Utility Week

Policy & Regulation UTILITY WEEK | 16TH - 22ND MARCH 2018 | 13 Market view W hen the recent Siberian storms sent energy demand to its highest level in a decade, gas prices increased fourfold to 12-year highs and National Grid issued deficit warnings. It was yet another reminder that our approach to energy needs a serious rethink. We seem to be unable to create supply secu- rity that can deal with such demand spikes while also finding solutions to meet carbon emission reduction targets. This reflects a failure on the part of utilities and govern- ment to map out a clear future. The majority of current solutions are costly, and do not decrease costs for bill payers, and others haven't been advanced because they threaten system reliability. If we are to achieve security of supply while meeting legally binding carbon budgets, a strategy is needed that takes a holistic view of the system. A whole-system approach is a fully inte- grated proposal for master planning and delivering energy services at a district level. It encompasses the supply and demand of all interconnected energy vectors to optimise the UK's sustainability, reliability and afford- ability performance. By revisiting the structure of each energy system through greater technology and net- work integration – plus the empowerment of consumers – we can achieve lower carbon emissions, enhance reliability and lower costs. These interdependent and intercon- nected components – working together at significant scale – can ensure the optimum use of resources and capacity and solve the energy trilemma. Take the meteoric rise of the electric vehi- cle market. Demand for electric vehicles, once a novelty for the wealthy, is rising rap- idly and the pace of growth is staggering. But despite this customer demand, the electricity sector remains fearful of the negative effects mass adoption will have on the existing grid network and how they will accommodate this transition under the current regulatory framework. Although EVs do pose uncertainty, if we could successfully integrate them as grid assets through vehicle-to-grid technology, they would bring benefits not previously considered. We need to think differently if we are to take full advantage of new technologies. By using energy assets and services across all energy vectors, the UK will make the most of existing systems and keep costs contained. This includes gas and electricity, but also heat and hydrogen networks and, crucially, transport. The creation of new markets and dynamic pricing models will engage custom- ers and give them greater control of their energy costs. This will make real progress towards the UK's carbon-reduction goals. A new road map for our energy sector is required – which brings together all play- ers, including market participants, technol- ogy, government and systems – to deliver a whole-system approach. A new financial model First, we need a new financial model that incentivises investors and developers to take risks outside of their core business to make system enhancements, and rewards innova- tion. Regulators should also consider pric- ing models based on new features, such as connectivity, location and environmental benefits. Community energy schemes Second, we need to encourage commu- nity energy schemes – such as the Chesh- ire Energy Hub in Ellesmere Port – to bring together large-scale energy users to solve challenges at a local level. This type of inno- vation will create new market opportunities through the aggregation of significant supply and demand to optimise resources. By lever- aging the flexibility that is available in indus- trial and commercial estates, we can create a platform that can flex the various energy vec- tors in a way that better meets the collective needs of the community. A new pricing model Third, we need new pricing models that focus on putting customers in control of their energy use. Consumers must become "pro- sumers" who make active decisions using real-time price signals. Empowering them to take an active role in reducing their energy bills supports decarbonisation, enhances energy security and promotes affordability. It is, aer all, customers who drive inno- vation, markets and demand. This whole- system approach influences customer behaviour through dynamic pricing models. For example, agile pricing for electricity and transport would discourage EV charging dur- ing peak electricity demand periods while simultaneously enabling it to support elec- tric load. Utilities must also evolve if they are to maintain relevance and their leaders should be planning new models to achieve a 10-year vision. Moving forward, leaders should be looking to significantly strengthen their posi- tion by, for example, identifying new ways to monetise existing services. It is imperative that network owners, generation asset owners, retail participants, regulators, customer groups and community representatives come together to address barriers such as a lack of harmonisation between regulations, policy and pricing. The whole-system approach would engage stakeholders to assess how to flex capacity, develop new financial markets and adjust policy to accelerate investment in clean solutions. Collaboration will create uniform policies that drive desirable outputs without leaving the vulnerable behind. The government must also start to turn strategy into action and connect the dots between stakeholders. The Clean Growth Strategy has serious ambitions but, as the Committee on Climate Change recently said, we now need to urgently firm up policies and provide more detail to achieve the required emissions savings. The energy market is changing rapidly, and the need for radical adaptation grows ever closer. Get it right, and the whole- system approach has the potential to solve all aspects of the energy trilemma – to the benefit of all. Jonathan Chapman, UK managing director, Burns & McDonnell How to slay the beast A whole-system approach is the key to coping with demand spikes – like those encountered when the Beast from the East hit the UK – while cutting carbon emissions, according to Jonathan Chapman.

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