For many years the British energy sector has talked a good story when it comes to supporting distributed energy generation, increasing competition and benefiting the consumer but has been painfully slow to action. Challenges with complex regulatory change, expensive subsidisation, monolithic technologies and entrenched processes has made change extremely slow.
This article outlines, in principle, a very simple action that could significantly accelerate change, supporting and encouraging competition, innovation and cost reduction in one simple step without a complete system redesign.
This change will not only directly benefit the energy consumer but also directly encourage new models and services that should ultimately grow to deliver the majority of domestic energy. Furthermore, this mechanism directly aligns with the needs of energy networks, minimising the distance energy travels by maximising truly local generation and consumption.
Situation
As an energy consumer I pay, through my 20p per day standing charge, for my connection to and maintenance of electrical systems that delivers energy to my property. I also pay for the volume of electricity I consume and may also receive payment for energy I generate. Today, the typical cost of my consumption is 16p per kWh and for energy I generate (export) I may receive 5p per kWh. The energy I generate is exported through my meter to the electricity feeder connecting my and other properties to the substation. Through this feeder the electricity I export is most likely to be consumed by another property on that same feeder, typically my next-door neighbour.
In this scenario my neighbour is paying more than a 200 per cent mark-up for the energy I delivered to the network for no discernible reason. Both myself and my neighbour already pay for the connectivity and management of the electricity network (in this example only a tiny fraction of this is used) and my supplier does nothing other than read the meter and issue the bills.
Solution
Based on this principle it should, no MUST, be possible for myself and my neighbour to come to an agreement where, at times when I am exporting energy and she is consuming energy, that my generation is subtracted from her import. Effectively “netting off” our smart meter readings in the same time slots.
Example: Between 2:30pm and 3pm I generate and export 1kWh of energy (the sun is shining, I have solar panels but I’m out for the day). That electricity flows out of my smart meter onto the feeder. My neighbour, in that same period consumes 1kWh of energy and physically, the electrons that make up my 1kWh of export flow directly into my neighbour’s home.
There is no use of the substation, no use of the distribution network (beyond the feeder) and no use of the national grid. Just the use of the relatively short length of cable between our homes (which we already pay for) not touching any other network asset (although we already pay for those too). My Smart Meter registers 1kWh exported during this period and my neighbours meter records 1kWh of consumption. For the wider energy system that kWh never existed and was transported through a cable we have already paid for, if we were allowed to simply “net off” these two smart meter registers.
Allowing this simple and effective mechanism would enable a wide variety of innovative new models to be created. At the simplest level you could choose to gift your energy to an elderly neighbour, exchange it for fresh eggs or sell it at 9p (almost doubling your income and halving their cost). It also enables, at the most fundamental level, more complex models of service such as community energy projects, sharing and trading energy amongst like-minded individuals, peer to peer, who wish to reduce carbon, reduce bills and build a green community. It continues to scale across local geographies from neighbours to streets to villages and towns; it also allows business to share weekend or evening excess generation with homes. It also does not change the role of the distribution network operator (DNO) and transmission system operator (TSO), who are already tasked with ultimately balancing the system.
Implementation
There is only one element of today’s energy ecosystem affected by this change, meter reading. And as we’ve seen with the introduction of the Smart Export Guarantee in January, many energy suppliers have chosen the simplest possible implementation, offering flat rate tariffs and quarterly payment (no doubt via a manual process). This proposed “netting off” mechanism can follow a similar manual approach. Initially, participants can inform their suppliers of the modification required to their readings. As most suppliers do not currently monitor or bill the 30-minute data from the smart meter this allows them to follow a very simple bill correction process that must already exist. As the popularity of this mechanism grows, automation can be considered via industry data collectors, suppliers or even the DCC.
Almost all systems and processes remain the same, balancing, forecasting, wholesale, retail all continue without change. It reduces domestic energy bills (by lowering the kWh price), accelerates the return on investment for local renewable generation projects and keeps energy local, reducing network costs and transmission losses. All this can be verified very simply through logs of trades and the immutable record of import and export held for 13 months in every smart meter.
Furthermore, participation in this mechanism could require energy networks to gain access to the consumption and generation data within each participant’s meter. This would both enable the networks to monitor and potentially validate the netting off activities as well as better understand balancing requirements.
Subsidies
More than 20 per cent of our domestic energy bill goes directly to subsidies (up from 8 per cent in 2016). These artificially encourage renewable generation (FIT, SEG, RO and REGO), renewable heating (RHI) and energy efficiency and combating fuel poverty (ECO & WHD) as the natural flow of the market does not.
The fundamental mechanism of a market should support the outcome we require and current subsidisation attempts to enable. The ‘netting off’ mechanism described in this article requires no further subsidies and, at its foundation, naturally incentivises much of what today requires subsidy, encouraging and enabling:
- Local investment in energy generation and management
- Consumer participation in energy
- Reducing infrastructure costs by balancing and geolocating supply and demand
- Local economic benefit
- Innovative new business models which are accessible to all, not just large corporations
And with further development may also combat fuel poverty and improve energy efficiency.
So apart from the immobility of the status quo, the lethargy of regulation and the vested interests of industry; why are we not already doing this?
As a great man once said, “Ye cannae change the laws of physics” but it seems, in our broken energy market, you do have to pay for it thrice.