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Jonathan Graham

Jonathan Graham

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A recent speech by former Environment Secretary Owen Paterson followed by an article from Telegraph columnist Christopher Booker, urged an increased role for demand management and combined heat and power to more cost-effectively deliver a low-carbon, secure energy system, while lower business energy costs.

CHP's value arises from it capturing and using heat that is otherwise wasted in cooling towers and demand response by moving demand away from times of high demand (and higher pollution) to times of lower demand.

What was curious was that the support for these technologies was linked with scrapping the Climate Change Act. But it is not the Climate Change Act that prevents us using more cost effective emissions reductions tools like CHP and demand response. It is the way we make energy policy.

In fact, the Climate Change Act should drive uptake of efficiency measures and more cost-effective carbon abatement. But instead, time and time again, the most cost-effective options for more secure, lower carbon energy are missed in favour of old, simple approaches: More centralised plant, more generation. In fact, a DECC research paper this year found a number of ways that the most cost-effective demand-side options are often missed in policy making.

And this waste of money continues to occur. Despite DECC’s analysis showing that supporting CHP would reduce consumer and taxpayer costs by millions of pounds, there is a very real risk they will not support the policy, despite a commitment to do so in the 2013 Heat Strategy.

And despite demand side response providing the most cost-effective way to provide the flexible capacity the grid needs, DECC’s designed their Capacity Market scheme around building new, expensive power plants.

Consumers are looking to Government to ensure we are achieving our goals in the most cost-effective way. We need to decarbonise and, if we are to retain the support of voters, we must do so at lowest cost.

In order to change this broken record and a long history of doing things more expensively than we need to, a new Government should rebuild taxpayer and consumer trust by committing to meet our energy policy aims for a secure, decarbonised system at best value. At the CHPA, we call this commitment a ‘Consumer Value Guarantee’.

Under the Consumer Value Guarantee, Ministers would be required to test all energy policies, as part of their Impact Assessments, against alternative demand side options. If a proposal is to build more of a particular generation technology, Ministers would have to compare the cost and benefits of doing something different, such as investing in better building efficiency, and force ministers to ask “Is this the most cost-effective way for us to meet our commitments?”

By taking a new approach, opportunities like demand response, demand reduction, heat networks, waste heat recovery and yes, CHP, will be able to compete on their respective merits and against the only metric which should matter: How we meet our commitments in the Climate Change Act for least cost.

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At Labour’s party conference in Manchester last week, the Labour Shadow Energy Secretary’s announced it would, if elected, refocus the Energy Company Obligation (ECO), ensuring at least 200,000 homes a year to benefit from whole house retrofits over the next Parliament. 

And, in support of empowering local level activity in energy, she promised to “put local authorities and communities in the driving seat” in delivering this ambition of the ECO scheme. Many welcomed this announcement as local authorities are uniquely well placed to draw together their understanding of their local communities, such as the location of the most vulnerable, planning developments and local economic strategies. 

Flint also said a Labour government would ‘make saving energy a national infrastructure priority’. This followed from an almost identical promise from the Liberal Democrats a few weeks previously. This is a key change, considering local action as part of the infrastructure debate, rather than simply large plant and power lines. Well designed, such a policy could allow energy efficiency investments to compete head-to-head with large-scale energy generation for infrastructure funding. 

The risk with the policy is too narrow a definition. Local energy infrastructure goes far beyond insulating homes, which is where ECO is focussed. We need to look both at homes and industry but at end users as part of the whole energy system, not individual islands. If we miss the system-wide perspective there are major energy-saving opportunities that may get overlooked. 

Local authorities are today investing in more efficient local generation, installing innovative heating solutions and balancing local demand to make sure we get the most out of the energy we have. By focussing locally and on the energy needs of their residents, local authorities are able to coordinate a full range of local energy efficiency measures. 

Worryingly, Labour said they will fund interest-free loans for homeowners by using £300m already earmarked for other energy efficiency programmes between 2015 and 2017. Cutting other innovative schemes to fund domestic efficiency investments is a case of robbing Peter to pay Paul. 

Instead, we should be requiring energy generation projects to prove they provide equal or greater benefits to the economy than other energy investments– be it reducing demand, efficient local generation and heat supply, or helping users to manage their power demand actively. 

The three main political parties will need to ensure ‘energy efficiency infrastructure’ includes all of these different energy saving mechanisms if we are going to most cost-effectively reduce demand and the cost of energy bills, for homes and businesses alike.

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We learned from the Telegraph this week that 10 wind farms have each been paid ‘constraint payments’ of more than £3million over the past three years to shut down their turbines, with one alone receiving £11 million.

The reason for these payments is that generation and demand on an electricity network must be balanced from second to second. When demand is not sufficient to take up this generation, National Grid has to find a cost-effective way to reduce the electricity generated. They do this through constraint payments. As variable renewable generation such as wind and solar penetration increases from 18%, the need for these capacity services grows. 

In order for National Grid to successfully persuade generators to shut off, it needs to offer a price that is greater than the price those generators would have gotten for selling their electricity in the market. Renewable generators, like wind turbines, also receive a subsidy for every megawatt hour they generate, so National Grid has to pay more.

In future, the aim is to store this wind energy using batteries for when we need it. But battery technology, while progressing, is still not ready for cost-effective storage. 

But there is another way to better balance intermittent renewables that is already being successfully used today, across the North Sea in Denmark.

Denmark has seen a major expansion in wind electrical generation capacity to already more than 30% of capacity. But thanks to with 60% of household heating provided by heat networks, with large thermal stores, Denmark is able to manage this variable demand in a more cost effective way.

Thermal stores are a large version of a household hot water tank, and heat is very cheap to store. Using thermal stores not only reduces the cost of balancing the electricity system, and therefore the cost to electricity consumers’ bills. It reduces consumers’ heating bills too.

When the electricity grid has too much power, instead of using constraint payments, heat networks can turn on electric boilers or heat pumps and store the heat for when customers need it. So, we spend less money on constraint payments and have fewer charges on our electricity bills. And because the heat networks are buying electricity when it’s at its cheapest, thanks to the excess supply, the heat network customers can lower the cost of their heating.

When the electricity grid does not have enough power, a heat network can use highly-efficient combined heat and power to generate high-value electricity and store the heat for when they need it. Once again, the value can be used to lower heat network customers’ heating bills.

And this integrated energy opportunity does not just apply to heat networks. Electric boilers and heat pumps in homes can provide the same service when there is excess demand, storing the excess heat in hot water tanks. An innovative project on the Sheltand Islands run by SSE is doing this already. Household-sized combined heat and power can help to generate electricity when the grid needs it and store heat as well.

These are great examples of how a system approach to how we deliver energy can help to reduce costs for consumers. We just need start thinking about our heat and electricity as cohesive whole, instead of as two separate silos. 

Above, we see how in Denmark, electric boilers (shown here in orange) turn on when the electricity spot price falls. 

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