By connecting dynamic information on network congestion, excess renewables and the availability and value of flexibility at a hyper-local level, we can create a truly cost efficient, low carbon energy system, Jo-Jo Hubbard tells ICON in this thought piece.
Energy is owning a lot of headlines these days. Some of these headlines seem to be rather uncomfortable bed fellows.
For example, every month we read about breaking new wind and solar generation records. On the next page is a headline on the unaffordability of energy bills and their roll in what is set to be the deepest cost of living crisis since 1950. It’s not all Russia’s fault. The press is justified in asking what renewables are doing to assuage the rising costs of our system.
It’s not that renewables were the wrong bet. The opposite is true. Renewables remain the lowest cost way to meet our target of decarbonising electricity in the UK by 2035.
The problem is, we’re not yet using renewables properly. We’re cramming variable, often localised, generation into a market infrastructure designed for on-demand, centralised gas and coal.
We need to change that system to something that’s a better fit. Specifically, we need to change how we value electricity in the system so that we’re using the right electrons at the right time and in the right place. And we need to do it now.
Constraints, queues, and investment cues
Our electricity system still manages constrained networks through a system of double payments. For example, October 2021 saw £14m paid to wind farms to reduce generation at times when their capacity to produce power exceeded the local grid’s capacity to transmit it to consumers.
On the other side of that bottleneck, £144m was paid to gas generators, typically to increase their generation to meet demand where it’s needed. Both of these payments were recovered from consumers as an addition to our energy bills. That means we are spending money to waste low-carbon, zero-marginal cost power, and then spending again to ask gas generators to burn more fossil fuels instead. This is not a model that will scale to allow us to achieve zero-carbon electricity economically by 2035.
These bottlenecks aren’t only affecting existing renewable capacity, they’re also slowing down the build-out of new capacity. The Financial Times recently reported that, renewable energy developers are facing delays of up to a decade to connect to the electricity grid, due to the fact that their local transmission and distribution networks are congested- some of the time.
Logically, new battery storage systems, electric vehicles and heating or cooling systems should come to the rescue; absorb local excess energy; and free up new capacity on the network for more renewables to connect.
But this is not happening yet. Flexible, clean energy assets aren’t getting the information that they need about where and when they could be paid to absorb this power. That means that much of the flexibility that we need isn’t getting funded and rolled out.
In short, the current system creates barriers to new investment to renewables and flexibility alike at the scale we need. It fails to make the most of the renewables we already have while costing billpayers millions.
Call for reinforcement
One solution of course, would be simply to invest vast sums into transmission and distribution grids to ensure that no networks were ever constrained and that there was always enough network capacity to handle any amount of renewable generation at any time. This would be astronomically expensive. It would be like building having motorways wide enough to always absorb all possible traffic.
Instead, it is precision that we need.
Looking local
Recent reports from Stonehaven and Energy Systems Catapult (ESC) have examined and advocated for a more granular approach to power markets at the transmission level. That will solve real problems when the network congestion is at transmission level.
But distributed generation, coupled with the electrification of heat and transport, means congestion is getting more local and reaching well into the distribution grid. Increasingly, this is where flexibility really matters.
By connecting dynamic information on network congestion, excess renewables and the availability and value of flexibility at a hyper-local level, we can create a truly cost efficient, low carbon energy system.
However, this will mean moving away from a strictly ‘top-down’ approach to energy markets. Instead of broadcasting requirements from the top, we will need new mechanisms and platforms to enable two-way exchanges of information with energy assets lower down in the network.
This approach calls for local energy markets. A market, after all, is an exchange about price and value. And the volume of potential market-interactions at this level of granularity means that maximum value can only be extracted by giving multiple parties access to this information.
Right time, right place
This isn’t a distant future: it’s starting to happen already. For example, Project TraDER successfully trialled a flexibility exchange in the Orkney Islands, which had high levels of wind curtailment.
The exchange operated on Electron’s neutral market platform, rather than being under the direct control of the local distribution systems operator (DSO) and allowed buyers and sellers of renewable energy to contract with one another directly at the local level, rather than infrastructure having to be built to export more power to the mainland.
This approach is now rolling out across the windy North West of England by Electricity North West as part of project BiTraDER, and is designed to be replicated across the country. The intention is to give agency to operators of renewable or flexible energy assets and enable them to create new bids for, or offers of, flexibility.
Local markets for flexibility and network capacity bring more revenue to clean energy assets in that region. These markets have the potential to maximise revenue for would-be curtailed wind or solar, and unlock network capacity for new investment in that region, accelerating decarbonisation.
The effect goes beyond the supply side of the equation. Industries of the future, like vertical farming or electrolysis, will depend on ready sources of cheap, clean energy and will benefit from setting-up shop in locations with market-based access to excess renewable generation. This adds liquidity and flexibility to local markets– an economic and environmental win.
In the context of climate change, the right time to do this was yesterday, and the next best option is today. Not only will this help us get the most out of the renewables we have today, but it will also propel us towards a cleaner, lower cost future energy system.
Jo-Jo Hubbard started her energy career in cleantech financing and investment, specialising in solar, wind and batteries. She spent two years at McKinsey focusing on digital transformation before co-founding Electron. She sits on the expert advisory boards for Ofgem, National Grid ESO and Future Cleantech Architects.
