Tim Braunholtz-Speight, Research Associate, Tyndall Centre for Climate Change Research, University of Manchester
29 March 2022
The Asterix cartoon books always famously began with the statement that “Gaul is entirely occupied by the Romans… Well, not entirely. One small village still holds out…”
Sometimes, the world of smart local energy systems (SLES) in the UK feel a little like that. The ‘villages’ of pilot projects, exploring how to create multi-vector energy systems at local scale, are surrounded by the UK’s famously centralised energy system which operates at a national scale and with markets and regulation of different energy vectors (e.g. heat, power, mobility) kept strictly separate. While - unlike in Asterix - the experimental pilots and demonstrators are funded and approved by the authorities, and are understandably the focus of much research activity, they are still sometimes seen as isolated and very different from the world beyond.
Yet, in fact, there are local energy systems, of varying degrees of ‘smartness’, all around the country that are up and running on a ‘business as usual’ basis. They are still a small proportion of the UK’s energy system overall, but they exist, and they are more widespread than might first appear. An understanding of what they do, who runs them, and who uses them, can complement the learning from pilot and demonstration projects, and help inform next steps in policy, regulation and practice.
As part of our EnergyREV research we interviewed operators or developers from 29 local energy systems across the UK, to ask them: what their systems do?; who runs them? and who uses them?; and how, despite going somewhat against the grain, they manage to survive in the UK?
We found a great diversity of types, shapes and sizes of system. The full results of this research will soon be available in an EnergyREV report, presenting data and analysis of the economic, social and environmental aspects of these systems’ business models.
Here, the key conclusions and suggestions for action are summarised along with suggestions for energy policymakers and practitioners:
1. Better support is necessary for the considerable demand for greater local energy integration
Despite the challenges involved, all of the systems we studied have achieved some degree of local vertical integration of different parts of the energy value chain - generation, distribution, retail and demand-side services. Many of them have also integrated horizontally, combining energy activities across multiple vectors and types of services such as provision of power, heating and mobility). Strikingly, almost all of them were planning to expand the scale and/or scope of their operations in the future.
Therefore, our research indicates that there is considerable pent-up demand for more local energy systems. Existing systems are present despite a difficult regulatory and market environment; there might be many more of them if the environment was more supportive. Previous EnergyREV research has highlighted the value that can be created through more and more integrated local energy action (Tingey and Webb, 2020). Therefore, policy should support todays local energy system operators in their ambitions to improve and do more, and facilitate the creation of new local energy systems.
2. Recognise the range of things - beyond price - that customers value about local energy systems
Where residential customers had a say in the running of their system – often in various forms of community organisation – they tended to be very supportive of decarbonisation. Business customers of other systems were also interested in buying green energy, and connecting to local renewables helped provide traceability of that energy and guard against ‘greenwashing’. These findings should encourage local energy system operators to pursue the decarbonisation of their system and to be confident about promoting their green credentials to customers – whether business or residential.
3. Support organisations outside of the energy sector to play a role in local energy systems
A great range of organisations, beyond the ‘usual suspects’ in the core energy sector, are running local energy systems today: in particular, organisations with responsibility for many kinds of physical premises or estates. This diversity of operators is a strength, as it brings different perspectives, customer bases, experience and skills into the local energy sector. We recommend that policymakers and practitioners should cast their nets wide when consulting, and when seeking partners to play a part in the future development of SLES.
4. Allow for the ‘local’ in local energy to be interpreted at a wide range of scales
We found local energy systems running at a wide range of scales: from some serving the operator, or just a handful of houses or businesses, to others supplying thousands of customers. Our findings therefore broadly support those of other EnergyREV researchers, who have noted the “wild” variation in scales of ‘local’ energy projects (Ford et al., 2021) and the “elasticity” of the term ‘local’ in SLES demonstration projects (Walker et al., 2021). We conclude that policy and practice should build on this diversity of scales, and avoid trying to impose any ‘one size fits all’ definition of the scale of a local energy system.
5. Support organisations to manage complex systems and maximise the economic resilience benefits from multiple revenue streams
Most system operators reported more than one source of revenue and more than one source of finance. This is a contrast with the much wider sample of local energy businesses analysed in Fuentes-González et al (2021), that tended to rely on a single source of revenue. Diversifying revenue can help in building economic resilience (particularly in today’s volatile energy world). But diversified systems can be complex to run, and operating organisations - particularly smaller organisations - might need support in accessing or developing the necessary management skills. Providing such support could help realise the benefits of a diversity of operators and scales of operation noted above.
6. Help provide a wide range of SLES-relevant skills and training opportunities, across the country
Many of the system operators we spoke to relied on national specialist contractors for key aspects of system maintenance – alongside local contractors for less specialist work. We also note how, in addition to core energy engineering skills, our interviewees spoke of the need for specialist skills in ICT, data management, and financial and business planning; this supports the findings of other EnergyREV researchers on the wide range of skills needed for SLES operation (Chitchayan and Bird, 2021).
We therefore suggest that more training and skills development opportunities relevant to SLES should be available across the UK, to improve the functioning of SLES and maximise the inclusive economic development benefits to localities.
7. Encourage life cycle sustainability thinking, and use policy and regulation to help system operators address circular economy issues.
With some notable exceptions, we found an under-reporting of issues around waste: both in relation to system operation and, in particular, end-of-life disposal of system components. This is perhaps not surprising – arguably the end-of-life destination of their components raises wider questions about the move to a more ‘circular economy’ that are beyond the scope of a single system operator today to fully answer. Instead, these are issues that policymakers and SLES development programmes may be best placed to tackle. While the energy sector is understandably focussed on the urgency of decarbonisation, the world faces multiple ecological and resource crises, and regulation and policy should encourage the adoption of circular economy approaches to sustainable resource use.
Finally, the level of ambition for the future displayed by local energy system operators was a striking feature of our results. Almost all of them planned to expand or replicate their current systems, and many were keen to increase the smartness and energy efficiency of their operations in the future. In the next stages of our research, we will be exploring business model innovations that might enable today’s local energy systems to do this, and fulfil their potential in the transition to the smart local energy systems of the future.