Digital innovation is having a transformational effect on the way we do business. The ever developing “internet of things” is enabling smarter use of resources, moving us away from linear approaches to business and towards the notion of “peers incorporated”, as illustrated by AirBnB’s challenge to hotels and Zip Car’s challenge to owned vehicles.
Increasing interconnectivity is driving a scalable and resource-efficient sharing economy that places less emphasis on ownership and more importance on smart allocation across myriad industries, including IT and retail.
Conversely, the UK’s energy sector has always created surplus capacity to cope with peaks in demand on the grid, focusing on oversupply at any cost. The industrial revolution created a thirst for energy, which resulted in an inefficient value chain because energy was cheap. Building for peaks on the system was justified on the grounds of cheap energy and no ability to control demand smartly.
Traditionally, electricity infrastructure – both generation and networks – has been built to manage peaks, which only happen for short periods. As a result, depending on the time of day, between 30 per cent and 40 per cent of the UK’s electricity infrastructure is underutilised.
In today’s world, resource scarcity and climate change are forcing business leaders to seek new models and think in new, smarter, asset-based terms.
To solve the energy trilemma, we need no-build solutions that use existing available capacity in the system and, through the internet, create the least latency possible by managing demand in real time to ensure it meets supply.
While very disruptive forms of demand response have been around for several decades, the advent of new software that intelligently monitors the grid and redirects energy to where it is needed means demand can be shifted in seconds without any impact on the assets being managed. This form of demand response, which brings about actual changes in load rather than simply turning on back-up generators, represents a key shake-up for the energy market, creating a new platform for participation and driving new revenues.
Isolated attempts to reduce energy consumption are no longer enough to ensure the reliability of the system, nor are they enough to guarantee sustainable energy costs for businesses. Rather, the focus must be on aggregating and opening up new markets within the energy sector, creating new scale economies and new routes to high growth for businesses.
National Grid has used Open Energi’s dynamic demand technology since 2010 to aggregate the electricity-intensive assets of major energy users such as Sainsbury’s, Aggregate Industries and United Utilities.
We estimate that this joined-up platform can create £1 billion a year in clean profit for UK plc by turning existing equipment into smart devices that earn revenues equal to between 5 per cent and 10 per cent of companies’ energy bills. For example, our experience in retail suggests that between 40 per cent and 60 per cent of retail electricity consumption (coming from refrigeration and heating, ventilation and air conditioning) can be managed with dynamic demand without affecting store trading.
In keeping with the smart “peers incorporated” approach, the assets involved remain under their original ownership, but by aggregating their stored energy to create capacity and leveraging the power of the internet, a virtual power plant is created at a critical time for the UK.
Aggregation of the country’s water pumps, for instance, could create on-demand capacity equivalent to Dinorwig (the 1.8MW pumped storage facility), without needing to actually build a new power station. The same can be said for assets such as large building heating, ventilation and air conditioning; retail refrigeration; building materials bitumen tanks; and metals smelting pots. The applications for dynamic demand are growing all the time as we identify stored energy in everyday business processes, and as more machines come online.
Using demand response to map and modernise the UK’s energy-consuming appliances and machinery presents a significantly scalable alternative to building additional power stations. It is cheap to develop because it involves leveraging the potential of assets that already exist, and because they already exist, it is quick to scale. It is also zero carbon.
Demand is closing in on capacity and 25 per cent of the UK’s power plants are due to shut down in the next ten years. The cost of building new generation capacity and related infrastructure is projected at £110 billion by 2020. However, the UK can save £1.12 billion over the next six years alone by responding to this capacity crunch on the demand side and avoiding the need for such extensive grid modernisation, as well as peaking power costs.
It is able to do this by reducing investment in new transmission and generation infrastructure, since every megawatt saved frees up 2MW of capacity elsewhere on the system.
Currently, most grid balancing is done by switching on gas and coal-fired power stations to increase supply, yet managing demand instead can help to maximise the use of existing system capacity. Dynamic demand uses internet intelligence to increase grid efficiency and reduce its reliance on peaking power providers, which cost between £15-20/MWh. In doing so, it could save another £20 million on peaking generation over the next six years.
National Grid expects a peak system demand of 56GW for 2014/15, an increase of 1.8 per cent on the previous year, with 29 per cent of this demand belonging to industrial and commercial customers. Large energy users in industry and commerce are now at a point where energy costs and constraints mean they have to stop operating at peak times, especially during Triad* demand periods from early November to late February.
This massive step back for the market is akin to the situation in early 1990s Manchester when electrification of the East Coast Mainline put such a strain on the electricity system that during half-time of the FA Cup final, the Central Electricity Generating Board had to ask British Rail to slow
trains passing through city just to keep the lights on.
National Grid is under huge pressure for asking businesses to switch off at a time when there is significant grid latency. By maximising transparency and providing the ability to shift demand around the network to where it is needed, dynamic demand would allow this latency can be kept to a minimum, easing strains on National Grid while also helping businesses to avoid Triad charges that can amount to more than £50,000 of avoidable annual energy costs.
Exploiting excess capacity in existing markets not only makes financial sense, it also unlocks new knowledge about asset performance for companies.
David Hill, business development director at Open Energi