How we generate energy is perhaps one of the biggest challenges facing our society today. With the harmful impacts of fossil fuel use widely documented, the focus for future supply has shifted to cleaner and more sustainable alternatives.
A concept growing in popularity is decentralised energy; energy that is generated close to where it will be used. Encompassing solar, geothermal and biomass, as well as energy from waste plants, this not only reduces transmission losses by transporting electricity over shorter distances but also, when used in conjunction with energy storage, can take pressure off the grid infrastructure at times of peak demand.
Energy storage infrastructure should not just be limited to grid scale applications however. By managing supply and demand more locally, the decentralised energy model provides the opportunity to install storage capacity to meet local needs, serving a single building, street, or town thereby increasing the security of supply and minimising reliance on a small number of remote power stations. The National Infrastructure Commission’s (NIC) ‘Smart Power’ report in March 2016, found that £8 billion could be saved in the UK annually by 2030 through increased flexibility from a combination of greater interconnection, energy storage and demand-side adaptabilities.
Following in the footsteps of a range of successful projects in the US, such as the San Diego Gas & Electric’s lithium-ion storage facility in California, decentralised energy in the UK is gaining traction. For example, VLC Energy, a new venture between Vitol and Low Carbon Limited, announced plans earlier this month for two of the UK’s largest lithium-ion energy storage projects to be installed in Cumbria and Kent to procure rapid response system balancing capabilities. The speed that this service is estimated to deliver £200 million of cost savings to the National Grid. VLC Energy is proposing to invest up to £250 million in UK energy storage and distributed generation projects over the next few years, suggesting demand is on the rise.
Examples such as these reflect an environment in which there are now favourable conditions for decentralised energy components and its supply chain. The price and limitations of batteries, until recently, was one of the major barriers to storing surplus energy. However, with technology giants like LG, Tesla and other automotive OEMs bringing to market new lithium-ion products, the expansion of the global battery industry, driven somewhat by advances made in the automotive and consumer electronics sectors, has fast-tracked this technology and reduced prices. Subsequently, demand for lithium-ion has gone up. Albemarle, one of the world’s largest producers of lithium, has raised its forecasts due to increased uptake of electric vehicles stating that demand is likely to rise by 20,000 tonnes a year until 2021.
Although there are clear signs of a positive outlook, barriers to market participation still remain in the UK, thereby hindering decentralised energy from becoming more widespread. Uncertainty surrounds the technicalities of how these alternative systems will co-exist with the current energy market. According to a recent joint report by KMPG and the REA, market rules, industry regulations, and institutional frameworks are currently too complex and generally designed for large sophisticated market participants. Many decentralised energy systems will be much smaller scale, and run the possible risk of being deterred by such complexity and cost.
It is encouraging that the UK’s energy regulator Ofgem announced proposals to reduce subsidies to some small-scale power producers that provide back up during peak demand. However, the Government and relevant authorities must do more to prioritise market and regulatory changes to encourage decentralised energy resources, especially considering that the private sector in the UK is already thriving. Companies like Sunderland-based Hyperdrive Innovation, for example, are incorporating Nissan cell technology into residential, commercial and portable energy storage and working with providers globally.
Progress is being made but the pace at which this is occurring is disappointing given the proven benefits of the continued growth of decentralised energy solutions which may potentially transform the UK energy industry from a nationally administered energy market to a new model in which integrated energy solutions are determined by the residents and businesses in local communities. The Association for Decentralised Energy’s (ADE) announced earlier this month that it will provide recommendations on how the industry and UK Government can work together to deliver a competitive, subsidy free heat network market with strong protections for consumers. To what extent these recommendations will be followed through with constructive actions remains to be seen.