSR aims and related electricity cost reduction strategies into energy efficiency schemes such as ESOS.
  • National Grid, in collaboration with energy consumers and the Government, should seek to reform the ancillary market to reduce complexity and create greater transparency.
  • Ofgem should amend the Balancing Settlement Code rules to allow participation of DSR in the balancing market.
  • The Government should reform the Capacity Market to allow easier access for DSR assets in future auctions.

Download the full EEF report “Upgrading Power: Delivering a flexible electricity system”

 

 

The 4th industrial revolution: a smart power revolution?

Sainsbury's deliver demand side response from its stores UK wide

On the 8th September, James Heappey, Conservative MP for Wells took part in a House of Commons debate on the 4th Industrial Revolution.

In his speech he talked about the “smart energy revolution” that is underway in the UK today, and highlighted the pioneering work of two of Open Energi’s customers, Sainsbury’s and Aggregate Industries. Here’s what he had to say:

Speaking twice in 25 hours is a record for me, and I am grateful for the opportunity. I congratulate my hon. Friend Mr Mak, who has secured a worthwhile debate and opened it brilliantly. I apologise for being late, but I was working on the Energy and Climate Change Committee’s paper on renewable heat and transport targets, which will be released this evening. I commend it to the House: it is probably one of the most insightful Select Committee reports that Members will read all year. Indeed, all of our Committee’s reports are insightful.

In summing up yesterday’s debate, the Minister used some fantastic theatrical references, which I hope will become a tradition of his summing-up speeches. He has an encyclopaedic knowledge of the theatre, so we look forward to that. Today, I present, to use my own theatrical reference, the second part of my play in two parts, in which I will talk about the energy opportunities provided by the collision of emerging technologies and our existing energy infrastructure.

There is some dispute over whether this is the third or fourth industrial revolution. A book by Professor Jeremy Rifkin has become a bit of a bible for me, as I have sought to develop my thinking on how energy policy might evolve. He thinks that this is the third industrial revolution, but none the less it is an excellent read that very much pulls in the same direction as those who are advocating the fourth industrial revolution.

Ministers will already have looked in great detail at the National Infrastructure Commission’s “Smart Power” report, which is a fantastic publication setting out how we can harness all these wonderful technologies as we digitise the energy system. The reality, as the report observes, is that we could save £8 billion a year for the UK economy if we digitise our energy system and harness those technologies. That figure represents not just immediate savings on our energy bills, but gains in productivity.

Nicola Shaw, the head of National Grid, told the BBC “Today” programme last week that we are seeing

“a smart energy revolution across the country with consumption adjustments reflecting when energy is cheapest”.

The idea that we have to change our consumption habits to meet a changing energy market sounds like a nightmare to most people, but the reality is that we already have many of the technologies in our homes. Most major white goods manufacturers are producing smart appliances already: they are in our shops and, probably unknowingly, we already have them in our homes. Through the internet of things, they will all start to speak to one another to make sure that they operate at the most efficient and cost-effective time. They also report faults, so people will not have to carry on for years with a fridge that uses more power than it should, because it will already have flagged up its fault to whoever manufactured it. These are exciting times and the technologies already exist. It is not, in my view, going to be a case of opting into them, because manufacturers are building them as standard and they will increasingly do so.

The Government face a challenge in preparing our homes, businesses and society for the internet of things from an energy perspective, so I will give my thoughts on our system preparedness before moving on to examples of where we are already seeing the huge economic advantages.

As Ministers know only too well, the smart meter programme is the keystone in achieving the digitisation of our energy system, and I know that they will be keen to push on with that roll-out at best speed. Everything that we seek to do in bringing technological innovation into the energy space depends on those smart meters being in place to digitise the system. Similarly, on the way in which our grid is put together, we want all our generational capacity—from the smallest to the largest—to be able to speak in real time about what it is producing, so that we can have a more dynamic generation system. We also need to sort out the regulatory framework for storage, because at the moment people have, in effect, to pay for their energy twice: first when it is generated, and secondly when it is released from storage. Surely, that cannot continue for much longer.

We also have to make sure that our distribution networks—the substations in our communities—are capable of dealing with more dynamic demand and clustered demand, particularly overnight, when people might be taking advantage of cheap energy to charge cars, run the washing machine and tumble dryer, and heat immersion tanks. None of that will happen automatically without the Government paving the way. Thereafter, however, I am sure that these technologies will find their place in the market by themselves. They will make life better, and people will buy them as a result. The Government do not need to encourage people every year or so to change their mobile phone, because people just want to have the latest technology at their disposal. I am sure that that will be the case in this area if the Government create the right regulatory framework with energy policy.

I turn to storage. The price of storage has already come down from $3,000 per kWh to about $200 today, and it will come down even more quickly still. We saw over the summer reports about the Tesla Panasonic factory in Colorado, the construction of which is being accelerated quite rapidly given the increase in demand. These are exciting times, because storage is the key to flattening the energy supply curve and unlocking the real potential of renewables.

The real technological wizardry, however, is demand-side response. That may be a combination of words that many in the Chamber have not heard before, but it needs to be at the forefront of the way in which we discuss energy. Flattening the supply curve through the availability of storage deals with only half the problem; flattening the demand curve through demand-side management is equally important.

I have been hugely impressed as I have become enthused about DSR, and as I have gone around various companies that are delivering it, by the scale of the savings that it is bringing to businesses. Marriott hotels have signed up to a DSR contract that saves them hundreds of thousands of dollars a year. Workers at Aggregate Industries’ bitumen plants used to just turn up in the morning and fire up the boilers to get the bitumen tanks up to heat. They would operate over the course of the day, and then they would be switched off. Aggregate Industries now employs technologies that allow it to say, “Our tolerance is that we need to keep these tanks at a certain temperature, and provided that they are at that temperature, we can release energy back to the grid.” It does so, and it gets money for nothing as a result. By employing those technologies, it can sell back energy that it does not need, which it would otherwise just have paid for and wasted. That creates a huge saving.

Similarly, refrigeration is a massive cost for supermarkets and the food industry in general. Sainsbury’s has employed demand-side response, and the store in my constituency in Street, Somerset has released 20 kW of capacity back to the grid simply from DSR. That is extraordinary.

The other area that I want to touch on was the electrification of the transport system. I had to check very carefully with the Clerk of the Energy and Climate Change Committee about when I would find myself in contempt of Parliament, but I understand that if I draw on the evidence rather than on the report itself, it is fine. This is a hugely exciting opportunity for us to employ electric cars and electric haulage systems in the UK. The problem is that I am not sure that we yet have the infrastructure in place to support them, and I am not sure that we have the right fiscal structure to support them either.

I tried to buy an electric car over the summer, and sadly I found that their range was probably not quite enough to allow me to do my duties around my rural Somerset constituency. They are getting there, however, and we just need to incentivise the acceleration of the technology, so that we get beyond the 100-mile range to a range of 200 or 300 miles. If that happens, I think that people will, all of a sudden, go for electric cars quite quickly. All the incentives that the Government have in place—the £4,500 that they contribute towards the car and the contribution they make towards a charging point at the buyer’s home—are fantastic. The Government’s emphasis on establishing a charging infrastructure at motorway service stations and on main roads is also fantastic, but we really need to grow the infrastructure much more if people are to buy the cars and make the saving that we hope they will. The argument is that electric cars will make us more productive as well, particularly when we go beyond merely electric cars to electric autonomous cars, and we find that we can move around our towns and cities much more freely.

Interestingly, in the United States, Coca-Cola has employed hydrogen-electric hybrid vehicles for its entire fleet, and it has made a 20% reduction on its fuel costs. It made that huge saving by employing those technologies and electrifying its transport fleet, which is very exciting. We should look across at that and realise that this is not just something that people do if they are green and they want to be environmentally sensitive. It is something that an individual or a business can do if they want to reduce their operating costs—technology colliding with energy generation and energy consumption to make us more efficient and more cost-effective, and to make all our operating costs that bit cheaper.

Mr Deputy Speaker, you encouraged us to keep within 10 minutes, so I will summarise, rather than go into the many more examples that I am itching to provide. The bottom line is that, while we will focus very much on our digital infrastructure with broadband and 5G mobile phones and we will worry very much about the preparedness of our airports and air routes, as well as of our roads and rail, the energy infrastructure is just as important. In my view, alongside the broadband and mobile phone networks, the three sets of infrastructure of telecoms, broadband and energy will drive the fourth—or third—industrial revolution and allow us to harness all these fantastic technologies. We should seek to do so not just because we are seeking to arrest climate change, but because it is cost-effective, makes business sense, will increase productivity and, ultimately, will be great for our economy.

Access the full debate here.