Less Energy, More Power: the fundamental transition of the UK energy market

December 1, 2015

The UK energy market is on the edge of an ‘electric shock’ and is having to undergo a fundamental transition towards decentralisation and efficiency, says Jonathan Maxwell, chief executive of Sustainable Development Capital LLP (SDCL)

Have we approached the “electric shock” moment for the energy market? Spare capacity on the UK electricity system is set to fall to 1.2 per cent this winter, the tightest in a decade according to National Grid. Electricity supply is insufficient to meet demand over the next five years as capacity is coming off line.

The electric shock seems to have happened on Wednesday 4 November, as an unexpected outage of power plants sent wholesale electricity prices soaring and prompted the grid operator to call for the first time ever for industry to reduce power. More than 10 per cent of Britain’s electricity needs at that crunch point came from supply that will no longer be available next year.

A large part of the problem is a centralised and inefficient energy system. We are wasting 60 per cent-plus of the energy we use in the UK when we take into account generation, transmission and distribution losses in the centralised energy system. We routinely waste another 25 to 30 per cent in end use in buildings.

On the supply side, the UK electricity system must transition from an inefficient centralised generation, transmission and distribution system to one in which the grid interacts with highly efficient, de-centralised, independent, resilient and clean energy production. Installed capacity of well-established and low cost distributed energy technologies such as combined heat and power and rooftop solar PV will be crucial parts of the solution. Whereas the centralised energy system is over 60 per cent inefficient, good quality decentralised combined heat and power projects deliver more than 65 per cent efficiency through smart design and by using thermal and electrical generation on site.

On the demand side, energy efficiency, storage and demand response will all play key roles in a more efficient future. It is now widely accepted that energy efficiency is the most cost effective way of reducing greenhouse gas emissions and improving energy infrastructure, security and resilience. While renewable energy subsidies and market incentives for new supply capacity are being rolled back, the good news is that energy efficiency delivers its results on purely commercial terms. According to the International Energy Agency, energy efficiency is the most cost effective tool to reduce energy sector carbon emissions, accounting for more than 40 per cent of the required reductions to limit global warming to 2° centigrade.

At the same time, energy efficiency offers enduring costs savings, improved profits and performance and benefits to the economy. Technologies employed are typically commercially proven and delivered by some of the world’s leading services and technology companies. For example, LED lights save 60 per cent plus energy and related costs, while other measures such as automated building management systems, air conditioning and insulation deliver savings that cover the costs of implementation in three to five years. Building and infrastructure owners benefit from better financial performance, environmental performance and infrastructure performance.

SDCL manages four government backed energy efficiency investment funds, in the UK, the United States, Singapore and the Republic of Ireland, and is developing its investment portfolio and business model internationally. Alongside four governments, SDCL has attracted a wide range of institutional investors. By combining equity investment capital with expertise, SDCL has developed a business and investment model which can remove the cost, risk and complexity associated with energy efficiency and decentralised energy projects. Clients benefit from cost savings, improved infrastructure and environmental performance. Investors benefit from attractive investment returns. Services and technology partners benefit from implementation and deployment at scale. The economy is benefiting from displacement of stress on the grid and scarce resources and a substantial reduction of waste and emissions.

The electric shock is a crucial opportunity to transition to decentralisation and efficiency and create more power – and heat – with less energy.

This article appeared in the New Statesman on 30 November 2015