Globally, our energy systems are undergoing major transformation as the control of how we produce, distribute and consume energy is being put back into the hands of local people.
Over the past century, the availability of cheap fossil fuels has led to the development of a centralised energy system. In the developed world our large power stations and extensive transmission and distribution networks have provided us with cheap reliable energy at the click of a switch. Energy has now become such a fundamental part of our modern industrialised societies that it is often argued that it should be included as one of the fundamental needs in Maslow’s famous hierarchy of needs.
However, the time has come for the system to change as fossil fuel prices continue to rise, new forms of energy generation grow, and use patterns are evolving. This has led to the point today where we are at the cusp of a paradigm shift in the energy system, driven by the ever-increasing development of distributed generation and use of energy.
“The transformation coming to the electric industry as technological innovation crashes over the utility landscape like a giant wave will leave dramatic change in its wake” (Carvello & Cooper, 2011)
The move from a centralised energy system to a decentralised one is already underway, fundamentally reshaping our entire system. This change is illustrated in the image below.
The implications of how we produce and distribute energy will be significant.
Not least is how we deal with managing the inherent complexity in a system which needs to actively balance supply and demand at the edges of what is currently a highly centralised system. A more active system is called for.
The good news is that this transition is occurring at the same time as the rapid innovation and convergence that we are witnessing in the communications and IT industry. Already, novel innovations are providing the tools to actively manage a system that will be a lot more complex but ultimately, has the potential to radically reshape how we engage with energy.
A Smarter, more Sustainable and more Inclusive energy system
The potential of a Smart Energy system to touch all parts of our daily lives and to transform our relationship with energy is something that cannot be underestimated. An interesting analogy can be taken from the move from an analogue to digital telecoms system. Back in the 1950s for instance, most people at the time could not have conceived this change would take place in the Internet and social media.
The move to an increasingly digital energy system will inevitably result in such large scale economic and social changes.
A fundamental driver for a decentralised energy system will be the exponential rise in the use of edge technologies, requiring an ever more reactive and balanced energy system. There are two key tools in the Smart Energy toolbox:
Demand response – shifting demand at peak times or when there is less intermittent renewable energy on the system
Energy storage – demand response can only ever do so much therefore storage will be a key driver to fill the energy gap at critical times and ensure energy is not wasted at times of excess production
Underpinning this is the communications, IT infrastructure and market mechanisms, providing the ‘Smart’ technological and market (delivering effective pricing signals) platform to ensure the energy system is kept in balance.
The social and economic opportunities
Technically, this challenge is fascinating. However, a more interesting take is what this will deliver in terms of social and economic opportunities for local communities and businesses. The new Smart energy system has the potential to fundamentally disrupt the current paradigm of central control and the business models of the inevitably dominant players. We are currently at the start of a generational opportunity to rethink what a Smarter, more localised energy system could do for us.
What is clear is that the potential economic and social opportunities that can be realised through a local energy system are significant. For example the development of local energy markets could provide individuals and communities with the ability to produce and consume energy locally, becoming an active participant of their energy market. In doing so it might encourage and support local generation and the development of innovative energy models.
Examples of this include peer-to-peer trading, as well as the creation of local energy supply companies. In turn, this could lead to the development of innovative, socially-driven energy models where for example local communities can direct energy at times of excess free of charge to those in fuel poverty. A recent report from UKERC exploring different scenarios for Smart Grid development in the UK demonstrates the public felt that this community-led approach was by far the preferred option. The necessary community groundswell is already well underway through some pioneering groups such as the Wadebridge Renewable Energy Network.
In addition to the social benefits, the inherent complexity of the new system will grow as more innovative products and services are required to keep pace with the inevitable evolution of the system. This offers a significant opportunity to a wider variety of sectors to grow both horizontally and vertically to exploit the many market niches which will be created as the Smart Energy system picks up pace. Furthermore, smart systems will provide a more resilient energy supply to energy-intensive businesses. This will develop more sustainable services in an increasingly uncertain world.
However, such social and economic opportunities will only be realised if the appropriate market mechanisms, policy interventions and overall strategic understanding of the opportunity are embedded from the outset. To achieve this, we must ensure that the right support is given to communities and businesses to enable the development of the right type of Smart Energy ecosystem – one that delivers outcomes that will benefit everyone.
I will conclude by reflecting on two images shown here from the 1900s – one is of the US’s best selling car at the time, an electric car, the Columbia Electric Run-around, and the other is of a local energy supply company in the town of Wadebridge in the UK, these were the norm back then.
It is clear that a more localised energy system existed 100 years ago and we are making our way straight back to it. So I hope what this shows is that there is nothing particularly new in where we are going, but what is new is the opportunity to develop a much smarter, more sustainable and more inclusive energy system than we have today.