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The energy transition is happening, what needs to be discussed now is what it looks like on the ground and what role Community Energy plays in it. Is the Community Energy movement’s vision of the transition one in which individual prosumers are liberated to become their own energy trading entities, one in which autonomous communities become self-sufficient energy islands or is it a national (if not international) federation of groups acting in an ever more integrated grid?
In this blog we review energy system business model options for Community Energy groups but also critically examine the values that underpin these different visions and their implications for the performance of the future grid. We welcome responses from the Community Energy sector to this blog and see it as a starting point for debate not the end. Either post comments below or email us at info@carbon.coop
The old business model is dead?
As it becomes clear that Feed in Tariffs and renewable generation incentives are not coming back, Community Energy groups of all shapes and sizes are increasingly looking to energy system and network innovation as a source of income.
It’s a match that makes sense. More and more renewable generation is taking place on the low voltage network ie within our local communities, and at the same level of the grid as homes and businesses are located. To enable ever more renewable generation, at whatever level of the grid, we need to be more flexible in when and how we use new and more variable forms of generation. Consumers might use energy at different times of the day, perhaps incentivised through variable tariffs and enabled by voluntary behavioural activities or automation of electrical appliances – ie electric vehicle chargers coming on in the middle of the night rather than when drivers arrive home.
Community Energy groups want to see action taken on climate change and so they naturally want to see more renewable energy generation and that means more flexible grids.
ESCOs
There’s also a huge potential for Energy Service Companies (ESCOs) and it is a model that Carbon Co-op has actively persued over the years. ESCOs are intermediary organisations that can help consumers select, install, operate, and maintain renewable energy systems and carry out whole house retrofits. ESCOs offer upfront capital and a trusted, high quality service. Providing energy services to domestic customers is a relatively new activity with tight margins and fledgling schemes have had mixed results. But it is hard to see how large reductions in domestic energy use can be delivered in a cost effective manner given the complex nature of the systems involved. Here’s some reflections from our past projects.
Aggregation
Domestic ‘Aggregators’ are an emerging energy system role that Community Energy groups might play, these are intermediaries that sit between consumers, network operators, and energy suppliers, which manage energy use and generation using demand response and energy storage technologies (ie batteries). Aggregators might remotely control appliances, such electric vehicle chargers or heating systems to reduce the load on the local network or take advantage of short-term changes in the prices of electricity.
Consumers are rewarded for this service via energy bill savings or separate incentive payments. Large industrial consumers of electricity have been doing this for decades, but modern technology, the falling cost of storage and projected increases in demand due to EVs and heat pumps (combined with better insulated homes) make it feasible for domestic consumers to get involved.
With a trusted, not-for-profit status, Community Energy is a good fit for a combined aggregator/ESCO model – offering to install kit for members which can then be used to generate an income.
But another key advantage is the geographical focus of groups ie working in a town, city or region. In delivering a new, flexible grid, issues arise in very localised areas of congestion and Community Energy groups can play an important role in tackling these grid issues at the very scale they operate. Innovative research and development projects such as the Sunshine Tariff run by Regen and WREN in the South West of England suggest they are ideally placed to do this. Income streams will emerge for providing services to Distribution Network Operators (DNOs) and the national system operator.
However, this new business environment is still forming, smart meters, key to enabling this activity, are still being rolled out and not yet fully operational , the DNO to DSO transition is only just starting, and policy makers and regulators are moving slowly in enabling these developments.
Three visions
The buzz of energy system ‘innovation’ and ‘new business models’ has rightly excited many practitioners within the Community Energy movement. Whilst at times it may seem that anything that supports a low carbon transition must be a good thing for Community Energy – most of the movement is primarily motivated by the need to take action on climate change – we feel it is important to distill and analyse emerging energy transition business model themes we have seen within the Community Energy sector and to critically probe their underlying assumptions and implications. Here we look at three: a Prosumer model, an Community Energy Island model and a federated/connected model.
A prosumer future?
In early 2015, we attended a small energy transition conference at Bath University. The audience included community energy groups, energy system practitioners and academics but it was ideologically divided in two – between those who favoured a communal, shared energy infrastructures and those who wished to ‘liberate’ individuals.
One speaker from this ‘liberal’ perspective advocated what he described as a ‘new Thatcherite revolution’ in the energy system. Individual ‘prosumers’ (producer-consumers) with ‘flexible’ home technologies such as PVs, batteries, EVs and smart home devices trading energy on a second-by-second basis with peers anywhere in the UK facilitated by a black box optimising the ‘position’ of the domestic consumer in the market, often mentioned alongside ‘block-chain technology’.
The concern with this vision is that those with access to more wealth and capital are in turn better able to exploit new technologies and income streams further exacerbating existing inequalities, leaving the less well off behind, facing higher and higher bills.
It is also not necessarily the most optimal or efficient way to provide everyone with the energy they need. It is not clear how such a scheme would help direct investment or make the best use of local networks. Perhaps it’s the appeal of new technologies and innovative approaches but it is surprising that some Community Energy practitioners feel this is a path we should follow.
Local Energy Islands?
A step on from this is the idea that as local communities that we can achieve a greater degree of independence and self-reliance within the energy system. This approach seeks to establish autonomous communities generating and supplying their own energy within small discrete, geographical areas of the low voltage grid. Because energy is effectively balanced at a local level, advocates argue there is reduced need for grid services offered by DNOs and larger generators on the transmission network – with this value ‘liberated’ and realised locally in the form of cheaper bills for local consumers who take part.
This vision plays into ideas of autonomy and self-sufficiency and aligns with the desire of Community Energy groups to create new, locally-based income streams so is understandable why it has appeal.
But, there are key concerns over the viability of such an approach. Firstly, not all communities are able to generate their own power and even those that can are not able to generate sufficient amounts at the right times to be ‘energy independent’. In most areas there is still a heavy dependence on the grid for meeting peak demand (particularly in Winter). Communities may use less energy from the grid (even substantially less) on a net basis over a year, but would still need the same size grid connection as well as all the services that come with it.
Consequently, the actual financial benefit of local balancing (in terms of the current DNO charging model) depends greatly on the configuration of the local network. In some cases the benefits can be greater, for example if there are grid constraints and new generators wish to connect, the value of local balancing can increase. However, this scenario is not the norm, particularly in areas the model is being applied to at the moment.
Secondly, the idea of energy autonomy starts to undermine the concept of shared, national (even international) infrastructure. The grid may not be democratically owned or controlled by citizens, but it is an embodiment of a kind of socialism – a pooling of resources for shared needs. If communities begin to cut themselves off from this network it leaves those unable to do the same – due to lack of financial or generation resources and often in poorer urban areas – bearing disproportionately more of the burden for running it.
This is not lost on Ofgem, who have indicated that further localised energy supply projects are unlikely to receive the derogations from regulation they need to operate. In fact, recent announcements by Ofgem and BEIS suggest regulators are moving in the direction of domestic consumers being charged by the capacity of their connection and peak demand rather than just the amount of energy used, so that an autonomous community using the grid for occasional but essential back up power will pay the same (or even more) than a community using low levels of power all the time.
Is storage the answer?
Battery storage system in homes or at local sub-stations might seem to upset this logic and allow communities to optimise use of grid connections in a way which genuinely reduces their network costs. However, batteries installed behind the meter are typically optimised to increase self-consumption from an on-site solar system, not reduce peak demand (although they can achieve both at the same time) and in financial terms this is the only way domestic storage currently works.
Many can’t currently be controlled remotely either, which is necessary in order to optimise their use across a community. Those that can are typically locked in to manufacturer systems who plan to use them to provide national grid services rather than addressing local priorities. It can be hard to reconcile the operation of the battery between parties providing grid services and those maximising self-consumption, in a home or community.
For large commercial-scale batteries with their own connection where power would be supplied to the local supply community over the existing network, the cost of balancing across the network instead of behind the meter may undermine the economic case for using the battery as grid charges (even if these have been varied to reflect the value of the local balancing) as well as other overheads then have to be paid on charging and discharging of the battery. Many commercial scale batteries are currently only viable when participating in secondary grid markets and so a similar tension exists as in behind the meter systems between local and wider system needs.
Ultimately local energy supply is having your cake and eating it. Some are trying to extract value by advocating changes in network charging which favour them without showing a willingness to pay the ‘true’ cost of using the network which they are currently insulated from. In this situation, someone somewhere will lose out.
None of this is to say that we shouldn’t push for local supply of electricity. There is a huge amount of value in linking consumers with local generators and it could provide a real boost to some specific community energy schemes.
A different vision: federated-connected energy communities
So if there are limitations to the prosumer and energy island models, what is our answer? Our vision is of a shared, connected grid in which costs are distributed fairly, one that allows local participation and control with a key role for local energy and Community Energy groups.
We envision an energy system built on the concept of subsidiarity: control levied at the most appropriate scale; and further integration and inter-connectedness.
As the energy transition progresses it becomes more connected not less. A growing number of inter-connector cables link the UK to the continent and supply between 5% and 15% of our power needs at any one time. A new interconnector will soon link us to Norway, enabling us to use their hydro resources as a store for our excess renewables generation. This inter-connectedness is mirrored at a regional and local scale, with a greater degree of flexibility required in future brokered via DSOs. Autonomous, self-sufficient communities simply do not function in this context.
Community Energy benefits hugely from local, on-the-ground knowledge from members and volunteers, but conversely, these people rarely have the skills or capacity to deliver highly technically complex and low margin flexibility services. We argue there isn’t enough value available in energy balancing services to fund paid skilled employees at a very local, community scale.
Instead, we propose regional-scale, federated Community Energy providers, employing paid staff and using open source technologies to offer local services and generate income. These federated bodies would be owned and work closely with on-the-ground Community Energy group volunteers and part time staff, focusing energy and grid balancing services in to local areas of DSO congestion or over capacity, enabling a more flexible grid with greater levels of renewable generation at all scales.
Using this federated model, open source aggregator platforms and smart meters (when the roll out is complete), these homes and communities will be ever more connected to the wider grid, with Community Energy groups co-operating regionally and nationally able to act as the trusted intermediaries offering energy services and exploiting bulk purchase supply chains.
Rightly, many Community Energy groups see the energy transition as an opportunity, as a way to democratise the energy system and facilitate greater de-carbonisation and action on climate change. However, as a movement we need to be alive to the challenges and contradictions of our approaches and to ensure that the viable business models we establish build in our core values of energy democracy, equitable energy justice, co-operative action and open source learning. If we can do this we have a real opportunity to fundamentally transform the energy system for the better.
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Academic Dan Quiggin outlines the challenges of energy system transition at Carbon Co-op’s Hacking the Energy System conference in 2016.
