The New Energy Letter: January 2020
The energy system’s going to get much, much more localised. Maybe you don’t think that’s big news? With photovoltaics appearing on more and more rooftops, and storage in homes, isn’t this obvious? In my opinion what you see today is just the very tip of the iceberg.
In the past, economies of scale, dependence on bulk extraction of fossil fuel for generation, and inflexible demand dictated a paradigm of bigger is better, and optimisation of energy systems at the largest possible scale. The rationale for this paradigm no longer holds. Non-fossil fuel forms of generation and storage are deployable cost-effectively at small scale; demand is increasingly flexible; and data, software and analytics can be used for sophisticated optimisation of generation, network assets, storage and demand.
Now, layer on three more factors:
- Communities – in a whole variety of forms – want to get increasingly involved in more and more aspects of their energy provision, often with a desire to see value stay locally;
- The imperative to reduce carbon emissions and the emergence of distributed wind and solar PV generation at scale; and
- Resilience of the electricity system – this will become a bigger and bigger issue, both practically (the unfortunate bush fires in Australia and the US shine a light on this) and politically, particularly as electrification of heat and transport gathers pace.
This is a potent mix, and is already having an impact in two different ways:
• Firstly, new ways of doing things within the current paradigm. For example, distribution network companies solving network congestion through procuring demand-side flexibility on a localised basis; and
• Secondly, the emergence of some quite different ways of doing things – a new paradigm. For example, a new build development deciding to have only a small connection to the network as they can largely manage their own needs - or deciding that a remote settlement is best managed via a microgrid rather than a long weak network connection.
I don’t believe we’ll see large-scale grid defection. There are still fantastic benefits from having an interconnected system in the vast majority of cases – for example the ability to trade surpluses of energy production between communities when surpluses or shortfalls in local energy production occur. Rather, we’ll see the emergence of a system of systems, developed via a range of different business models. It won’t happen overnight. The 2020s will be known for many big changes in the energy system. Localisation will be one of them – with multiple energy vectors, not just electricity, playing a role.
Companies that embrace this and get ‘rubber on the road’ will be the ones that play the biggest role in this paradigm shift.
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