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Power to the people

Wayne Mitchell

Wayne Mitchell is Director of Markets & Innovation for npower Business Solutions, responsible for overseeing the development of energy products, services, and solutions for some of Britain's largest businesses.

Power to the People

I’ve been writing for some time about the greater role large consumers can play in helping to balance our national energy requirements, for example by choosing to turn down usage at times of peak demand. But now it seems the idea is to be included in the government’s forthcoming Energy Bill, following an announcement from DECC this week that consumers will be invited to participate in the future Capacity Market, alongside generators.

This plan is to create a balancing act, where on the one hand generators are incentivised to ensure they can produce sufficient power to meet the country’s forecasted needs – and on the other, consumers are incentivised to reduce their power requirements, eg via energy efficiency measures, to decrease our overall consumption requirements.

Energy demand reduction – the government’s new initiative to promote energy efficiency (see my earlier blog on the subject) – could reduce the UK’s overall demand by 9% by 2030, according to DECC. That’s around 32 terawatt hours, saving £2.3-billion and cutting emissions by 3.2 mega tonnes – the equivalent of the annual electricity consumption of around 1.8 million households, or that generated by around four power stations.

Exactly how consumers will be incentivised is not exactly clear. What’s proposed with the Capacity Market is a payment for every kilowatt saved – but over what period? For example, will consumers be asked to reduce consumption just at peak times of national demand or for an extended timespan? Of course, Electricity Demand Reduction (EDR) is all about permanent sustained reduction in electricity requirements, so it will be interesting to see how these two linked initiatives work in practice. Could all potential candidates be asked to take part in the Capacity Market, or will they have to place their ‘offers’ into an auction to determine the best, in the same way that’s proposed for the generation side? DECC is proposing a pilot scheme to iron out the details, so no doubt all will become clearer in time.

We are also waiting for a decision on how exactly the Capacity Market will be funded, although it’s likely that costs will be recouped based on usage at peak times. Possibly it will work along the same lines as the winter Triad periods (see my related blog on this). If so, large consumers, in particular, will therefore be keen to reduce consumption wherever possible to reduce their contribution, which if similar to Triad costs, could run into five figures per megawatt hour.

For some time now, we’ve been offering customers the option to reduce Triad costs – and to generate revenue – by reducing demand during times of peak demand via our SmartSTOR scheme. This offers incentive payments, via the National Grid, to larger consumers willing to switch to on-site generation if asked to do so – or to reduce demand, where practical, when the grid is under stress. The idea being that’s it’s cheaper – and far more environmentally friendly – to make consumers part of the solution, rather than having power stations kept warm on standby. And participants are also reaping the benefits, with annual revenues in the region of £100,000 per medium-sized industrial site.

With the introduction of its Capacity Market, what the government is proposing is to roll out this idea on a far wider scale. As I said, many details are still be ironed out. But inviting consumers to play a greater role in our energy future is surely a positive move for us all

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