Smart technology that could shave £90 off household energy bills and curb carbon emissions is being stymied by government policy, a leading thinktank has said.
In a wide-ranging report, Policy Exchange also claimed that current energy policy offered too many incentives to build polluting diesel generator farms at the expense of cleaner technology. The thinktank pointed to an estimate by the government’s National Infrastructure Commission that a smarter, more flexible power grid – which would allow businesses to store power and shift usage to less busy times of day – could reduce energy costs by £8bn by 2030.
“Making the power system smarter will mean it can provide cheaper and cleaner electricity,” said the report’s author, Richard Howard. “The current set of policies is encouraging a growth in dirty diesel generators – exacerbating air pollution in UK cities and towns. The government needs to level the playing field to encourage the use of cleaner technologies such as demand response and storage.”
Demand response involves large energy users, such as factories, using power at times when there is less strain on the National Grid.
This reduces the need for the Grid to ask fossil fuel energy firms to turn up the power at times when the risk of blackouts is increasing. Firms that provide demand response technology to large companies are unable to bid for Grid contracts lasting more than one year in the annual capacity market auction, because they do not fit the current criteria. But large coal power stations and even diesel farms, a heavily polluting source of power, are able to bid for contracts lasting up to 15 years.
Policy Exchange also advocated lower carbon taxes on battery storage, where surplus electricity is saved and released at a later date when it is needed.
It called for greater penalties for emissions released by diesel generators, which currently receive payments to be on standby to keep the lights on, as well as separate subsidies.
And the thinktank said rules set by the energy regulator, Ofgem, should be changed to encourage local power networks to use battery storage, rather than building new power lines. It said these measures, among others, could hand households a boost by cutting up to £90 from energy bills by 2030, while also making renewable technology more viable.
Technologies such as solar and wind power do not produce energy when the sun does not shine and the wind does not blow. But greater use of battery storage would allow renewable power firms to store their electricity to be released when conditions aren’t right for them to produce. Experts say this would reduce the need to build large fossil-fuel-burning power plants, which are still needed to provide a more reliable source of power.
Dr Jonathan Marshall, energy analyst at the Energy and Climate Intelligence Unit thinktank, said: “This report is the latest in a long series of calls for the government to enable flexible technology to compete on equal footing with existing power stations. This will reduce the number of power stations that need to be built only to operate for a few hours per year, and increase the opportunity for UK businesses to take control of their energy bills, using electricity when it is at its cheapest and opening new streams of income, as well as helping Britain meet its climate change targets at the lowest possible cost.”
While industrial energy usage offers the biggest scope for reducing electricity demand, Policy Exchange also pointed to the potential benefits from fitting homes with smart meters. The government has set a target of 2020 to fit every home in the UK with a smart meter, a box installed in the home that can monitor energy usage in real time.
Howard said these could help ease the burden on the Grid and cut energy bills because suppliers could offer “time-in-use” tariffs that charge customers based partly on when they use their energy.
Power suppliers buy some of their electricity at short notice in the wholesale markets, where prices change depending on how much demand there is. If customers use energy at low-demand times, it limits the amount that suppliers need to buy when prices are high.
“Appliances are coming to the market that could be connected to the internet to run when energy is cheaper,” said Howard. “It’s all technically possible.”
Ofgem said it would be publishing a call for evidence on smart power networks that would look at electricity storage and demand response.
“Progress towards smarter grids is already being made,” the regulator said, adding that it was looking into subsidies for diesel generators. “Some diesel plants receive additional payments for generating during times of peak demand, in addition to the wholesale price of power. We have set out our concerns on this as we believe it is distorting the market. We are now considering the responses.”
