New Thinking: Optimising the energy system from the bottom up
Richard Hoggett, IGov Team, 12th September 2016
I recently blogged about how the momentum for change within energy systems is much closer to the demand side and as such, there is a growing need to rethink the role that end users as customers, consumers and citizens play within the energy system in GB. This is happening because many of the technologies, business models and changing social preferences are focussed on end users and they provide new opportunities to create a smarter, flexible and integrated system that generates value for both the system as a whole and the customer. Recognising this requires a new approach to people and how they might engage with the system – away from the idea of them being passive takers of supply in different sectors, towards an approach that recognises how active, or not, they become – e.g. empowered, engaged or essential users (that need protecting) – regardless of sector. As part of this thinking, the blog also argued that there is a growing need to engage with people about the energy system so that they understand what is happening and why, in part to gain meaningful consent for some of the changes that could occur within people’s homes, workplaces, communities, neighbourhoods, etc. This is the route to a low carbon, secure and affordable energy system. It centres on people and their role (and responsibility) within the system and it requires a new approach from government, Ofgem and the industry based on transparency, openness and trust – it puts people first.
As well as putting end-users at the centre of efforts to transform the energy system, it is also vital to do this as part of a wider whole systems approach. We have to decarbonise electricity, heat and transport and currently policy, regulation and support tends to deal with each sector in silos. The interactions between these different vectors are important because changing one part of the system will have consequences elsewhere within that system. It is also only by looking across heat, power and transport, that the best technical, economic and social options will become apparent. The need for developing a more strategic approach to energy policy and our energy infrastructure has never been stronger.
However, this is quite a way from the current situation – much of the policy approach still takes a top-down, centralised view of the system, and is dominated by the supply side. At the same time, when you speak to those within the sector you get a sense that many of the new solutions that are entering the system across generation, heat and the demand side, are doing so in a random way – it’s all a bit of a scramble as companies chase value in the system. This market-driven approach is a long way from the strategic analysis and direction that is increasingly needed to ensure we are putting in the most sensible solution for any particular area – not only in terms of the system and its operation, across different vectors, but also in terms of cost and acceptability. We could easily be locking-in the wrong technologies, in the wrong place, for the wrong cost, with little or no public consent. The current policy approach seems to be based on observing and reacting, in respect to system change; this seems increasingly not-fit-for-purpose.
There is a way to potentially reconcile these three issues i.e. 1) putting end users into the centre of the system; 2) taking a whole systems approach; 3) taking a strategic approach to transforming the system. Instead of focussing on a centralised, top-down, approach to system design, operation and policy making/regulation, based around large and in some cases inflexible technologies, the system should be optimised from the bottom up . The case for doing this was coherently made by Matthew Rhodes from Encraft at an IGov event a couple of years ago on Progressive Energy Governance. He argued that there is a need to create a more dynamic, nuanced system that builds on the opportunities that new technologies, ICT, storage, controls, and microgeneration offer. Such an approach can be enabled by optimising the system at each level, from the bottom up, i.e. starting with the household and working up to the national level.
The rationale for this approach seems stronger than ever as the energy policy goals of decarbonisation, affordability and security are increasingly better met through a decentralised approach, using the technologies that are already available. It is based on a much more granular approach to energy thinking – it’s about the type of houses we live in, where they are in the country, the places we work, the local renewable resources, the local networks and the wider infrastructure that exists in terms of transport, heat, etc. It is only at this more local level that we can really know what the best solution might be in terms of demand reduction, demand side response, distributed energy, storage, heat production, EVs, biomethane, power to gas, etc. It is also the only way to really focus on people and place, creating new opportunities to have meaningful conversations about the energy system and collectively choose the best technical, economic and social solutions across all the vectors – energy infrastructure is fundamentally local.
Some of the information and knowledge to optimise from the bottom up already exists, although it is dispersed and not necessarily easy to access and get value from. Finding ways to use this data more effectively to support local change would be beneficial. Examples include: network companies know their system constraints; we know the on and off-gas areas; suppliers have data on the demand from their customers; local authorities have a sense of their housing stock, which areas are likely to be owner occupied, private rented or social landlords; they also have a sense of the transport infrastructure and issues that exist. We also have data through schemes like the Home Energy Conservation Act, the old EST network of energy efficiency advice centres, the Decent Home Standard and existing energy agencies and NGOs that have been working for decades on sustainable energy locally, regionally and nationally. This can help identify the possible options for bottom-up optimisation, although we will need different sorts of data and analysis to help direct change from the top down.
Changing our approach to system transformation from the bottom up mainly requires the political will to do so. It will need a new approach to energy governance, based on bottom-up optimisation and a focus on end users, strategic guidance from the top, and middle out facilitation of change. It is a shift away from 1) policy and regulation structured around the historical system design and incumbents; and 2) a system which uses the market to make decisions towards one based on the interests of customers, that builds trust through useful, clear and relationship based reform. By optimising from the bottom up from the house, to the street, to the neighbourhood, to the town/city, county, region, we can create a smarter, flexible and integrated whole system that puts people first. This is the energy future.
 Optimisation is not an end point, the energy system is a complex socio-technical system that is under constant change – optimisation needs to be dynamic to respond to this.