Technology innovation is acting ahead of policy when it comes to smart and flexible power. Those who work in the world of demand reduction or energy efficiency know that convincing people they’ll save money through switching things off know it’s a tough sell. There are cognitive biases at work. But tell them they’ll earn money, and it’s a different story.
This is the promise of the capacity markets – whereby paying a small amount to a consumer to switch demand down or off at critical times negates the need for more expensive capacity, thus optimising supply and demand.
Demand Side Response (DSR) holds the promise of balancing supply and demand through the network in a more harmonious and financially rewarding way. Reducing demand, as it was put at the recent ADE and Osborne Clarke Smart Energy conference by more than one speaker, is the cleanest way to balance the market. It is also remarkably cheap. At the recent T-1 capacity market auction, the clearing price was a staggering £6.95 per kW, undershooting expectation of around £13 per kW, with the majority of capacity going to dirty coal fired and combined cycle gas turbine, reportedly largely stand-by backup. However, competing at this level DSR picked up 209MW out of the 2.7GW procured. Battery storage won around 10MW.
Estimates are that there is in the region of 9GW of DSR capacity reduction available under current conditions, yet those in the industry claim the markets are stacked in favour of existing dirty plant. However, with its Smart Power call for evidence concluded, David Capper, head of electricity systems for BEIS, indicated the direction of travel. Storage, smart homes and small businesses, and ensuring markets work for flexibility are three thematic areas that will be focused upon.
The technology already exists to create a much deeper, wider and more liquid market for services. But what is needed, and eagerly anticipated towards the end of spring/early summer, is a set of regulations that are fit for purpose. As Mr Capper said, this is an incredibly exciting time for policy makers and observers due to the change washing through the system. For entrepreneurs and those seeking a supportive government framework which allow them to aid tackling the energy trilemma, let’s hope that frustration is replaced by equal levels of commercial joy.