As revolutions go, the rise and rise of decentralised energy has until now been rather a quiet one. Without the drama and fanfare of a multi-gigawatt new-build project, it’s easy to miss. But slowly and steadily, decentralised solutions are changing the face of the UK’s energy system. And increasingly, the wider sector is beginning to take note.
The man at the centre of the sector’s gradual paradigm shift embodies many of the traits evident in the sector itself. Tim Rotheray, director of the newly relaunched Association for Decentralised Energy, is equal parts clear-eyed pragmatist and contagious enthusiast. He tells Utility Week how the decentralised model of energy use is turning long-held assumptions on their head, and why challenges remain for this potentially game-changing sector.
It’s a few days since policy makers, investors and developers stood shoulder to shoulder in the House of Commons on an icy January evening to welcome Rotheray’s relaunch of the Association for Decentralised Energy (known previously as the Combined Heat and Power Association).
And Rotheray has barely had a moment to reflect.
“I felt there was a real buzz of excitement and positivity,” he says of the well-attended event.
The renaming of the trade body was a project already under discussion with the association’s members before Rotheray came to the post 18 months ago, in order to better reflect the concerns of its broad church of members.
Put simply, decentralised energy includes any generation that takes place near the point of use – in contrast to the status quo that requires end-users to rely on the national grid for power. It also spans technology options including combined heat and power (CHP), district heating and cooling and demand-side energy services.
Following a unanimously supportive vote from the board, and alongside the ADE’s benchmark report for the decentralised energy space, the relaunch was in some ways a culmination of the work in establishing the changing needs of the sector. In other ways, it’s really only the beginning, Rotheray explains.
“Our members say ‘we need you to represent us, and the market that we’re in’. And the market has evolved. So we need to evolve,” he says. “That’s what the other night was about; as I said in my speech, the new paradigm is about the user. It’s about a local, decentralised, user-oriented system.”
The ADE’s Invisible Energy report went a step further to lend form to an otherwise unseen element of the UK’s energy space.
In it, the association shows the collective value of local energy solutions at £37 billion in avoided business energy costs every single year since 1980. Annual gas imports would have been three times what they are today and the UK would have needed to build 14 additional large power stations to keep the lights on.
For those looking, the power system is already showing the signs of this invisible energy. Year on year, energy efficiency solutions have eroded the UK’s overall power demand. In summer, the UK’s 5GW of embedded solar capacity has pulled grid demand levels to historic lows.
As Rotheray notes, for technologies that can be measured against the increase in sunshine and fall in demand, the effect can be calibrated. But for other solutions, the benefits are harder to put your finger on.
“Just from combined heat and power projects there’s 5GW embedded, which is quite a lot. But it’s just quietly running,” Rotheray explains.
Herein lies the problem: so much of what makes decentralised energy an appealing user-led solution also makes it difficult to quantify.
Rotheray is matter-of-fact: “It’s invisible at a central scale, so it’s invisible if you are the government department or National Grid.
“But if you’re an MP and your local school is saying ‘you know what, we’ve cut 30 per cent from our electricity bills and those old damp classrooms are now dry and warm’ – you’d be interested in that. In someone’s constituency you can always find something. Always.”
So what are some of the local stories worth paying attention to? It is at this point that Rotheray struggles to keep his enthusiasm in check.
His oft-cited favourite example is of the Royal Free Hospital in north London, which has used CHP to achieve ends that appeal both economically and on a human level.
“Their CHP plant and their overarching efficiency measures have reduced their bills enough to employ an extra 64 nurses. But yes, it’s also reducing carbon emissions, it’s making energy more secure. There are multiple benefits – I love that,” Rotheray says.
In addition, the hospital has installed a heat extractor to take surplus heat “over the wall to a load of social housing where we could supply them with heat for less than they are paying for it, creating an extra million pound income stream for the hospital”.
“But that also means that if people’s bills are more affordable they’ll be able to heat their homes properly, which means they are less likely to develop respiratory illnesses, which reduces the impact on the hospital.
“That’s really cool – how can anyone not be excited by that?” Rotheray says.
Decentralised energy solutions clearly present an opportunity to empower communities to develop the bespoke systems that address their needs directly, with multi-benefit results. In addition, they rise above the need to pick favourites among technologies – including biomass, gas-heating, and renewables – because they simply don’t have to in order to meet the goals of decarbonising, energy security and affordability.
So why then is the road ahead for this sector still full of hurdles?
“Its obviousness and its appeal is actually a limiting factor,” Rotheray says. “The real problem on this is that people think it’s an obvious thing. Yes, it does already happen, but it’s being strangled. It could do more.
“On the one hand, business and large industrial users are still often caught in a paradigm that dictates that production is king. It’s not always easy to convince a production plant that turning its power off for half an hour in peak demand periods could be more lucrative than what it produces in that same time.
“So it’s not all on government – there needs to be a partnership. And it needs to start in the commercial and industrial sector. That’s not to say that households aren’t part of this – they are – but if we’re starting from this centralised system, let’s not jump all the way to a super decentralised system, let’s work our way down,” he says.
But unsurprisingly, the biggest shift in thinking towards a decentralised model needs to come from those most immersed in a centralised viewpoint, Rotheray adds.
“Policy detail is worked out within the department through that centralised way of thinking. So the challenge is how to get the policy detail to work.”
Fresh in the minds of the demand-side industry is the UK’s recent capacity market auction, which came under strong criticism for favouring a centralised approach to balancing supply and demand. Those offering demand-side response were offered a maximum one-year contract, while new-build power stations could apply for 15 years of support.
“There are two really important things which have undermined the effectiveness of the capacity market for the demand side. The first thing is that the capacity market was designed through the lens of power stations – so when it was decided by the coalition to have a capacity mechanism, it was interpreted as ‘we need to build more power stations’, not ‘we need to keep the lights on at the lowest cost’,” Rotheray says.
“The second is one of ‘additionality’. Policy makers are wary of handing out money to projects which might go ahead anyway, and so tend to support projects which would definitely not happen without government help – thus legitimising the spend.
“So in the government’s additionality test: ‘did every pound spent make a difference’, the answer is yes for projects on the far end of the cost curve. But hang on, if you’d given a tenth of that to a whole lot of projects on the nearer end of the curve you’d have had more carbon savings. Of course there is a concern about giving money to something that would have happened anyway, but we have to find a way around this,” he says.
“The way we are choosing to decarbonise the energy system is by no means least cost – we’re not on the lowest cost pathway to do it. That is really bad for the users but it’s also really bad for producers because there’s lots of money for fewer projects instead of lots of money for lots of projects. It’s just the raw mathematics of it, the economics of it, that say, ‘hang on, this is not sensible’.”
One way the ADE intends to shift mindsets around the use of energy efficiency and decentralised generation is by shifting the frame of reference within its own argument.
“I think we need to talk more about how wasteful the energy system is rather than about efficiency – waste is a bad thing and it must stop. More heat in the UK is lost by power stations than is used by the total housing stock each year. That is something that we should be embarrassed about. Wasting that energy is security of supply, it’s carbon and it’s affordability.”
This is where the case for a decentralised approach is perhaps at its strongest – while from a centralised perspective the conflict and tension in trying to achieve the three elements of the UK’s energy trilemma too often tear the debate apart.
By decentralising energy, Rotheray sees another way: “You can pull these goals together and have the user at the centre.”
Ultimately, Rotheray argues that decentralising energy is very much of the moment. There can be little doubt that the regional devolution of political powers is a process unlikely to reverse. Similarly, as consumer criticism of the UK’s centralised energy system reaches fever pitch, a radical new approach seems increasingly appealing. If Rotheray is right, the tide is set to turn. And decentralised entities are reclaiming power.