Incentivising renewable, local energy

by Blog

With energy bills skyrocketing and the energy supply market broken, communities across the UK aren’t satisfied with a centralised, carbon-intensive energy market. 

Consumers want more of a localised, environmentally friendly energy system, with 76% of consumers saying they would rather buy and use sustainable energy generated in their community.

And yet despite high demand, for a variety of reasons, the uptake of local renewable energy tariffs remains low. Energy analysts at Cornwall Insight estimate that around 55% of household electricity customers are on a renewable energy tariff. But only a few thousand UK households — less than 1% — are part of local energy schemes.

Clearly, something needs to be done to enable and incentivise customers to go with local, renewable energy and for suppliers to offer tariffs which enable this.

Why is it important that we generate energy locally?

While generating electricity locally brings limited direct cost advantages, there are some economic benefits. 

Local energy schemes keep wealth in local economies. A report into Devon’s community energy schemes concluded that a 30MWp solar farm generated £15.9m in economic value to the Devon economy. “Generating energy locally can potentially help keep customer bills spend within the local economy,” say Cornwall Insight.

There are also significant environmental benefits to producing energy locally. Local energy markets create a direct link between local generation and local energy use, and can help people feel more connected to and accepting of renewable generation in their area. “It improves the tangibility of energy as a concept to residents, helping engage them in the energy transition,” say Cornwall Insight.

“In the long term, more local generation should reduce the need for as much investment in the transmission system that runs up and down the country and could slightly lower overall system losses.”

What’s the government doing to enable more UK based renewable generation?

The UK government has a number of targets for the deployment of different types of renewable generation. 

It seeks to ensure the industry meets these targets predominantly using the Contracts for Difference (CfD) subsidy support mechanism but renewable generation is also supported under legacy schemes. The costs of these are recovered from customers via bills.

What are some of the barriers to local renewable energy uptake?

The UK’s energy system just isn’t oriented towards locally generated, renewable power either technically or when it comes to current market arrangements and regulation. 

Our system was designed around a centralised market, where large power stations generate energy, national suppliers buy and sell this energy, and the whole system is balanced at a national level.

Another challenge is the lack of incentive being driven by regulation and the energy system codes. As much as we might wish it were otherwise, a small-scale renewable generator such as a hydro scheme, faces significant technical, legal and regulatory barriers to selling energy directly to the people and businesses in the immediate local area. 

Renewable energy suppliers also face delays of up to a decade to connect to regional distribution networks because of constraints on National Grid’s network. Energy suppliers have to apply to National Grid to connect to the energy network. Whereas before National Grid would have had 40-50 applications for connections a year, that has risen to about 400 as renewables suppliers have proliferated.

So how do we incentivise customers to go with local renewable energy tariffs?

This is the million dollar question. The UK can increase the number of people using green local energy in a number of ways. Market innovation, updating infrastructure and providing more incentives through regulation are just a few examples.

This last point around regulation is really important. As well as reforming the energy codes, we also have to provide market mechanisms and incentivise energy suppliers to provide local green energy tariffs as much as incentivising customers to go with them.

Opportunities for local flexibility providers such as demand-side response aggregators, distributed generators or energy storage providers exist in most national markets but they are limited due to technical constraints, immature markets and significant administrative and commercial requirements. 

This means there’s no incentive for property companies, for instance, putting combined solar and storage into all their buildings, or for developers to make sure all new developments have EV charging facilities. 

As for incentivising consumers, to go for local renewable energy tariffs, there’s a number of suggestions touted. Regen argue that monetary incentives are important but often these aren’t the sole motivating factor. “The ‘story’ of being part of a wider community project can be important,” they say.

We’d like to hear from you, though!

Would you consider paying more for green, local energy, even at a time of rising bills, given the social and environmental benefits? As part of our work on helping to inform the development of a Greater Manchester Local Energy Market (GMLEM), we’d like to understand your thoughts on paying for renewable, local energy. 

Fill out our survey by the end of the day on Monday 30th May and share you views.