59: Prospering From The Energy Revolution 1 - Policy and Regulation
This February, the Local Zero team are bringing you a new podcast every single week! These special episodes are all focused on the work of the Prospering from the Energy Revolution (PFER) innovation funding. First up, a focus on policy and regulation to unleash smart, local energy systems (SLES). This one features Chris Dunham from Carbon Descent, and Merlin Hyman, Chief Executive of Regen.
Essential Reading:
Episode Transcript:
[Music flourish]
Rebecca: Hello and welcome to Local Zero with Matt, Fraser and Becky. This is the place to be for everything you need to know on local climate action.
Matt: Yes, and throughout February, I’m happy to say we’ll be bringing you even more great stuff with episodes every single week instead of our usual fortnightly release.
Fraser: Aren’t you all so, so lucky? Throughout this month, we’ll be talking to a bunch of people who have been working hard over the past four years to help turn their communities into energy-smart places that bring together energy supply, demand, infrastructure and people to connect them in a smart way at a local level such as your community, town, city or region.
Rebecca: And if this sounds like your cup of tea, do remember to subscribe to the pod if you haven’t already. Just search for Local Zero wherever you get your podcasts. Check out our website where you can listen directly. That’s LocalZeroPod.com or get involved with our chatter on Twitter @LocalZeroPod. I know, Matt, we’ve got lots of other handles [laughter], don’t we?
Matt: That’s the only one for now. There’s a lot more chat on Mastodon as well, so please keep that up and hashtag LocalZeroPod and we’ll get back to you.
Rebecca: And if you’re like me and can’t figure out how Twitter works at all, email us at LocalZeroPod@gmail.com
So, team, we are well and truly into 2023, as scary as that is. How are we all doing?
Matt: Yeah, survived so far which is good. We were just saying, to be honest, we’re rather hating our 2022 selves because we’ve punted a load of stuff into the long grass [laughter] and thinking, ‘It’s a new year. That’ll sort that out.’ I’m alright so far. I much prefer this side of Christmas if I’m honest. The days are getting longer and bulbs are starting to shoot.
Fraser: Yeah, it’s nice but, Matt, I’m totally with you. All those end-of-year... ‘Yeah, don’t worry. We’ll deal with it in 2023,’ which felt like a year away at the end of December. It’s now.
Rebecca: Fraser, aren’t you T-minus five days to submitting your PhD?
Fraser: I am, yes.
Matt: Round of applause [sound of applause].
Fraser: Almost there. Full draft. I’ve refused to commit to submitting my PhD on this pod for two and a half years [laughter].
Matt: For a very long time indeed. That’s great news. We should have a celebratory pod episode after this I think because I know there’s a lot of good stuff in there which is very on-theme as well.
Fraser: Absolutely. In fact, some of it speaks to the theme of today’s episode and the episodes for the rest of the month and unpacking how you can use local energy systems... smart or community energy systems to support people across the country to reap the benefits of the net-zero transition. Certainly, lots of relevant ideas and findings in there.
Matt: Yeah, and as we’ve kind of jumped into 2023, there have been lots of relevant news stories as well. I’ve been noticing that this week, there has been a lot more on BBC News with regards to the Saving Sessions and the Demand Flexibility Service that we’re seeing from the likes of Octopus but also other energy suppliers which we’ve talked a bit about on the pod before. There was an interesting piece and the reason that came up again is that they’ve just started their Saving Sessions again which I think, Becky, you and I have been involved with. They’ve kind of reflected a bit on November which is when they were running their last session. It’s interesting to note, the theme that we’re going to talk about today, that of their 1.4 million customers, around about 400,000 signed up, so a good number of those. Half of those delivered a reduction in demand by over 108-megawatt hours. That’s roughly the same as a gas plant running for an hour which is a significant amount of stuff to take off the grid.
Rebecca: It really is. I do question how representative Octupus’ customers are of the wider UK customer base. I feel like they’ve done a very good job of positioning themselves and targeting a certain demographic of customer so far. It’s great stuff to see that so many people are getting engaged and participating. I am very interested to see how those numbers play out and whether they keep that high level of engagement over time because that’s it, right? We’re not talking about these one-off events. This could be something that’s part of our ongoing future.
Matt: So how that equates to what we’re doing on an individual basis, that’s people cutting their demand by about half over that period. It’s often for an hour and a half but I completely agree with you, Becky, that some people are more able and willing to cut than others. We’ve talked a bit about this before. One of the things I’ve noticed is my ability to be able to do it has been vastly improved by some of the devices I’ve been able to invest in. For instance, my air fryer... I’m one of those awful, terrible people who have bought one in the last few months. I’ve noticed that I’ve been able to use it because it cuts my cooking time in half.
Rebecca: Wow!
Matt: So I can sit on my bottom during that period and then cook it really quick for the kids without them trying to string me up and murder me because they’re so hungry [laughter]. The fact that I’ve actually got the ability to afford these things dictates my ability to access them, use them and make savings.
Fraser: I think that’s critical. Becky, you spoke to it as well. It’s for a certain kind of person who has that certain technology already and that will serve a purpose. That’s a good thing. It’s a positive thing to get people involved and active like that and it provides its benefits but I think it does highlight that just transition issue where if you want everyone to access and participate in this and to benefit from this, because there is distinct value on offer for people as well as for the energy system, then we have to do all we can to support people, who typically don’t get to benefit from this kind of thing in these kinds of technologies, to transition in their homes for all the benefits that brings and all the value that brings in the home and in the local area but also to access innovations like this that will be critical going forward.
Matt: Maybe just before we get on to the theme of today’s pod, which is very much on this subject matter, I just wanted to gauge your reaction to a couple of headlines I saw which is about something unrelated and about travel. Within about a 24-hour period of each other, I saw two stories. The first was that the Eurostar is running at about a third of its capacity at peak times. This is a post-Brexit thing or at least it was framed as such. It’s around the throughput of passports in a very different kind of context where you haven’t got the same freedom of travel. The other story was that easyJet has recorded record bookings for its flights this January. This is, in part, a post-Covid bounce. Situating that within a climate crisis and situating it also within a cost of living crisis, I wanted to get your sense of how bonkers that is [laughter].
Fraser: I like how that’s a very impartial question [laughter].
Matt: Sorry [laughter].
Rebecca: How crazy is this! [Laughter]
Matt: Yeah, not quite Evan Davis on PM but there we go.
Rebecca: Oh, dear. I mean I guess you have to look at where those bookings are coming from. You highlighted that it was easyJet and easyJet always has branded itself as the budget airline, so to speak. I’d be interested to see whether British Airways and some of the other airlines are seeing similar things.
Matt: Just on this cost of living crisis and what we’ve covered before, I’m amazed that so many people have still found the cash to be able to book at record levels and we’re not putting them on the train.
Rebecca: Well, that’s because the train is too expensive, isn’t it? [Laughter]
Fraser: It is and I think people are feeling a bit ground out after the last few years. I think people want a break, they want it easy and they want it convenient
Matt: Affordable.
Fraser: As much as from our perspective, we don’t want to be busting the planet and taking flights all the time but I think a lot of people are seeing that cheaper and what they see as a more convenient option.
Rebecca: And more reliable. I’m heading off to London in February during the half-term week to see my folks and my full intention is to travel on the train. They actually suggested, ‘Why don’t you book a flight instead because who knows if the trains will be running? What about the strikes?’ With this lack of reliability, I think there’s a risk that it could be pushing people away from that form of travel that we’re trying to promote.
Matt: Yeah, and what I’ve found interesting... and I’m having to catch myself on here and reading these two stories. I was reading the one about the Eurostar and thinking, ‘Ah, damn you, Brexit! What have you done to these trains?’ The other one I was reading about the flights and thinking more about personal choice and individuals and they were the people making the wrong decision. Actually, it’s a combination of both and across both of these issues but if we focus on the flying point and the trains’ point, we need the architecture in place to make trains affordable and reliable but also to make plane travel expensive or relatively expensive and to capture those environmental externalities. We’re not there. We’re clearly not there and the numbers speak to that.
Rebecca: No. Perhaps another one for an episode later in the year.
Matt: So what’s today then, Becky? This mini-series is very exciting.
Rebecca: A series within a series. It is very exciting. I think one of the things that we’re really trying to focus on here is celebrating some of the successes and hearing some of the stories from this suite of phenomenal projects that have been happening within the Prospering From the Energy Revolution programme that have been running for the last four years to try and create energy-smart places. These 14 projects across the UK have received funding from the government. There’s also been a lot of private investment into them to either design, develop or demonstrate Smart Local Energy Systems; so systems that are bringing together transport, heating and power; that are engaging people in new ways; that are trying new forms of demand management; that are trying to capture efficiencies; that are growing skills and supply chains. There’s a huge diversity in terms of what these projects are doing all with the ultimate goal of trying to be a little bit smarter about how we’re using energy and bringing it back down to that local and community perspective. We’ve got four episodes – today is the first and then there are another three after this – to look at some of those learnings from the projects and today, we are focusing on policy and regulation which has been a huge barrier but could be a huge enabler of Smart Local Energy Systems.
Matt: We’ve already alluded to some of the issues beforehand like some of the points around making access to these smart technologies, micro-generation technologies, demand flexibility and reduction technologies is a big one but it’s also about where we put the burden of cost. At the moment, a lot of the policy costs are on electricity versus gas. One of the things I’ve found interesting about the Saving Sessions is that the people who have already electrified and are able to shift and be smart with their energy consumption have made the most money from those saving sessions. There’s loads in this policy space.
Fraser: There is and I think important always to keep in mind as well is that while there are a lot of barriers, we’re dealing with a policy and regulation framework that was built for big, centralised energy. It didn’t have this in mind. That is starting to shift and the attitudes on this are starting to thaw which, at least in part, are driven by Prospering From the Energy Revolution and all those projects and the evidence because we know now that actually doing things more locally has a huge range of opportunities and benefits for big, key policy areas. Some of the evidence suggests, from the likes of PwC, that you can do net zero more affordably for UK government and for energy networks in terms of the investment required by doing it locally. You can also bring energy down to the local level to more directly include people in the design and tailor those energy systems to local areas, local needs and local opportunities by supporting things like levelling up, if that’s your thing, all other criticisms of levelling up aside but to support regional development and a host of other social and economic opportunities as well. It’s not just about saying that we think local is good because we do this podcast. There’s a whole range of evidence that’s been built now that suggests doing energy smartly and locally can add a whole range of new value for a net-zero transition that doesn’t just get us to net zero but does it in a really prosperous and potentially equitable way at the same time.
Matt: Oh, I like that; prosperous and equitable. Sign me up.
Rebecca: Love it. So let’s bring in our guests to talk a bit more.
[Music flourish]
Merlin: I’m Merlin Hyman. I’m Chief Executive of Regen.
Chris: I’m Chris Dunham and I am Managing Director of Carbon Descent.
[Music flourish]
Rebecca: Thank you so much, Mel, and thank you so much, Chris, for joining us to talk about policy and regulation in the context of energy-smart places, Smart Local Energy Systems and really trying to think about some of the amazing learnings that have been going on over the past four years as the Prospering From the Energy Revolution programme or PFER programme (as I’m sure we’re all going to use that acronym) has been underway. I’m hoping we can maybe start with a little bit of history of framing around this because I think in the context of Smart Local Energy Systems, we’re hearing a lot about policy and regulation, the need for changes, the need to see something different or the challenges. I’m just wondering if we can step back and maybe think about why that’s the case. Why is policy and regulation such a big focus for Smart Local Energy Systems? What’s wrong or what are we doing differently that requires this different approach? Merlin, can you maybe set the scene for us about where we’re coming from and where we’re going to?
Merlin: Thanks, Becky. Regen has been working on trying to support local energy or community energy in its various forms for about a decade. I guess we came at that from a point of view that this is a massive transformation we’re talking about; the decarbonisation of energy which has critical infrastructures that are critical to all our lives, how we get about and in our work/live/play and energy is at the heart of all of it. We didn’t really think that transition was possible without engaging people in their communities. It couldn’t just be a top-down transition and say, ‘We’re all going to shift now.’ We have to involve people because it involves their landscape, their bills, what they see around them and how they heat their homes. So we started to engage and work with organisations, communities and local authorities that wanted to perhaps build projects, start to generate their own power and become a little bit less reliant on national systems of power or perhaps benefit from some of the projects that were going on in their community. Swiftly, when you do that, you realise, of course, that certainly in electricity and, to an extent, heat and other areas, we have a national electricity system in this country. We have one market and it’s a pretty complicated system that’s governed by 10,000 pages of industry codes and all sorts of rules and regulations that were really designed for people who were very, very expert in this area. Therefore, it’s very difficult for small projects, partly because there are relatively small amounts of money involved to pay lawyers, experts, grid consultants and all the rest of it and partly, if you’re not a great expert in this system, it’s really very complicated to deal with. That has made it pretty difficult for people to engage in this whole process of trying to do innovative and interesting things at a local level to generate power, have an EV charger fed off the solar and feed it into the heat network or whatever it might be doing. It’s tended to lead to a little bit of a howl of, ‘This system is not friendly to me. It’s not set up for me,’ but not actually, I feel, over those ten years, a tremendous amount of actual engagement between people very interested in local energy and the actual energy system controlled by the electricity system operator and regulated by Ofgem. I still don’t feel we’re really having that dialogue properly.
Rebecca: Well, let’s see if we can push the needle on that a bit today. Chris, you’ve also been involved, through Carbon Descent, working in spaces like these and working in these local energy systems. In the PFER programme, you’ve been involved with the GreenSCIES project which I think is such a fascinating project and anybody that hasn’t heard of GreenSCIES should definitely go away, Google it and look at the website because there’s some great information there. Maybe you could just share a little bit about what you’ve been doing over the past few years and how this is also perhaps creating the need for some changes in the wider system.
Chris: Yeah, I guess we’ve been working on a series of feasibility studies looking at Smart Local Energy Systems in various areas of England mainly. The main one we’ve been looking at is in Islington where we’ve been looking in London, at taking heat from a data centre. Originally, it was a massive scheme with an ambient loop-style heat network joining up all these dots of heat loads along the way and connecting them to various cooling loads or sources of waste heat like TFL (Transport for London) tube ventilation shafts and then trying to integrate into the decarbonisation of heat, and the decarbonisation of mobility as well, so that we have this kind of joined-up approach and trying to apply things behind the meter. You’re using EV vehicle-to-grid tools to optimise and make the cost of electricity for the heat pumps cheaper with PV. You’re optimising all of that behind the meter and then trying to make it work. Heat decarbonisation is challenging for various reasons. That’s just one of the projects and now part of the original scheme is being built and Islington is developing that now. We’ve applied the same approach in different areas of England. We’ve done quite a bit of analysis in Barnsley in Yorkshire and the West Midlands. They’re similar approaches; so looking at potential not necessarily data centres but secondary heat sources with the idea that if you can find either a cooling load or a waste heat source at a higher temperature, then the overall efficiency of your heat pump will be much higher. You can get up to a combined COP (Coefficient of Performance) or TER (Total Efficiency Ratio) of your heat pump of, say, up to seven.
Matt: Just for the uninitiated, the Coefficient of Performance is the uplift. Each unit of electricity you put in, you’re getting seven out in that instance, did you say?
Chris: Exactly. You’re getting four of heat and three of cooling from one unit of electricity. That’s kind of what we’re doing. We can make it cheap. Well, [laughter] the operational cost is cheap. Obviously, then there’s a big capital cost to do all this stuff.
Matt: I mean the reason government is putting money into this, and it’s more than proof of concept in innovation speak, is that we’re demonstrating this stuff works. In part, that’s learning about putting all these bits of individual kit we know works individually but lumping together in a real-world environment and demonstrating this works. The other part of this, I’m assuming, is asking the question about how we replicate this; so the policy, regulatory and market frameworks that are needed to take this from Islington and put it in Hull, Glasgow or wherever. From your perspective and the really invaluable experience you’ve got, how replicable are these projects at the moment? Were you doing it, as Merlin said, a little bit in spite of the rules? Is it a bit more of a positive outlook from the experience that you’ve gained?
Chris: I would say, to some extent, in spite of the rules and, to some extent, because of them [laughter]. What I mean by that is when we started off the first bit of work we did, we had the Renewable Heat Incentive available which really overcame... one of the central problems with heat decarbonisation is the ratio between the electricity and gas price and the fact that we’ve got all these levies on electricity which are paying for the historic decarbonisation of electricity.
Matt: Yeah, the policy cost for want of a better word.
Chris: Exactly and we don’t have those on gas. Particularly on domestic gas, we practically have zero taxes at all. That makes switching to heat pumps challenging. Part of the attraction of having this combined heating and cooling approach or using waste heat sources is that if you get your COP to above the ratio, then at least you’ve got an operational saving when it’s running. Before the current energy crisis, which paradoxically has helped a little bit because it’s made the levies look smaller on a massive wholesale cost now, you were investing in a heat pump, say, which would cost you more than a boiler and then the actual running cost was higher than a boiler as well and so you were investing to lose. That’s why this has been so challenging and that’s why I say the ‘because’ as the approach helps us to overcome that problem but also in spite of because an additional benefit was the Renewable Heat Incentive which partly overcame this challenge of the ratio... it did overcome it and then we lost that. That whole thing was just dropped completely whilst we were beginning the second stage of our PFER project. Suddenly, it was like, ‘Okay, how do we make it work? Can we still make it work?’ Obviously, we’re trying to recover the capital cost and make it stack up. So is it replicable? Yes, it is but it’s still challenging. Also, generally, we’re taking a heat network approach to things. I think one of the things I’ve learnt over the past four years is that density does matter. I kind of thought that you could do this anywhere as they’ve done in Denmark. In Denmark, they did it using waste heat from thermal generation, coal and so on. Whilst that was available, it made it much more attractive but now we’re trying to do that...
Matt: I maybe just wanted to turn this same question over to Merlin. Merlin, you made the point very eloquently before that we have a national market which isn’t necessarily that friendly to local innovation but in order to reach the scale of generation and demand flexibility at a local level, which would support our net-zero targets and others around just transition, you need to replicate and scale up. From your perspective, what has been your experience of scaling up these local solutions elsewhere and what are the common barriers and also ways of unblocking these obstacles?
Merlin: It does depend a bit on the area we’re talking about. Chris has been talking about heat which is a local thing. It has to be a local solution that responds to the types of property. There is less regulation around heat generally and heat networks. In fact, they’re starting to bring it in and introduce it. I think that’s the big challenge. Chris is tackling the big area that everyone is struggling with and the idea of convincing lots of people to shift from gas boilers in their homes. I think we’re still seeing relatively early stages of trial projects and there are quite a number of inspiring projects around the country. We’re starting to see heat pump numbers come up a bit but it is pretty early stages. You mentioned demand and flexibility. The problem that you have there does go back more to this centralised energy system and the sources of value or the value you’re providing to the system but at a local level, there’s avoiding grid constraints but it’s not actually that much money. We maybe all think it is and grid numbers sound very big but when you break it all down, you’re never going to build a business case on addressing a local grid constraint for the network operator. There might be a bit of cream on top of something. Most of the revenue is actually in the national system run by the electricity system operator who is trying to balance the system, maintain frequency and this kind of stuff. Those systems really are not very accessible to local flexibility. There are too many barriers to bringing that flexibility together and offering it up to the electricity system operator and that comes down to problems of metering, contractual arrangements, the challenges of aggregation and, frankly, that the control room at the end is just very used to calling up a big power station when it’s got a problem rather than aggregating thousands or millions of different assets to provide it with a service. So there is a lot of very basic friction, if you like, in the system. Ofgem has a concept that it talks about sometimes called full chain flexibility with the idea that every asset on the system should be able to provide its full value to the system but we’re a long way away from that.
Matt: Yeah, so it’s about getting that scale from individual local action. Before you came on, we were talking a lot about the Saving Sessions through Octopus and other suppliers and I think Octopus has been able to bundle up 400,000 customers who have signed up and offer that to National Grid as a means of flexing. It’s when you’ve actually got these bespoke local systems, as Chris was talking about, like heat networks and you’re looking at how densely populated an area is. What type of heat demand are we talking about? What are the renewable opportunities here, whether it be heat or electricity? It’s that bespoke nature and that bespoke nature is a blessing and a curse. The bespoke nature means that the place-based value propositioned to local people resonates, you would hope. It’s sensitive to their needs in their local area but at the same time, taking something that works in Islington and putting it at the other end of the country, in my eyes, is difficult and not necessarily without obstacles. If there’s one kind of lesson learnt, I hope, from the PFER programme and others is about how we can do that. I don’t know whether you have a plea really to the powers that be. What do we need to support that?
Chris: Yeah, I think certain elements of policy are coming along at the moment. All the Heat Work Zoning stuff is important and it looks like that will be in place by the end of the year which will enable local authorities to designate Heat Network Zones and say, ‘Actually, in this area, it makes sense that we should have a heat network and, therefore, certain heat loads within that area are mandated to connect.’ But it’s not everyone and they’re not going to say existing homeowners have to connect and that could undermine the economics of the heat networks. If you only pick certain demands, then you undermine the economics of the heat networks. That’s perhaps a missing piece, although I recognise that’s challenging. Do you want to force people? We are doing that in some respects because we’re saying, ‘You will have to buy an EV after 2030,’ and we’re kind of saying, ‘Maybe gas boilers will not be available from 2035,’ or whatever but we’re shying away from saying, ‘It’s going to definitely be this particular solution.’ One of the things that I think I’ve learnt is just the value partly of flex but also... there’s going to be this huge additional peak demand on the grid from decarbonising from electrifying everything and how we do it will impact how big that peak is. If we all went with ground-source heat pumps, there would be a lower peak than if we all go with air-source heat pumps, for instance. If we all went with heat networks with big ground-source heat pumps and loads of thermal storage, then potentially that peak is even lower and then there’s insulation. There are all those things but I don’t think that value is there yet in the system. Even if you can overcome, as Merlin was saying, all these individual assets and even if you have a big heat pump, like the ones we’re putting in, and you can play in those markets, because we’re just using existing old gas CCGT (Combined-Cycle Gas Turbine) that’s out there and has already been paid for, then that can act as our backup. Once we’re up to 130 gigawatts or whatever, then we’re going to need a load of new assets and firm power backup and it’s going to have to be zero carbon.
Matt: Chris, isn’t that another third stream of value? Carrying on this discussion about what the value of doing this is, you mentioned future costs. Merlin, you mentioned giving headroom on the network today to allow other generation to connect. Two would be balancing the network today but then these are anticipated costs of the future. So if we’re making investments today which are going to stop us from building another gas CCGT power plant or additional nuclear plant, that’s a saving. It not be an immediate saving but is that a third value stream we’re not making enough of?
Merlin: The concept is that we have an electricity market and there are markets you can access value in. We did a report on ground-source heat pumps versus air-source heat pumps and the advantages and you potentially definitely can reduce the burden on the network. Trying to identify exactly what that is and making sure that that actually comes through in practice and really pinning down where that value is is quite a task. It really only happens when the networks do their business plans. They use something called Distribution Future Energy Scenarios which Regen developed and they run those models through their networks. They have a different profile for ground-source than air-source and so if there’s more ground-source coming through, then that will feed through into their business plan and the amount of money they need to update. So there is a process that that kind of thing comes through but we don’t know at the moment and people have put out reports saying, ‘It’s going to cost this much on the grid.’ We don’t really know the answer because they haven’t really done the detailed work and they don’t really know about the capacity on the grid at the local level at the moment. There’s value there but it’s not really signalled in the system because we’re not really sure how much it is and we haven’t really quite got to that.
Matt: We can’t quantify the value because there’s too much uncertainty about how much capacity or electricity supply will be required.
Merlin: It’s just understanding how that system actually works; how the system operator works, how the distribution network and system operator work, how they set their business plans. On what basis do they have to provide evidence to the regulator for investments that they make or don’t now make because something has come forward? I don’t think those involved in local energy have really gotten sufficiently into these issues. In the end, that’s what we have to do. We have to accept the energy system as it is and then try and change it rather than just complain about it.
Chris: Merlin, you were talking about the networks there but obviously, there’s the actual supply as well. You’ve got the distribution network, you’ve got the transmission network and then you’ve got the supply, although the supply may not come at the end of that anyway. The point is you’ve got to have that firm power backup and, at the moment, that value is in the capacity market. We’ve got this capacity system that supposedly guarantees we have enough firm power to meet the peak demand but if you look at the value of that, that’s very small. The reason is that you’ve got a lot of existing assets just bidding into it. Once you start getting them saying, ‘We need more than the existing assets,’ that can’t just be gas because it has to be hydrogen and we’ve got to have enough salt cavern storage and electrolysers. These assets aren’t going to run for very many hours a year, so they’re going to look quite expensive.
Merlin: Regen did a report called a Day in the Life of a net-zero power system in 2035. We took a difficult two days and went through what was actually happening. What is the generation mix? When is it generating? That’s what we’re doing and there are lots of others. National Grid ESO put out their latest Capacity Adequacy report if you want some more jargon. Have we got enough power to keep the lights on kind of thing? There are lots of scenarios about exactly how that’s going to work and there are definitely costs associated with that shift. We can reduce these intermittency challenges through firmer power. That’s going to be really important. It’s about understanding the way the markets work at the moment; how they signal that value of the capacity market; response and reserve services, National Grid run and considering how that may change in the future. That’s where the REMA (Review of Electricity Market Arrangements) that BEIS (Department for Business, Energy & Industrial Strategy) is running and is going on at the moment. That’s really where we should be. If we want to be influencing this kind of stuff to make sure that these more local assets can provide that value into the system, then we need to make sure the market arrangements are right and those are fully under review. The door is open and we have the opportunity at the moment to try and shift those markets to make sure they value the right things.
Matt: Yeah, and an example, Merlin, of what you’re saying there is that, in REMA, it would be the locational pricing where the price of electricity would depend in terms of where you consume it and how close you are to centres of supply.
Merlin: I’m suspecting we don’t want to make this into a podcast on locational marginal pricing.
Matt: No, but I just want to give an example to the listeners of a different value stream. I’m going to shush now because I know Becky has got loads of questions [laughter]. It’s that point about value streams. You have to innovate towards the value stream.
Merlin: Yes.
Matt: You can’t innovate towards a value stream that doesn’t exist yet.
Merlin: Exactly. I don’t think locational marginal pricing delivers that value. I think it’s actually about constraint and grid. I think it would be a disastrous path to go down. Yes, those are exactly the kind of debates that are happening within REMA and that is the place where we have the opportunity to reshape the market to value the things that we’re talking about and that Chris is doing, for example.
Rebecca: I’m loving this conversation. I could probably just shut up and you could run the whole podcast [laughter] probably without myself or Matt actually. I also noticed Fraser. You’re being uncharacteristically quiet and so I want to pull you into this conversation as well. What I’m hearing is that among these challenges, some of them seem to be about access into those markets and potentially unlocking the opportunities for Smart Local Energy Systems, community energy or these smart technologies to play a role but I think we’re still in a space where we’re seeing a lot of this happening within niche communities. It’s not something that’s really proliferating across the UK perhaps as fast as it might need to. I think there are other clear challenges or opportunities, whether that’s through opening up new forms of value stream or perhaps other policy instruments, to provide greater signalling or direction towards the business community, industry and so on. I know you’ve just undertaken a piece of work where you’ve talked to all of the projects that have been involved. Is that something that came out of that work? Are there some themes that you were hearing from the wider set of projects in PFER?
Fraser: First of all, Becky, I take offence at the idea that this is uncharacteristically quiet. I keep my opinions to myself and everyone knows that.
Matt: Said no one ever [laughter].
Fraser: So the work that we were doing on the PFER projects at Regen was to interview all the different partners in the project portfolio or a good load of the partners in the project portfolio to try and figure out not just, again, those niche regulatory and market issues and barriers that they face but also thinking about higher-level policy questions. I think signalling is a really good way to phrase it, Becky; signalling and direction. I think we can split down the key findings into probably two areas on that front. The first one that came out of all the projects that we spoke to was a need for greater clarity on the role of local in delivering net-zero energy. We know that local is expected to play a big role in terms of net zero. Local authorities have a remit over almost 80% of climate-relevant policy levers in some way or another. Local authorities, in particular, have control over masses of building stock, public housing, etc, with the capacity to make big changes but what we found was the role of local in delivering net-zero energy, in particular, still isn’t completely clear. For Smart Local Energy Systems, you expect obviously local stakeholders will have a big role to play and local authorities within those stakeholders have an especially important role to play usually, even if it is more facilitation. But still, in terms of actual policy itself and statutory remit, it’s not clear what role local is expected to play within that. Again, this is what the projects told us that there needs to be greater clarity and some dedicated resource and responsibility to ensure that local places can have some autonomy and control over the designing of their local energy systems. There has been really good progress towards this in terms of learnings from the RESO (Regional Energy System Operator) project in Coventry, in particular, but also several DNOs (District Network Operator) are now working more closely as part of their determinations from RIIO-ED2 and working more closely with local authorities on their Local Area Energy Plans as well. So there’s some good progress there but that relationship between central government, local government and local stakeholders will be key. On the other side of it, that can also start to enable the role out of the upskilling that needs to happen with this and the resource from industry, etc, as well. That was point number one. The second point, in terms of direction and signalling, is that we need some kind of greater joined-up, whole-systems strategy for this as well. Again, Ofgem has been really good at pushing this kind of language and BEIS as well but we need more alignment across all the different actors and different sectors involved in Smart Local Energy Systems to try, as far as possible, to streamline that process and foster better collaboration and better alignment of incentives to deliver projects that can be complex and can look like they do in Chris’ example in GreenSCIES compared to what they look like in something like Project LEO (Local Energy Oxfordshire) or up in Orkney where they have completely different configurations as well. That kind of whole systems approach and that greater definition of the role of local, including local authorities, were two of the key higher-level policy insights that came out of that.
Merlin: It might be worth adding that we heard earlier about the Heat Network Zoning and I think I mentioned quite a few Regen reports but we did another one on local leadership in the energy system and focusing on clean heat. Again, you have this heat and buildings decarbonisation strategy from BEIS and it kind of mentions a bit about local authorities but it isn’t really very clear. How can you persuade 26 million households and industry to decarbonise just from some top-down edict? That doesn’t make sense. You’re going to need local leadership. Equally, you can’t just do it at a local level. You clearly need national decisions, frameworks and leadership as well. It’s clearly a partnership. Heat Network Zoning is really a first step by BEIS to say, ‘We do need to think about this at a local level.’ What we said was, ‘If you’re zoning for heat networks and if it’s a good place for a heat network, presumably, that means it wasn’t such a good place for just doing heat pumps or something else. So you must already be thinking a bit more holistically and so perhaps we could just extend that concept, for example, to energy efficiency.’ There’s money from central government at the moment for energy efficiency schemes but it’s a bidding process. We looked at some correlation between areas of greatest need, fuel poverty, how cold they were and how much money they got from this process and there was no correlation. It’s just about who is best set up to bid. They frantically run around putting all their time into doing the bid and then they employ someone else to try and deliver it and they go off and write the next bid. It’s a sort of crazy, centralised system with the money ending up in the wrong places. We put this very clearly to BEIS and they almost accept it. You could take the Heat Network Zoning and you could say, ‘Why don’t we take a similar idea and zone those areas of greatest need for energy efficiency and allocate the money to areas of greatest need rather than some sort of Hunger Games bidding process which ends up with really silly outcomes?’ It’s so obvious and it’s amazing to me just how difficult central government is to let go.
Matt: So, Merlin, on that point about central government relinquishing control, funding or whatever it may be and we’ve seen, just recently in this past week, the Levelling Up Fund... I’m not going to ask you to comment on that but just as an example of central government controlling funding in specific local areas. On the basis of what you’ve been saying and what Fraser has been saying, to what extent can we do Smart Local Energy Systems at scale without really thinking seriously about the architecture and the types of actors and institutions that we need at a local level? Over the last 12 or 13 years, I think it’s fairly safe to say that the pendulum has shifted from a more maybe local and developed focus initially to a much more centralised one. In a nutshell, can we do SLES without devolving more power to a local level or not? Does anyone want to jump in on that?
Merlin: The answer is no. I think the problem, in a way, is less power exactly. It’s clarity because this has to be a national and local partnership. It’s not one or the other. I sometimes give the analogy, which may be not very helpful, of the Covid testing programme when you had a big central phone system and that brought scale but it wasn’t very much help for particular communities in particular places that it just never reached. It was when you had a local authority and a national system that came together, then you started to see results. When talking to local authorities, they want more power but they also want more clarity and leadership from central government. We’re starting to see Heat Network Zoning. I think we’re going to see local authorities asked to plan out EV charging to make sure people aren’t left behind in their areas. You’re starting to see some of these responsibilities come through but there’s no point just saying to the local authority, ‘Off you go and do that,’ because, in a way, that’s ministers passing the buck. What then needs to happen, as is happening with Heat Network Zoning, is there’s a central methodology that’s done once and all the data collection is done once, then the local authority’s role is to sense check that and adjust it at the local level so it’s really effective. To me, when BEIS and Co have actually thought about how we do partnerships for heat networks in a particular area, they’ve come up with an obvious answer and said, ‘Let’s come up with a central methodology, central toolset and a central bunch of expertise and then support local authorities to adapt that for their local areas.’ That kind of model I think is what we need. It’s really about partnership and not about one or the other.
Matt: Chris, I’m very interested to hear what you may have to say on this given that you’ve been engaged on the ground in a given local authority area. Did you find that governance architecture fit for purpose or not with regards to delivering these or do we need to see adjustments made down the line?
Chris: Yeah, I mean I think the problem is around capacity. I’m totally in favour of the approach of devolving more power to local authorities but I can also see that it could slow things up. In Denmark, all the heat stuff is municipal and municipal companies are not allowed to make a profit out of selling heat in Denmark. It’s just municipal companies running heat networks and they seem to do it really well. The admin cost of billing, metering and all of this stuff, when you look at the details, is really good. In the UK, or maybe in England, we’ve got this kind of historic burden or sense that local authorities are not competent, so let’s privatise everything and leave it to the private sector. They’ve maybe lost confidence or lost interest. I don’t know what it is but it’s only certain local authorities that seem to have the capacity, the willingness and the interest to do this stuff. I think there is a downside and I think people will struggle with delivering this without a lot more resources obviously.
Fraser: Just on that last point, Chris, I think you’re spot on and it came out of our work as well. Bearing in mind, local authorities have been struggling for however many years, the last 13 years or so, with finance, budget and resource already and we’re now thinking, ‘We need you to deliver net zero on top of everything and also if you could just become experts in all these different energy vectors and how you piece them together, that would be great as well.’ I think that’s a really, really good point on top of Merlin’s also about that partnership approach but it has to come with a recognition that you need the skills in every local authority to do this, if this is the way that you’re going to do it, with a template example that then gets fielded out. You need the skills there to deliver that and the revenue or the ability to raise the revenue to then do your Local Area Energy Plan which can be quite an expensive undertaking in itself or whatever version of that you might be doing and to then have the know-how and expertise to raise the finance on the back of that to deliver a project as well.
Merlin: Almost always, you get the best progress when you do have that slightly more SPV-type arrangement within a local area. I think there are different approaches in different areas and I definitely think there are capacity challenges but I’m slightly more optimistic because I think, in every area, there are good people and people that know this stuff. They may be sometimes in the private sector, universities, community groups or in the local authority. Everywhere we’ve ever worked, there are great people, great knowledge and great expertise and so I think if we could get the model right and give the power, the responsibility but also the funding and enable local areas to find their best path and then also use national approaches to make this as efficient as possible to provide all the data people need really quickly and easily. I mean the amount of money, at the moment, spent on gathering data in a local area seems completely nuts to me because we could do all that once and just put it up there for them. Why are we paying for this again and again? By really focusing on efficiency and by recognising there are different types of local authorities, different local areas, different dynamics and letting those find their best path and then have a really clear leadership from national areas, I’m more optimistic that there’s a viable partnership path there.
[Music flourish]
Rebecca: We’re coming to a close and I’d like to ask each of you maybe to just reflect on your experiences and where you see things going. What do you think are the key things that we actually need to be doing now or pushing government to be doing now? Where are your priorities in terms of creating change in that system if we really want to unlock the value for Smart Local Energy Systems?
Chris: I guess this isn’t specific to Smart Local Energy Systems but the government promised to consult on rebalancing gas and electricity levies and that was due to come out in 2022. Obviously, you can sort of understand why that didn’t happen [laughter] with the idea of moving any taxes. Even if you’re balancing things, the net cost to households is the same. Just the idea of putting something extra on gas is challenging in the current environment but that does need to happen in order to smooth the path for whatever anyone is doing in the heat decarbonisation sector. I think that’s the key thing and in terms of Smart Local Energy Systems specifically, I think just more along the lines of what we talked about in terms of taking the Heat Network Zoning approach to Local Area Energy Planning. You come up with a local plan for a Smart Local Energy System because essentially, for me, that’s what it’s all about. It’s about being more joined up to decarbonising everything by looking at the local area and what the constraints are, what the resources are and just planning that and then delivering it rather than a scatter-gun approach where you just say, ‘Right, everyone do their own thing at the building level,’ and then the overall cost to society will be higher. For me, they’re the key things.
Merlin: So difficult to pick one area. I think what Fraser said earlier about every significant strategy in this area coming out of government, whether it’s the Road to Zero transport, heating buildings or around a power system, I think should have a clear chapter on the local role and the powers, responsibilities and that needs to be much clearer rather than slightly fudged at the moment. On the more specific points, just back to basics in terms of generation, since the Feed-In Tariff has gone, we essentially have no way for someone who’s trying to build a smallscale generation project having a guaranteed level of income but large projects, like offshore wind farms, do get that guarantee through the Contracts for Difference it seems. So there’s a bit of a bias there against local schemes in that they don’t have access to that same revenue certainty which then enables investors to invest knowing that they’re going to get their money back. One final and very detailed one that’s bugged us for quite a long time is that for everything in energy, you need a licence to do basically but there are exemptions to those licences which could be used to enable smallscale schemes to generate and supply locally, for example, without having to get an electricity supply licence which is completely out of the question. Those exemptions are very poorly drafted and very confusing and I think if we could sort that out, then a whole number of innovative, interesting local schemes could be done without loads of legal costs and we’d open up a whole lot of innovation. It doesn’t seem to get talked about very much. It’s sort of buried in some bit of BEIS somewhere but to me, it’s a relatively small tweak that could just remove a whole load of bureaucracy and allow a whole load of local innovation.
Rebecca: Fraser, did you want any final comment?
Fraser: Yeah, so I think my key ask would be to vote yes to an independent Scotland, put me in charge of it [laughter] and I’ll show you how... no, no, I don’t have much to add on top of what’s already been said but I think the key thing is just remembering that so much of energy is inherently local in terms of the things that we do, how we use it and how we get around. Leveraging the evidence that we have just now and the examples that have been raised already to help enable a lot of the value that we know is on offer for delivering energy more locally and bringing it closer to people and places, I think that in itself, fundamentally, is a useful perspective to have as we start to accelerate those net-zero ambitions and work out ways to do it that are fair, reflective of what people need and more prosperous, arguably, if we can get it right. Yeah, remember that it’s local and remember that there is a lot of value to be gained here if we can do it well.
Rebecca: Brilliant. What wonderful words to end on. You’ve been listening to Local Zero. Thank you so much to our guests, Merlin and Chris. It was fabulous to have you on and a reminder that during February, we will be releasing episodes every single week, so make sure you join us again next week. If you just subscribe to the pod, episodes will be downloaded automatically. If you haven’t already, find and follow us @LocalZeroPod on Twitter to get involved with the discussions over there and if you’re like me and just can’t work your way around that, email us at LocalZeroPod@gmail.com to share some longer thoughts.
Matt: Yes, and if you’re enjoying Local Zero, please do leave us a review. This helps us climb the charts and drive the local energy revolution but for now, thank you for listening and goodbye.
Chris: Bye.
Merlin: Bye.
Rebecca: Bye.
Fraser: Bye, bye, bye.
[Music flourish]
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