With all the changes over the last few years, many businesses are wondering: Are the government and Ofgem really serious about moving to a smart energy system?
What is becoming ever plainer is that we do not have time to play about.
Every year, National Grid publishes feasible scenarios of how the energy system will develop. This year, however, they set out that business DSR could reach 6.7GW by 2050 in the most ambitious of the four standard scenarios – and an enormous 13GW in the stretch scenario – to reach net zero.
That 13GW isn’t tweaking around the edges. It asks some big questions.
Driving the growth for DSR
What markets will drive this growth? Will it be the Capacity Market, the Balancing Mechanism? Will we recognise a wholesale market of almost 100% decarbonised generation and potentially 13GW of business DSR?
Who will be buying this flexibility? Will National Grid Electricity System Operator continue its seemingly inexorable shift to the centre of the power system? Or by 2050, will businesses be contracting with many different, even some independent, buyers of flexibility?
How will this interact with the decarbonisation of heat and of industrial processes more generally?
A new understanding of our energy system
More fundamentally, 13GW challenges us to turn our understanding of the power system on its head.
Currently, large fossil-fuelled generation forms the backbone of our energy system – it is the one that follows the peaks and troughs of bulk demand in the wholesale market, the one that dominates the Capacity Market, the Balancing Mechanism and most balancing services.
In a net zero power system, that backbone will fall away.
In its place, we will have bulk generation from renewable, largely variable, generation and flexibility from storage, interconnectors, low carbon dispatchable generation and DSR.
Dispatch demand to meet generation
As the Head of National Control at National Grid said in a recent Financial Times article : “At the moment we dispatch generation to meet demand, but at some point we need to switch that around, to dispatch demand to meet generation”.
The more you think this through, the more fantastical the conclusions seem.
Imagine it – a world where Ministers focused on keeping the lights on think not about a big new power plant. But about more businesses investing in flexibility. Where the network operators know the behaviour and potential of business demand as intimately as they once knew a coal station. And where businesses simply take it for granted that they will be providing, and earning money, from flexibility.
Fanciful? 13GW says no.
True, creating such a power system is a huge challenge with many unknowns. However, it also holds real promise.
A transition that works for business
The transition to net zero must work for business.
In the need for GWs of reserve capacity and flexibility – and the shift of energy system revenues towards energy demand and users that that entails – we may have found part of the answer.
So, to return to the government – and specifically, the Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem. Many businesses who have invested in flexibility are feeling burnt by the recent changes and uncertain about what the future of energy has in store for them.
Grand ambitions for 2050 feel disconnected with the ongoing reality of often painful, always complicated reform. Whatever future scenarios tell us, should we just all give up and go home?
An exceptional opportunity
To walk away now would miss an exceptional opportunity.
The challenge of the transition is daunting, but it is also incredibly exciting.
Business has the chance right now to work with government and Ofgem towards shaping a vision for an energy system where they play a crucial active role. Where the energy system fits them rather than fudging them into tradition-shaped boxes. And where they have real clout in its long-term development.
Such an energy system would be truly user-led and is the only way we will get to the business end of net zero.