EEF has today published ‘Upgrading Power’, examining the potential role increased industrial energy efficiency and demand side response can play in providing secure electricity supplies.
Anyone with even a passing interest in energy knows the way we produce and use electricity is going to change fundamentally in the future. Our climate change targets will require near complete decarbonisation of the power sector and significant electrification of our heating and transportation. This of course means that we will be increasing our reliance on electricity at the same time as we move away from system dominated by large, dispatchable, predictable, power stations.
Our inability to control output from weather-dependent renewables necessitates these forms of generation are backed up with a range of technologies and approaches. Essentially ensuring sufficient power is produced elsewhere when there is no, or reduced, output from renewables. One option would be to back wind farms up with gas plants gigawatt for gigawatt. This would provide security, but at a heavy cost to consumers.
Back-up and peaking plants will be crucial, but they must be supplemented with a range of other options to achieve security in the most cost effective manner. This will include interconnectors, storage, increased energy efficiency and a greater use of demand side response (DSR). The National Infrastructure Commission recently estimated that the benefits of a more flexible system could be as much as £8 billion a year by 2030.
As consumers of around one third of the UK’s electricity, manufacturers have a key role to play in helping to create this more flexible and efficient grid and this is the subject of a new report published today by EEF. Our ‘Upgrading Power’ report, written in conjunction with CMR Consultants and Open-Energi, addresses the potential for manufactures to make further reductions in electricity consumption and play a bigger role in demand side response activities.
EEF conducted research, including analysis of audits carried out under the Energy Savings Opportunity Scheme (ESOS), to estimate the cost-effective electricity efficiency potential remaining within the UK manufacturing sector. We found that an estimated 14% in electricity efficiency is still remaining through cost-effective measures. On average we found measures had a 20 month payback period and that a significant proportion required no-capital investment at all.
If this potential was realised it could lead to a 12 TWh reduction in annual electricity consumption, equivalent to 4% of the UK’s current annual total and some £1 billion in savings. However, a survey of our members showed that under the current policy framework much of this potential will remain untapped. Just 34% of manufacturers felt that ESOS energy audits had provided them with new information, indicating that most companies are already aware of many energy saving opportunities but for a number of reasons they are not taking them. Moreover, just 13% felt ESOS had helped develop the business case for energy efficiency investment.
Accessing these potential efficiencies in the short term is entirely possible but reform is necessary to deliver on it. Our report examines a number of solutions, from the introduction of new tax breaks, to reform of the ESOS scheme and the development of a fully-fledged Electricity Demand Reduction scheme, which would help manufacturers deliver this potential.
Manufacturers can also contribute to security of supply by taking part in DSR activities, reducing their electricity bills and earning additional revenue at the same time. The Association of Decentralised Energy recently estimated that there is an estimated 9.8GW (around 20% of peak demand) of DSR available in the UK, 2.8GW of which was available from industrial sites reducing consumption.
However, DSR activity amongst manufacturers remains fairly limited. Our survey revealed that just 9% of respondents took part in some form of DSR activity with the most cited reason for this low level of engagement being the complexity of the system and a lack of understanding within companies.
Discussing the barriers to DSR, Open-Energi’s Director of Public Policy, Lucy Symonds, noted “With £1 billion on the table, there is a huge opportunity for businesses to benefit from Demand Side Response. But with over 20 different DSR schemes and products to navigate, it is no wonder they feel bewildered. Simpler markets and a level playing field which lets DSR compete on the same terms as power generators will save energy, reduce costs for consumers and reward businesses for taking positive action. The challenge rests with policy makers to make regulation fit for purpose in a modern age of energy innovation.”
Top of the list needs to be reform to the Government’s Capacity Market and simplification of National Grid’s DSR products market. At present these represent unnecessary regulatory barriers. At a more basic level the Government needs to examine the potential for greater uptake of DSR through the roll out of smart meters and half-hourly settlement. These provide the tools for a significant increase but on their own they will not be enough. Much like energy efficiency, just because there’s a cost-effective business case for acting, doesn’t mean businesses will act. Government will need to fully understand the barriers and work with industry to overcome them.
The benefits to all consumers of a cleaner, more efficient and more flexible power system are clear for all to see. We simply cannot afford to leave these opportunities untapped, the reforms detailed in our report would be an important step in the right direction.