On 17 December 2015, the Government set out its vision for the development of the UK’s Smart Energy System in a paper entitled “Towards a Smart Energy System” (the Paper – click here). 

The Paper sets out the challenges faced by the existing electricity system, such as the greater proportion of intermittent, low carbon generation and the anticipated rise in peak demand resulting from increasing electrification. 

In response to this, a number of approaches are being explored to produce a smart, flexible energy system, which will provide the responsiveness necessary to address the energy trilemma of affordability, security of supply and decarbonisation. These options focus around demand side response (DSR), energy storage and smart grids. Increasing interconnection is also seen as key to ensure a flexible and efficient electricity system develops. 

The benefits of such a smart system would include:

  • Deferring or avoiding investment in network reinforcement;
  • Reducing the need for significant increases in reserve generation capacity;
  • Meeting binding climate change targets with less low carbon generation;
  • Optimising the use of low carbon generation; and
  • Optimising the balancing of the energy system on a minute-by minute basis.

Energy Storage

Whilst pumped hydro storage is a well-established storage technology, the Paper acknowledges that generators and consumers are looking at new ways to manage their energy production and/or consumption. With falling costs, newer technologies, such as batteries, are becoming increasingly commercially feasible. New energy storage capacity could, amongst other things, allow network companies to avoid constraints and defer reinforcement costs, help to meet peak demand as well as provide other balancing services. 

Further, energy storage is one of the areas of focus for the National Infrastructure Commission call for evidence consultation (see here).

DSR and smart meters

Amongst other benefits, DSR allows customers to increase their demand in response to lower prices (say, at night) and reduce their demand in response to higher prices during peak periods. 

Smart meters will be instrumental in facilitating DSR by allowing consumers and industry participants real-time information on energy usage and prices. In addition, it is envisaged that smart appliances could be set up to respond automatically to price signals from smart meters. 

Separately to the Paper, DECC recently published a number of consultation responses, as well as new consultations, relating to smart meters. The responses include:

  • The decision to extend the period in which suppliers may install advanced meters at non-domestic sites from April 2016 to: 
    • 28 April 2017 for large suppliers; and 
    • 17 August 2017 for small suppliers;
  • Detailed proposals relating to the implementation of the 868MHz Home Area Network (HAN) solution and the alternative HAN solution for GB smart metering; and
  • The response to the consultation on the timing of the review of the Data Access and Privacy Framework. This outlines DECC’s decision to conclude the review in 2018 as well as providing information in relation to ongoing monitoring of the Framework.

Further consultations have also recently been published relating to the implementation of HAN solutions as the Government ramps up for the mass rollout of smart metering.

Complementary options

The Paper acknowledges that alongside energy storage and DSR, there are a number of other options which will contribute towards such a smart system, including:

  • The development of a smart network, which would allow for the use of smarter network technologies, such as active network management;
  • Ensuring security of supply;
  • Greater electricity interconnection; and
  • Energy efficient measures targeting energy use at periods of peak demand.

Potential Barriers

The Paper identifies a number of potential barriers to the development of a smart network, these include:

  • Policy and regulatory barriers, which may not be the appropriate framework for flexible solutions;
  • Misaligned incentives for market participants, which do not take account of the electricity system as a whole;
  • Missing markets as some of the benefits from the new technology solutions are not monetised;
  • Technology risk;
  • Lack of true cost reflectivity reducing incentives for consumers and generators to adopt more flexible solutions;
  • Existing business models may make the introduction of alternative approaches more challenging; and
  • Lack of information symmetry between market participants.

Next Steps

DECC intends to focus on testing and developing shorter term policy options, including removing regulatory barriers to smart solutions, delivering clearer price signals to allow more flexibility for consumers and catalysing further innovation. 

Assessing the case for more fundamental changes and understanding the costs and benefits of a smart energy system better are also a priority.