The Local Energy AgendaProviding low carbon sustainable power to the

towns and cities of the future

Andre Burgess, Partner, EMVC Solutions5th November 2014

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About us

• EMVC Solutions was established as a platform to develop business opportunities in the emerging world of smart local energy systems

• The work is underpinned by the drive to integrate relevant data and has been divided between innovation and practical service delivery.

• Current work includes the development of a scalable systems and business model to take advantage of the advances in Smart Grid technology and associated market opportunities for a social housing group.

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Fit for purpose?

• The era of the centralised electricity system model is coming to an end. – There is a crisis of trust in energy companies

– Low-income consumers are being overcharged

– Resilience of the system is being undermined

– A green finance gap has emerged

– The British economy is missing out on benefits from low-carbon subsidies

– Cost effective local generators are being held back

• The utility business model is under strain– £100 billion investment in generating and infrastructure at least

required by 2020

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The energy market isn’t working

In 2013, the gas bills of customers who had not switched supplier since the market was opened to competition were on average £76 higher than those of customers who had switched (IPPR 2014). The electricity bills of customers who had not switched supplier since the market was opened to competition were, in 2013, on average £27 higher than for customers who had switched (ibid).

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The energy sector is transforming...

– Ed Davey – 30% of households to be with independent suppliers by 2020

– Energy efficiency and distributed generation undermine the large scale utility business model

– Energy supply is undergoing a revolution with ‘smart’, distributed electricity accompanied by rapid cost reductions

– Increasing primacy of demand side reduction and energy efficiency

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Local Organisations - ‘Communities’ - want to supply energy

Trust People trust their communities to give them a fair deal on energy. A recent study indicated three times more people felt they would get a fairer deal from a community energy

company than a big energy supplier.

Local benefits Community energy schemes are an effective way of getting people engaged with energy issues, it helps

increase support for new energy projects and provides opportunities for local supply chain and jobs

Influencing behaviour Behavioural change is a key ingredient in reducing energy consumption. Research has shown that top-down energy efficiency advice from government or large companies is often met with a mix of confusion and distrust. Through

their local presence, expertise and representation, communities can encourage grassroots change far more

successfully.

City Council In the South West

Want to launch a local energy company to generate income to fund

energy projects and other local services

Housing AssociationIn the South West

Want to be able to offer tenants ways to reduce energy bills beyond just energy efficiency measures

Community Energy Co- Op In the North East

Want to use profits from local generation to fund a discounted tariff

for residents

DELIVERS

Source – Ovo Energy

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Municipal Energy

i.e. the public and community, as well as private, ownership and managerial control of local energy generation, distribution networks and delivery of energy

efficiency works.

• Local Government is well positioned to take a leading role:– Localised energy supplies increasing energy security and resilience to energy price

fluctuations.

– Resolution of social issues associated with energy costs such as fuel poverty.

– Local economic benefit via income generation and increase in jobs and skills within the green energy sector.

– Trust in local authorities as suppliers is three times that of the Big Six.

– As the son/daughter of ECO develops, local authorities will be well placed to integrate local supply with local energy efficiency on an area basis

– Assets: Resources / Finance / Influence / Legitimacy

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What can a local energy company do?

Source – Ovo Energy

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4 ingredients for Local Energy Services

•Smart grid tech including meters can be used to see real- time energy usage, and facilitate demand management programmes.

•Providing Energy Company Obligation funding and as a coordinator for local installers.

•Incorporating front and back office supply business, including trading and marketing

•Buying energy from local generators; including investing in renewable generation and integrating existing generation facilities.

Power Generation

Energy Supply

Smart Grid integration

Energy Efficiency

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The Barriers

• National government policy – for example, how subsidy mechanisms have been designed, how subsidies are allocated between technologies, and issues with planning. These must be addressed at that level.

• Upfront costs – and achieving sufficient scale to justify these

• Risk – including energy procurement and reputation

• Complexity - this can be offset by a range of emerging business models– regulatory compliance

– industry codes

– energy supply is just one of many priorities

• The uncompetitive approach to PPA’s hampers the market. By engaging in energy supply, cities could become a new source of PPAs for Distributed Generation, thereby incentivising developments in their area.

• To further encourage developers, cities can offer additional support – for example, help with project coordination and planning – alongside a PPA.

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Business model options

White Label Partnership Licence lite Joint venture Fully licensed supplier

Takes responsibility for

delivery and meeting licence

conditions.

works with one or more third

parties to set up and run an

independent supplier

Becomes a ‘junior supplier’

with responsibility

for some aspects of

delivery and meeting licence

conditions, while a partner ‘senior supplier’

is responsible for the rest of the business

works in partnership

with an existing, licensed

supplier and takes

responsibility for some

operational aspects of the

supply business in its area

licenses use of its brand to an

existing supplier who

uses it to market to

customers in the local area

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Funding Routes

• Public works loan board • Municipal bonds • Green Investment Bank • Local authority pension funds (101 schemes, £150 billion in

assets) • Crowd funding opportunities and partnerships

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Don’t run before you can walk

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Smart Grids - a more efficient way to run our energy system

Source – Encraft ltd

Energy Supply and Demand is optimised within a community first

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The ‘killer app’ for the electricity sector?

• Smart grids open up new revenue streams for communities beyond energy saving – Generation and supply

Moving to demand-based pricing

– Demand response/system balancing

Rewards for avoided investment - DNO’s

Frequency response - STOR participation

– Capital investment savings / maintenance optimised

– Security of supply

– Trading

The catch is that many of these require minimum scale and some kind of legal structure

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Thank you

Andre Burgessandre@emvcsolutions.com