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24 | 10th - 16th OctOber 2014 | UtILItY WeeK Operations & Assets Market view D igital innovation is having a transfor- mational effect on the way we do busi- ness. The ever developing "internet of things" is enabling smarter use of resources, moving us away from linear approaches to business and towards the notion of "peers incorporated", as illustrated by AirBnB's challenge to hotels and Zip Car's challenge to owned vehicles. Increasing interconnectivity is driving a scalable and resource-efficient sharing econ- omy that places less emphasis on ownership and more importance on smart allocation across myriad industries, including IT and retail. Conversely, the UK's energy sector has always created surplus capacity to cope with peaks in demand on the grid, focusing on oversupply at any cost. The industrial revolution created a thirst for energy, which resulted in an inefficient value chain because energy was cheap. Building for peaks on the system was justified on the grounds of cheap energy and no ability to control demand smartly. Traditionally, electricity infrastructure – both generation and networks – has been built to manage peaks, which only happen for short periods. As a result, depending on the time of day, between 30 per cent and 40 per cent of the UK's electricity infrastructure is underutilised. In today's world, resource scarcity and climate change are forcing business lead- ers to seek new models and think in new, smarter, asset-based terms. To solve the energy trilemma, we need no-build solutions that use existing avail- able capacity in the system and, through the internet, create the least latency possible by managing demand in real time to ensure it meets supply. While very disruptive forms of demand response have been around for several dec- ades, the advent of new soware that intelli- gently monitors the grid and redirects energy to where it is needed means demand can be shied in seconds without any impact on the assets being managed. This form of demand response, which brings about actual changes in load rather than simply turning on back- up generators, represents a key shake-up for the energy market, creating a new platform for participation and driving new revenues. Isolated attempts to reduce energy con- sumption are no longer enough to ensure the reliability of the system, nor are they enough to guarantee sustainable energy costs for businesses. Rather, the focus must be on aggregating and opening up new markets within the energy sector, creating new scale economies and new routes to high growth for businesses. National Grid has used Open Energi's dynamic demand technology since 2010 to aggregate the electricity-intensive assets of major energy users such as Sainsbury's, Aggregate Industries and United Utilities. We estimate that this joined-up platform can create £1 billion a year in clean profit for UK plc by turning existing equipment into smart devices that earn revenues equal to between 5 per cent and 10 per cent of com- panies' energy bills. For example, our expe- rience in retail suggests that between 40 per cent and 60 per cent of retail electricity consumption (coming from refrigeration and heating, ventilation and air conditioning) can be managed with dynamic demand with- out affecting store trading. In keeping with the smart "peers incorpo- rated" approach, the assets involved remain under their original ownership, but by aggre- gating their stored energy to create capacity and leveraging the power of the internet, a virtual power plant is created at a critical time for the UK. Aggregation of the country's water pumps, for instance, could create on- demand capacity equivalent to Dinorwig (the 1.8MW pumped storage facility), without needing to actually build a new power sta- tion. The same can be said for assets such as large building heating, ventilation and air conditioning; retail refrigeration; build- ing materials bitumen tanks; and metals smelting pots. The applications for dynamic demand are growing all the time as we iden- tify stored energy in everyday business pro- cesses, and as more machines come online. Using demand response to map and modernise the UK's energy-consuming appliances and machinery presents a signifi- cantly scalable alternative to building addi- tional power stations. It is cheap to develop because it involves leveraging the potential of assets that already exist, and because they already exist, it is quick to scale. It is also zero carbon. Demand is closing in on capacity and 25 per cent of the UK's power plants are due to shut down in the next ten years. The cost of building new generation capacity and related infrastructure is projected at £110 billion by 2020. However, the UK can save £1.12 billion over the next six years alone by responding to this capacity crunch on the demand side and avoiding the need for such extensive grid modernisation, as well as peaking power costs. It is able to do this by reducing invest- ment in new transmission and generation infrastructure, since every megawatt saved frees up 2MW of capacity elsewhere on the system. Currently, most grid balancing is done by switching on gas and coal-fired power stations to increase supply, yet managing demand instead can help to maximise the use of existing system capacity. Dynamic demand uses internet intelligence to increase grid efficiency and reduce its reli- ance on peaking power providers, which cost between £15-20/MWh. In doing so, it could save another £20 million on peaking genera- tion over the next six years. National Grid expects a peak system demand of 56GW for 2014/15, an increase of 1.8 per cent on the previous year, with 29 per cent of this demand belonging to industrial and commercial customers. Large energy users in industry and commerce are now at a point where energy costs and constraints mean they have to stop operating at peak times, especially during Triad* demand peri- ods from early November to late February. This massive step back for the market is akin to the situation in early 1990s Manches- ter when electrification of the East Coast Mainline put such a strain on the electric- A megawatt saved… Dynamic response can turn the internet of things into a virtual power storage facility, reducing the need to build expensive new peak capacity generation, says David Hill.