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 systemby reducing transmission
losses and energy lost as heatthereby 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
60
Ev 42 (IET), Ev 84 (Good Energy). Ev w74 (ResPublica), Q 68 Back
61
Ev 75 (Co-op Group), Ev w13 (CIC) Back
62
Ev w40(Energy4All), Ev 89 (BT) Back
63
Ev 89 (BT), Ev 33 (Utilyx), Ev w24 (RES), Ev w40 (Energy4All),
Ev 75 (Co-operative Group) Back
64
Ev 29 (Westmill), Ev w22 (Orkney), Ev 42 (IET), Ev 36 (Cornwall
Council), Q 35 (Ms Willis), Ev 58 (Co-ops UK), Back
65
Ev w8 (Basi), Loc 14 (IET), Ev 80 (CHPA), Ev w54 (Simpson), Ev
w68 (STA) Q 35 (Ms Willis and Mr Hyman), Ev w48 (Wood) Back
66
Ev w54 (Simpson), Ev 42 (IET), Q 29 (Mr Hyman) Back
67
Q 29 (Mr Hyman) Back
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