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Where do we get our energy from?

Sam Stephens | 17 Sep 2015 | Comments

Around the time of the UK Government’s Energy White Paper in 2007, the main issue debated at the time was what forms of energy should supply our demands, while recognising the ‘trilemma’ of affordability, security of supply and sustainability. The logical conclusion was to provide a sustainable mix of generation consisting of renewables, nuclear and conventional generation, with a transition to low carbon generation. Eight years on and the energy mix remains a pertinent issue, but with the additional dimension now of where our energy is generated.

National Grid scenarios recognise this in the form of three types of generation, micro-generation (<1MW), distributed generation (<50MW) and grid scale generation. All scenarios considered by National Grid forecast an increase in overall installed generating capacity over the next 15 years, but also an increase in generation at the lower end of the scale. The contribution from micro and distributed generation is forecasted to rise from 17% last year to between 26% and 33% of installed capacity in 2030/31. There are a number of drivers behind this ‘decentralisation’ of generation. Principally it is driven by an increasing interest and uptake in district heating and heat networks to provide communities with combined heat and power, recognising that at least 40% of thermal energy from conventional power plants is rejected to the atmosphere and electricity transmission losses can be a further 5-10%.

There are now additional factors to consider. Traditionally, we have found economies of scale through building larger power systems, both in generation and networks. The rise of renewables challenges this view, with economies of scale now achieved through scale of manufacture and financing models, and operational efficiencies gained through technology. The short to medium term view will be more complex, particularly with the gradual removal of renewable subsidies and incentives, and technology such as smart meters reaching maturity.

However, in another ten years, we will look back at 2015 and realise that it marked the tipping point where renewable forms of generation started to become economically viable in their own right. Onshore wind is increasingly competitive with conventional forms of generation, with solar panel prices following closely behind, and set to overtake with 20% reductions in panel prices with each doubling of global manufacturing capacity (‘Swanson’s law’). In addition to this, the ongoing price reductions in battery storage technology, driven by investment in electric vehicles, will help manage the variability of renewable generation.

This raises the main economic question; when will consumers be able to take a five year view of their energy usage and decide it is cheaper to generate and store their own energy than buy it from the grid (at around 12p/kWh or £120/MWh)?

As soon as we consider this question, it raises a number of further issues. Standing charges to users and Capacity Markets for generators will be important to finance the maintenance and operation of existing assets that are increasingly relied upon for balancing power and resilience. Large scale consumers will increasingly look to grid scale generators to guarantee supply, either for national or economic interests. A good example of such users may be emergency services or operators of electric vehicle networks, as recently launched in London.

A further issue is around whether these changes are actually beneficial for the environment. Will it be effective in cutting our carbon emissions? Are there any negative environmental impacts that need to be considered and built into regulation? Have we fully thought through the consequences and will it enhance the security of supply and the overall resilience of energy system? These are the challenging questions we will be debating on the 23rd September in London, at Future Proofing Energy: Environment. In conjunction with Imperial College, Atkins has brought together key industry figures from finance, regulation, communities and generators, both large and small, to debate this and the wider issues around decentralised energy systems. Hopefully we’ll see you there.