Energy costs are a major operational overhead for many businesses and one which, historically, they have been unable to manage or minimise. This is changing thanks to a smart energy revolution that allows them both to reduce their energy bills and to exploit the revenue from energy generation.
So what is “smart energy”? The term encompasses “smart” gas and thermal grids, as well as electricity, and the synergies between them. In its simplest form, smart energy is the generation, distribution and consumption of energy in an intelligent, integrated way. The UK’s smart energy revolution is taking place against the backdrop of the decentralisation of electricity generation, alongside the integration of low carbon generation. This transition entails matching variable renewable generation with demand, using sophisticated IT systems to balance the grid. The tools of the revolution include smart meters, innovative renewable generation and energy storage technologies, demand reduction mechanisms, “virtual” power stations and a range of business models and instruments. Used together, these can enable generation and demand to be balanced efficiently, whilst providing businesses with options to cut energy usage and cost.
There are various ways in which businesses outside the energy sector can take commercial advantage of the smart energy revolution. One such way relates to energy efficiency. This is about much more than simply insulating an office or factory and can encompass demand reduction, voltage optimisation, lower energy use appliances and sophisticated control systems. Energy performance contracts, where service providers are remunerated or incentivised according to savings achieved by the customer, can provide businesses with a managed system for cutting energy use and cost.
Then there is own energy generation. Generation from renewable sources has grown exponentially in the UK in recent years and the introduction of Feed-in Tariffs in 2010 prompted many businesses to install solar PV generation facilities on their premises. Despite reductions in renewables subsidies, falling installation costs and growing demand for grid support services mean that on-site renewable generation remains a viable option.
Private wire schemes involve an electricity network outside a regulated distribution or transmission grid. Where electricity is provided by a generator to a customer via private wires (without that electricity being conveyed through the grid) various grid use-of-system charges, lines losses and other electricity industry charges are avoided.
Another increasingly popular means by which a generator and a customer, unconnected by a private wire, can buy and sell power to each other is so-called sleeving. As the power generated is fed into the grid, sleeving does not have many of the benefits of private wires plus it requires the involvement of a licensed supplier to deal with grid requirements. However, it does provide for transparent pricing. National Grid has a variety of grid support services which include frequency response contracts, under which the service provider can reduce demand or increase generation by changing its power output in return for availability and utilisation fees; short-term operating reserve contracts, which allow it to draw on reserve electricity when demand spikes occur; and capacity market contracts, which pay electricity capacity providers for secure supply.
Finally, the increasing sophistication of metering, IT and trading systems has given rise to a variety of energy purchase products for businesses seeking more advance visibility on, and a reduction in, energy costs. Customers can link the price of purchases to specified indices, to fix and unfix prices for blocks of power for periods of time in advance, and to offset own generation of power against consumption across multiple sites.
Whatever route they choose, one thing will remain constant: businesses need to use energy and to monitor its consumption and cost. Now is the time to explore the many sophisticated new methods of doing this by joining the smart energy revolution.
This feature was originally published in ICC UK’s G20 Magazine, June 2017.