8 December 2016

Renewable Futures: disruptive innovation and the energy sector

Regen’s Renewable Futures conference and exhibition is one of the annual dates in the diary where our sector gets together, takes stock and looks ahead. This year, however, it had a more febrile atmosphere as participants recognised the speed and scale of change in the energy sector driven by disruptive changes, these include:

  • falling costs, driven by the global market, that now mean that wind and solar will be cheaper than the next generation of combined gas turbines.
  • the grid is changing with National Grid recognising that “2015 was the last year we operated the system in the way it has operated for the last 50 years.”
  • flexibility is where the value is, rather than the previous straightforward concern for MWs on the ground.
  • the need to look at links between electricity, heat and transport – for example the implications of electric vehicles for power generation and distribution
  • the take off of interest in storage in 2016, as falling costs and new revenue streams emerge.

Leading change

The impact of these changes on business models was explored in a CEO forum that brought together Carla Tully from AES, Tess Sundelin from Green Hedge and Mary Walsh from Cambourne Capital for a detailed discussion of how their companies are navigating recent changes to the energy market.

All three companies are investing in storage and it was clear that this has not been a spur of the moment decision; each company’s horizon scanning processes picked up the opportunity a number of years ago and developed a strategic approach to exploring the opportunity. 

The message is that in a time of rapid change the ability to spot new opportunities and to make dramatic changes to your business model in order to lead change, will be vital.

Flexibility and the network

A quote on the day from Carla Tully sums up the critical role the network will play in a decentralised system as “the conductor in the decentralised energy orchestra”.  

The most striking thing about hearing from National Grid, Western Power Distribution, UK Power Networks, Scottish and Southern Energy Networks is the consistency of the overall message. National Grid, once the guardian of a centralised power system now talks about the three Ds of decarbonisation, decentralisation and digitisation. Distribution Network Operators (DNOs) are all embracing the switch to Distribution Systems Operator (DSO) and their role in balancing supply and demand at a local level.

This shift from the old ‘fit and forget’ model is, however, a major challenge, DSOs need to have greater access to data, better visibility of their network, greater controls, strong forecasting and greater coordination with National Grid.

The changes in the power system are difficult enough, however as Wales & West Utilities discussed we need to shift to a multi-vector future energy system. This could include biomethane and hydrogen injection to the gas grid, distributed generation connecting to a smart grid, heat and electricity storage, electric vehicles, and hybrid gas and electric heating technologies. 

The role of policy makers and regulators

The recent publication by the Department of Business, Energy and Industrial Strategy (BEIS) and Ofgem of a call for evidence on “Smart and Flexible Energy” set the scene for discussion through the day on the role policy makers and regulators in this changing system. The government has a difficult balancing act to play, it needs to ensure secure energy supplies, but its role is not to protect incumbent business models. 

Clive Maxwell, director general, energy efficiency and heat for BEIS acknowledged the intense technological innovation that we are witnessing across the whole energy system and the benefits this brings; highlighting the role of Government to create the right framework to enable this to flourish.

The ‘Smart’ call for evidence focuses in on five areas.

  • Removing barriers to storage and demand side response
  • Improving price signals
  • Catalysing innovation
  • Making sure flexibility providers can compete fairly
  • Assessing changes to roles and responsibilities

One topic the call makes little mention of is the need to balance supply and demand at a local level, rather than simply the current national balancing model.

BEIS and Ofgem, therefore, used Renewable Futures to hold a detailed session discussing local approaches. This divides into two opportunities: 1) the role of local trusted intermediaries in helping people understand the changes in generation, supply and use of energy – and how it affects them and 2) geographical approaches to aggregating flexibility.

The clear message from the discussion was that there needs to be clear routes to market at a local geographical level to enable a wide range of potential flexibility providers to participate.

Conclusions

There is a remarkable degree of consensus that the shift to a decentralised, flexible energy system is now unstoppable. The challenge is now to navigate that shift. Other sectors of the economy have seen how disruptive innovation can destroy value in incumbent business models whilst creating huge new opportunities. Expect 2017 to be the year new business models in the energy sector start to emerge at scale.

Author: Merlin Hyman

Contact: mhyman@regensw.co.uk