Transforming Energy Systems – why governance matters
Reflections on Week 2 – Emerging Energy Systems
1st July 2019
Week 2 of our course has continued to raise multiple comments. From our perspective, we are trying to lay out the system and the way it is operated, its features and so on so that the more detailed stuff about how people interact with energy (week 3) and what governance changes need to happen (week 4) are understandable.
The format of these online course mean that we have to take decisions about what we talk about – and because of that there is overlap and we cannot quite finish a discussion off. We hope by the end of the course, though, that those various loose ends or questions come together.
There has been lots of discussion about the complexity of what ‘costs’ in the energy system means. For example – how should discount rates (explanation here) be treated? Is the LCOE (levelised cost of electricity) a “dubious tool used by lobbyists for ‘their technologies’ to ‘blow the minds’ of our politicians”? How can prices reflect the value to the system of variable output (eg renewables) or demand response (eg batteries)?
We will return to these questions later in the course when we discuss how governance should be designed to capture the value of different energy services. For example, at the moment the governance system makes it difficult to reward demand response services.
But the point gets to the heart of the issues about governance. The way we set up our governance system leads to the way we cost our system. LCOE is just about the ‘energy’ cost – but the difference between the LCOE and the final retail price is made up of lots of little ‘costs’ – such as network costs etc. All these costs are worked out in a particular way – but could easily be worked out in another way. If we set up our system in a different way – ie more local markets – we would have different costs and values come through. The current system is costed to suit the fossil / nuclear based supply in a centralised system. It is a pretty simple way of costing the provision of energy – and in so doing ignores certain values or costs that are illuminated in a more decentralised, energy efficient 2 way, cross sector energy system operation.
Sub-Issues around Costs
And this means – as one participant pointed out an interesting article suggesting that if renewable energy costs keep falling, there might be an incentive to install large amounts of capacity, rather than trying to build a more flexible system (this is the article) – that incentives are not in place to deliver a flexible system.
One of our participants installed solar panels and hasn’t had an electricity bill for twelve years – is this a good thing? Yes, because they are getting value from low-carbon power, and because they made the investment to get that value so should benefit from it. No, because they may not be paying any system costs, which then – if the governance does not change – will fall disproportionately on others. This issue is discussed when we look at equity in the energy system.
People, transformation and equity
How to pay for networks as we go forward and equity, are two sides of the same coin – but arguably are one of the biggest questions to be dealt with in the energy system transformation. We argue that both questions have to be dealt with head on. DER is part of the solution – so has to be incorporated fairly into network charging but also the transformation of the energy system is a social and global good, which whilst has energy and climate benefits also has significant additional co-benefits – to do with air pollution; health etc. Paying for this transformation should not only be the preserve of BEIS and left only with energy customers. We need to rethink equity, and this part of a wider justice issue.
As mentioned above, discussion of ensuring equity in the new energy system came up repeatedly in discussion. For instance, how new technology (e.g. DSR) is likely to exclude older people, those less engaged in their energy use or people who are less technologically literate or comfortable. For example, “DSR might work with smart, IT- capable people, but that excludes lots of others – like me.” “The challenge for the system operators and intermediaries is how well the behind the meter (e.g. in the house) technology can be automated to make the responsive ‘decisions’ on behalf of households.” Another person asked: “with increased decentralisation and ‘multiple stakeholders’ how easy will it be to find an equitable and cohesive system? The more players there are, the increased amount of interests/needs to be met, which is never straight forward.”
Upgrading of homes, along with people having onsite DER, is another equity hot point. One participant described having thoroughly renovated their house to improve the energy efficiency, cutting bills and energy use. On the one hand, this person has put in time and effort, and should be rewarded for this relative to other people. Another commented that not everyone was able to take such action, either because of lack of funds, or a lack of power over rented property. Another issue is those who are simply uninterested. In this situation, what kind of support should be given. Should the person who spends the money and puts in the time get less in return?
We see this as part of the equity issue which needs to be confronted. Flat rate standing charges and lower per kWh / therm charges etc benefit those who use large amounts of energy. No standing charge and all costs in per kWh / therm benefit those with energy efficient homes and appliances. The latter is the incentive one wants in general – because it adds to the incentive to undertake energy efficiency measures – but it will add costs (if governance system does not change) to those unable to – for whatever reason to upgrade their homes. Additional charges on solar / onsite DER to make up for unpaid network charges undermine the economics of DER, and are therefore likely to undermine investment – something we as a society want to happen – and are undermining of those people who are ‘doing their bit’ to reduce carbon etc. Nevertheless, without finding money from somewhere network charges will be paid for by a smaller and smaller group of people.
These are complex issues but which have to be dealt with equitably – and we think this can only happen when energy system transformation moves beyond energy system responsibility alone – for example, energy system building upgrades need clear policies + institutional change + zero interest loan money through various sources for various stakeholders (individuals, business, local authorities etc) + help for vulnerable households.
The huge scale of the challenge
Some participants expressed their concern about the fact that, globally, energy systems are still hugely dependent on coal and fossil fuels, with renewables contributing a small percentage of generation. Others wondered what we can do in the UK in the context of this challenge, or what the UK can do as a powerful ‘post-colonial’ country.
‘Changes I have seen locally’ and ‘Merits of different technologies’.
There were a great deal of comments about what energy activities participants are involved in. There have been a wide range of views on large scale solar and wind mentioned and the increasing intersection of energy vectors was discussed. And there was also a lively debate on the merits of different technologies, particularly wind and nuclear. On nuclear, opinions were divided over costs and safety aspects in particular, and on wind, whilst one participant said “The sight of onshore wind turbines erected in, what most often seems to be, some of our most scenic countryside makes me shudder. And offshore [near-shore] windfarms leave me just as perturbed.” However another replied “I hope that the squeeze on onshore wind is modified, to make them easier to bring forward in communities which support them.”
Energy efficiency – cutting demand
A few expressed that this is important, and even commented that they thought it is critical to transforming our energy system and could be present/more prominent in some Steps. If we have underplayed it, we truly apologise – since we think the priority energy policy is to deliver an energy efficient energy system – that is to cut energy use as far as possible, and when we use it, to use it as efficiently as possible. We think having an energy efficient system basically makes everything else easier, and cheaper. We think that Government policy should be geared to enabling a building efficiency transformation; and enabling markets and network policies to complement that as well.
Our use of a lot of jargon
Mainly steps 2.8 (Video) A Shift towards a smarter, flexible energy system and 2.9 (Article) Phases of Transformation, a few learners remarked that there was a lot of jargon (such as the term “ESCO”, not many other specific examples were given) and they needed the glossary. It was recommended by one learner that we look at our use of jargon in these steps if we run the course again. However, one contributor has introduced us to the word “farnakling”, meaning to waste time or make no progress on a task – https://thebilgebucket.wordpress.com/tag/farnarkling/