House of Commons - Local Energy - Energy and Climate Change

Local Energy - Energy and Climate Change Contents

3 Benefits of local energy

23. Although it is unlikely that local energy projects will eliminate the need for larger, centralised energy capacity, they can provide a range of additional benefits which make development of this sector a worthwhile aim. This section will examine the benefits of local energy with regard to energy security, carbon reduction objectives, finance, consumer costs and public understanding.

Energy Security

24. Local energy projects could help to boost energy security by increasing diversity within the system as a whole.[48] Professor Watson, UKERC, explained:

Clearly, they [smaller-scale plants] could add diversity and resilience to a system, because if one of those smaller plants goes down, that is not as serious as if a larger one goes down, all other things being equal.[49]

Medium-sized energy projects could also help to provide greater flexibility within the system, which could be particularly beneficial as the level of intermittent plant on the system increases (although it should be noted that many local energy projects themselves use intermittent technologies like wind and solar).[50] Local heating schemes in particular could be helpful in balancing out peaks and troughs in electricity generation.[51] Co-operatives UK provided an example:

[I]n Denmark, district heating plants are now installing electric boilers, which can be used at times when there are high wind speeds and surplus electricity on the grid. This effectively means that surplus electricity is stored as hot water. Local networks can therefore provide grid balancing services which, in the UK, is currently done through national-level grid interventions.[52]

Local projects may have the potential to reduce demand on the national system, providing they can demonstrate the required reliability and predictability to support the power network at a national level.[53]

Carbon reduction and renewable energy targets

25. Witnesses noted that many local energy projects used renewable energy technologies and therefore would contribute towards the UK's 2020 renewable energy target as well as carbon reduction targets.[54] An increased use of distributed energy could also help to improve the efficiency of the energy system—by reducing transmission losses and energy lost as heat—thereby helping to reduce carbon emissions further.[55]

New sources of investment

26. Several witnesses told us that medium-scale projects could open up opportunities for new sources of investment.[56] As we noted in the introduction, medium-scale projects provide opportunities not only for independent generators and community groups to invest in energy infrastructure, but also for landowners, farmers, local authorities, schools, hospitals, housing associations and businesses (among others). We have not received evidence on how much investment might be accessed through these routes. Given the current reliance on large utilities (in particular the "big six" energy companies) to provide the £110 billion investment in electricity infrastructure that is needed by 2020, it would be helpful to improve understanding of what level of contribution these alternative sources of investment could provide.

27. DECC has chosen to focus narrowly on just those projects that are run by community groups in its most recent consultation and therefore is likely to overlook the contributions that other types of project could make to opening up new sources of finance. We recommend that DECC broadens its outlook and assesses the role that medium-sized projects with different models of ownership could play in the energy mix as well as what sources of finance might be available.

Costs to consumers

28. It is not clear what the overall impact of local energy projects will be on costs to consumers. Some witnesses noted that many of the technologies that are used at the local level are currently more expensive than more conventional sources of energy.[57] In addition, some of the economies of scale that can be offered by centralised energy are not available for smaller-sized plants, although Professor Watson, UKERC, argued that economies of mass production could be achieved if take up of smaller-scale plants was increased.[58] In contrast, it was suggested that local energy projects could bring down costs for consumers in some ways. For example, businesses using "on-site" generation are able to avoid transmission and balancing charges that are associated with buying electricity delivered via National Grid's transmission system. In addition, power from on-site generation would not be subject to levies, such as the Renewables Obligation (RO) or the Energy Company Obligation (ECO), which suppliers pass on to their customers. This could lead to additional cost savings.[59]

29. People living near to local energy projects might be able to benefit from cheaper tariffs - Good Energy's Delabole wind farm offers this benefit to local residents in the form of 20% off its standard tariff.[60] In addition, some projects use any profits to deliver energy efficiency and fuel poverty programmes in the local area, providing an obvious benefit to those in receipt of the scheme.[61] Some large companies, such as BT and GlaxoSmithKline, are exploring the possibility of buying electricity directly from generators (via a Power Purchase Agreement) rather than buying from a supplier.[62] This provides a means of managing energy price risk in the long term, without having to invest in assets themselves.[63]

Public understanding of energy

30. Involvement in local energy projects could help to raise awareness about important energy issues (such as energy security, decarbonisation and energy efficiency) that may not be "top of mind" for many people.[64] This could not only increase participation and engagement with policy debates but could also boost the effectiveness of other initiatives like smart metering and time-of-use tariffs (because individuals will have a better understanding of the relationship between energy supply and energy use).[65] Several witnesses mentioned the potential for local energy projects to stimulate demand reduction as a result of increased awareness and understanding and the ability to link up with demand-side projects, which are typically small- or medium-scale in size.[66] Mr Hyman, Regen SW, gave an example:

At the moment there is a town in Cornwall called Wadebridge that has a very active community energy group and set of initiatives. We have helped them work with Western Power, the local grid operator, on a low carbon network fund proposal, which is exactly that. They want to put more generation into Wadebridge than Western Power can accept at the moment. Rather than an expensive grid reinforcement project, the proposal is to develop a project that manages demand. [...] One way is to use the electricity to generate hydrogen to then use in CHP plants in the domestic setting. Without that link between the generation capacity and the demand being close together and the organisations and the people being close together, I am not sure how that kind of project could happen.[67]

31. We note that while the scope and nature of the impact of local energy projects on consumer costs remains uncertain, the advantages of local energy projects in terms of increased diversity and flexibility of supply are apparent. Local energy projects also have the potential to broaden public understanding of energy issues, encouraging energy-conscious behaviour and greater engagement in carbon reduction initiatives at community level.

48 Ev w14 (IET), Ev w24 (RES), Ev w35 (Heat and the City), Ev 58 (Co-ops UK), Ev 80 (CHPA) Back

49 Q 4 (Professor Watson) Back

50 Ev w8 (Basi) Back

51 Q 29 (Mr Meeks), Ev 42 (IET), Ev w35 (Heat and the City) Back

52 Ev 58 (C0-ops UK) Back

53 Ev w14 (IET) Back

54 Q 4 (Professor Watson), Ev 42 (IET), Ev 58 (Co-ops UK), Ev 75 (Co-op Group) Back

55 Q 4 (Mr Botting), Ev 84 (Good Energy), Ev 42 (IET), Ev w72 (Air Products) Back

56 Ev 84 (Good Energy), Ev 58 (Co-ops UK) Back

57 Ev w48 (Wood) Back

58 Q 4 (Professor Watson), Ev w48 (Wood) Back

59 Ev w72 (Air Products), Q 12 (Mr Cornwall) Back