Are we moving towards a decentralised energy system?

In the same week that the Rockerfeller Family Fund announced divestment from fossil fuels on the grounds that ‘it makes little sense—financially or ethically—to continue holding investments in these companies’, Tesla has unveiled its much-anticipated Model 3 electric car, the lowest-cost vehicle to date, which can run for 215 miles on a single charge. 

There is a continuing message from the media; businesses, homeowners and investors want to move away from fossil fuels. Even the utility companies themselves are beginning to divest.

The arrival of battery storage has undoubtedly already caused a major shift in the way we think about energy. Critics say that the technology is too expensive but people are prepared to pay and the costs are falling rapidly. Even now, it makes financial sense to purchase battery storage because it can be used for so much more than just power shifting from renewables. Something that the critics hadn’t considered.

Morgan Stanley has derived some impressive figures after analysing the potential impact of battery storage in the US.

“For every $25/kWh reduction in the cost of lithium-ion batteries, we estimate the all-in cost of power to customers falls by about $.01, or about 15% of the residential customer price for grid charges.”

They predict that we will move towards a more decentralised energy network, stating that “Energy storage, when combined with solar power, could disrupt utilities in the US and Europe to the extent customers move to an off-grid approach.”

“Once at critical mass, distributed battery storage can reduce peak grid demand, which means less network investment will be required, lowering long-run (transmission and distribution) costs through greater system efficiency.”

“The impact on the major listed generators is less clear, with demand for stationary generation likely to fall, potentially leaving assets stranded and lowering pool prices. Potential offsets include new product marketing or inter-household electricity brokerage revenues.”

In the UK it seems unlikely that businesses and householders would currently want to move off grid but a shift to a more decentralised system does make sense.

A recent report researching the transition to decentralised energy, compiled by KPMG, in conjunction with Good Energy, Lightsource and Foresight, explains why this is the case.

At present, the forecast from DECC relies heavily on investment in large scale plant – renewables, carbon capture and storage (CCS), nuclear and Combined Cycle Gas Turbines (CCGTs). This would result in significant price hikes to energy bills. The report highlights that “recent Government projections show the Levy Control Framework (LCF), which caps the amount to be spent on ‘green’ energy, is £1.5 billion over-budget by 2020/21. As a result, DECC has announced significant reductions in the subsidies available for a number of low carbon technologies.”

And this doesn’t include the additional costs of upgrading the grid infrastructure to transmit the electricity.

The alternative is a decentralised energy system. An energy system whereby heat and power are generated close to where they are required and distributed using Demand Side Management technologies that monitor and shift power supplies to avoid consumption from the grid at expensive peak times.

This model is already being applied to the commercial sector but with the rollout of smart meters, energy apps and affordable alternative energy technologies, there is no reason it won’t become common for homeowners too. The KPMG report discusses a ‘whole house solution’, a smart home that delivers 60-90% self-consumption whilst enabling the owner to export any excess energy at peak times when it will earn the highest revenue. However, the solutions could apply to small communities and multi-site businesses too.

The government has already offered financial incentives for technologies that support the decentralised energy model. The new Capacity Market Auction offers payment to both Demand Side Management and energy generators, including renewables.

Whether or not the government chooses to support decentralised energy solutions in favour of large scale plant development remains to be seen. However, the demand for these technologies from the consumer could help drive a shift to decentralised energy systems in the not too distant future.