Bradford Keen explores what a move towards decentralisation means for energy consumers.
5 March 2018 | Bradford Keen
Joining a local energy network (LEN) is a bit like being a good dinner guest: you shouldn't arrive empty-handed and expect to enjoy the party.
"If FMs want to access the local network, the first thing is to get some of your own generation where you're actually contributing to that network," says Kayla Ente, CEO and founder of Brighton and Hove Energy Services Co-operative (BHESCo), a community energy services cooperative. "If you can generate energy, you can generate another income stream."
There is no specific definition of what a LEN is, but Ofgem calls it "energy arrangements led by (or for the benefit of) a local group and for the benefit of local consumers". A local group refers to "people and organisations with shared interests in local energy outcomes within a common geographical area".
Essentially, these networks run on a decentralised model in which users can consume, generate and store energy or sell surplus back to the National Grid or other users in a peer-to-peer market.
While LENs are relatively new sources of energy, BHESCo, for instance, has completed 27 projects since 2012, and only two of those are residential.
There is a push towards LENs from government, says Sunil Shah, chair of BIFM Sustainability SIG and managing director at Acclaro Advisory. Through regulations, energy targets and carbon-reduction strategies, district and local authorities are encouraging the use of decentralised energy networks.
"It's driven very much from a policy landscape and perspective. It is now, cost-wise, on a par with grid energy," Shah says,"so I think we are going to see changes in the near future."
Despite the drive from government, there are obvious reasons why FMs would want to tap into LENs. "The first consideration will be cost reduction," says Ente, "and then how wonderful if you can reduce your cost and do something for the environment at the same time."
Ente tells of a client that has lowered carbon emissions and used it as a selling point to attract occupants to the building. "They're looking after their local community by taking action in their buildings," she says, offering a "great message for tenants and occupants".
For facilities or energy managers, joining a LEN provides opportunities to contribute and learn, says Dr Catalina Spataru, lecturer in energy systems and networks at UCL Energy Institute.
"A network is very diverse, with a variety of interests and skills in different type of communities [such as] large urban centres, small rural towns, residents' associations, local environmental groups, county councils [and] business groups."
From all these stakeholders, facilities, energy and building managers can develop knowledge and contribute to national emissions targets, exchange best practices from other local energy projects and find new solutions to old problems.
Despite all these positives, cost remains a key focus. Rhiannon Marsh is manager at Power Responsive, the National Grid's programme to encourage demand-side participants to enter the market. Demand-side response or management is about influencing consumer demand for energy through financial incentives and educating for behavioural change.
"The National Grid and the Distribution Network Operators (DNO) construct their charging frameworks to discourage larger customers from using power at peak times and, in the case of the distribution companies, encourage consumption at off-peak times," Marsh says. "A self-sufficient decentralised network would avoid these charges for use of transmission or distribution networks."
Networks get smarter
Currently, systems don't rely too much on sophisticated technology such as smart networks. Shah calls the optimisation of existing technologies "relatively poor, because you're having to provide for peak or maximum loads rather than being able to tailor for specific demands".
Local systems usually generate electricity to consume and heat to store in tanks to draw on when needed.
Generating power from CHP and renewables, and selling it back to the grid has provided the main opportunities for FMs to get involved in decentralised energy, says Randolph Brazier, head of innovation and development at the Energy Networks Association (ENA).
Beyond small amounts of local generation and more efficient use of energy through building management systems, not much has yet been achieved, says Brazier.
But this is changing as more work is done to roll out the smart grid. The Open Network Project, driven by the ENA in association with multiple industry stakeholders, is geared towards having a smart grid by 2030. It will allow FMs to use their organisations' property and equipment to participate in new, local and decentralised markets as both generators and suppliers.
"If you have solar panels, for example, you can sell energy to someone down the street or your neighbour," says Brazier. "The other opportunity will be selling services to the electricity networks. This has happened traditionally with the National Grid because it [provides] balancing services [as well as] the capacity market that it runs."
Partnering with aggregators
Most likely for FMs, says Brazier, is connecting to an aggregator, which might have contracts with tens or even thousands of buildings. FMs might have 1MW from a CHP or agree to shut down HVAC systems for certain periods granting control to aggregators.
Energy aggregators can accumulate 10MW by getting smaller amounts from many partners, sell that service the National Grid and pay individual users for their contribution.
FMs responsible for a portfolio of properties will be able, through the help of an aggregator, to coordinate their properties' energy conservation and generation to maximise savings or revenues.
Whether or not an aggregator is necessary, having more than one building in a manager's portfolio could help connect two distinct operations; procuring energy and managing its use.
"For example, the procurement managers might choose energy contracts with higher costs at peak demand times in exchange for lower rates during off-peak periods," says Spataru, "while [energy or facilities] managers could shift consumption to avoid peak periods and better collect demand-response payments from utilities for curtailing use at peak times.
"Companies should look across their entire value chains for opportunities and risks, and downstream in their value chain to understand the energy their customers use," adds Spataru.
Obstacles along the way
There is much excitement about how LENs will affect how users access energy, but there are many challenges that need to be overcome. Marsh says upfront capital costs will have to be measured against potential longer-term economic benefits, as well as whether there is a commercial precedent and reliable supply. "It may still be necessary to pay for a DNO connection depending on the reliability of local generation/network assets," she says.
Shah says the problem is a lack of skills. "The FM sector is extremely poor at being able to manage this.
The technical competence isn't really there to manage networks so the other reason that you don't optimise systems is that there isn't the competence of the on-site teams to achieve that level of improvement."
Automation is also an issue. If energy networks become automated functions or systems that can be controlled remotely, local requirements become limited and minimal.
"So if there isn't a case of upskilling, then the industry isn't able to say 'we can deliver and we can support'," adds Shah. "You're either saying we're not going to move towards these local centres or the skill sets need to be identified elsewhere."
While challenges remain, the energy market is in a state of flux and moving towards decentralisation. The 'Big Six' have lost dominance in the past 10 years, which Ente says is likely to continue unless they partner with local networks. "That would be an ideal situation," she says. "The energy industry would make local investments and invest in local communities that way, and they could retain some control and probably keep some market share."
Whether large energy companies adapt to the changes or local energy networks thrive through the development of smarter grids, better industry skills and greater knowledge, the way energy is consumed and generated will continue to change. Just be sure to bring something to the party if you want to be invited back.