UK decentralized energy ‘has a very strong future’

2017 marks 50 years since Alfred Ernest Haseler founded the UK’s District Heating Association.

In 1985 it became the Combined Heat and Power Association and in 2015 it was renamed to the Association for Decentralised Energy. Decentralized Energy spoke to Director Tim Rotheray about the evolution of the organisation, progress made and obstacles yet to be overcome.

Decentralized Energy (DE): This year is the 50^th anniversary of the association’s formation. What was the energy landscape like in Britain at the time?

Tim Rotheray (TR): “The situation then was the majority of homes didn’t have central heating and the power system was dominated by large and growing coal-fired power generation. North Sea gas had not yet been discovered so the UK was dominated by oil, and coal.”

“People at the time had just emerged from the London Smog and air pollution was a concern. What is interesting now is that some of the issues at the initiation of the Association are the same ones that are around now.”

“Air quality, security of supply, reliability of supply, cost to business and industry of meeting energy needs. District energy then was seen as a duty, enabling local authorities to provide people in their towns and cities with affordable heating and as a route to market for the coal industry rather than selling to individual houses.”

“What’s also interesting is to look at the documents of the time for the association. Although the technology has changed, in that no one is talking about coal fired district heating anymore and we are talking indeed about the end of coal in the UK, the problems and solutions are very similar.”

“The key thing that runs like ink through a stick of rock in the association, the idea that defines the industry, is that it is built around the user, understanding that customer need, be it domestic or industrial, and building a set of services and equipment to meet those needs in a cost-effective, efficient and increasingly low carbon way. That’s remained the central ethos of the association over all that time.”

DE: Seeing as air quality is such a contemporary issue, it seems surprising that it was a central motive for the founders of the association?

TR: Absolutely, the oldest district energy scheme in the UK is in Pimlico in London, built opposite Battersea power station on the opposite side of the Thames.”

“The architects were instructed when designing it not to add another stack, not to add more polluting fumes to what is already a very toxic environment. That is what led to a district heating scheme, taking heat from the power station opposite and supplying it to London customers without adding to the city’s polluted air.”

“That scheme is still running and moved away from coal to oil and then to gas and now to gas-fired combined heat and power. The air quality issue in that situation was the key driver and it’s becoming an increasingly important area of focus.”

DE: What other issues would your predecessors have had to address 50 years ago? Has much of their agenda been overcome and what persists to this day?

TR: “There are two recurring themes throughout the association’s history. The first is energy efficiency. Getting proper priority on capping energy demand and other areas of underactivity across successive governments.”

“There is a systemic problem which has existed since the beginning of the association’s existence looking at what the role of energy efficiency should be and actually making it happen. That persists today.”

“We now have the recent industrial strategy with a commitment to industrial efficiency, but if you look at government tendency to invest in what you might call supply side measures, large scale and so forth, the scale of government intervention and investment dwarfs the scale of demand reduction and has done for a long time so that is one key issue that still needs attention and should be a cause for concern.”

DE: Why are the government somewhat resistant to obvious efficiencies, obvious advantages of investment in the technology?

TR: “One of the reasons why we haven’t seen as much action on efficiency is that it is seen as something that should naturally happen and modelling often suggests that energy efficiency should just make sense so people should just do it.”

“But we know that getting business and homes to focus on investing in energy efficiency is now just about the pure economics. There is much more going on about behaviour and competing sources for other forms of investment. For businesses, it’s whether they should invest in other parts of their business and for homeowners, whether they spend on other activities. We know that consistently policy says energy efficiency should happen and the reality shows that it doesn’t – that disconnect is a key issue.”

DE: Is there something in how government operates that militates against decentralised energy? Maybe that’s structural in terms of how short government tenures are? Maybe it’s that need by government to be positive towards lots of different technologies when really it could be argued that the efficiency imperative needs to be prioritised.?

TR: “One of the challenges is, while cutting demand and boosting productivity is extremely valuable, it doesn’t have the same ribbon-cutting appeal as opening a new wind farm or a new power station.”

“So if you have it as a flagship policy it is less easy to demonstrate the tangible changes it is making even though it transforms people’s lives and business competitiveness. It is just not as sexy as big shiny new pieces of equipment.”

“Perhaps that is something coming more into the limelight as the communications revolution enables energy consumers to be greater participants in the system. But in an energy system that was traditionally top down, you start with a generator and transmit to the distributor and end up with the customer at the bottom. In that world, the customer is right at the bottom of the pile and therefore their interest in cutting their energy demand is also at the bottom of the pile and the focus is on new wires and new pieces of kit rather than how do we enable the customer to have cheaper bills?”

“As we switch to a more user led energy system there is a real opportunity to focus on cutting demand as part of a suite of measures. From onsite generation, demand side flexibility and demand side reduction, those can be brought together in a more effective way so that energy users can have a greater benefit.”

DE: Are there advertising campaigns that can be dreamt up where governments can show off what they have achieved in energy efficiency? Capturing the public imagination through air quality stats, health stats, bottom line savings? It seems a pity that such obvious societal wins on so many levels don’t seem to translate and don’t get supported, because it’s not bricks and mortar.

TR: “We need to ensure that the value of cutting demand is seen across every area where it delivers benefit. If you cut demand by insulating homes and therefore reduce the incidences of lung disease as a result of better air quality, lowering levels of asthma and other pulmonary complaints, that is a direct result of reducing demand.”

“If you cut demand at an industrial site and that site therefore has more manageable energy costs and is able to continue to compete and export and support the balance of payments of the UK economy, that is a direct result of an investment in efficiency.”

“We very often fail to make those links. It’s important to understand the contribution of managing energy.”

DE: Are there evolutionary milestones the ADE can point to in terms of explaining the development of decentralized energy ?

TR: There are a number of key things that have happened. District heating took off in the 1960s, and there is no doubt that the 1973 oil crisis forced a lot of countries to consider carefully their energy needs and their dependence on imports. Countries like Denmark went down the district heating route. The UK discovered North Sea gas and that has been an amazing way of delivering heat to businesses and homes across the UK.”

“That was a huge milestone in the heating sector but it probably changed to some extent at the expense of building heat networks which puts us in a situation now when we look at the situation for heat supply in the UK it means district heat is behind the curve compared to our continental neighbours.”

“In recent times it has definitely seen a fair rate of growth, and now is one of those times where district heating is getting a greater focus again as we realise that the combination of the need to decarbonise, and to provide secure energy, means cost effectively district heating has an important role to play.”

When you look at history and varying levels of focus from government, the decentralisation agenda is something we’ve seen growing in particular from the 1990s. We start to see CHP rolled out in industry and in the public sector in hospitals and so forth and that’s been a really powerful story. It has a transformative effect on the UK energy system in terms of reducing our need for imported gas and improving the security of supply, and competitiveness of business as a whole.”

“What we are clearly seeing now is the communications revolution brought about by the internet age as the next huge milestone in facilitating decentralised energy. It enables people to have control without complexity and that is the absolute nub of the issue.”

“When you asked me earlier of the issues that have not progressed with government, one central, continual theme is enabling smaller users to participate in a giant energy system with large producers.”

“The ability of smaller users now to have their demand aggregated, to automate their engagement with the energy system has the most exciting ability to transform the future in a way that is much more user-centric.”

DE: Turning to regulation, at a recent Westminster Energy forums, I heard one of Ofgem’s leadership state that they were not prepared to take district heating under their auspices. One of the reasons given was that he felt the industry was still relatively small.
But considering how much is at stake from an efficiency point of view and from an emissions point of view, the comments seemed out of touch. How important is it to get the regulatory aspect as strong as possible?

TR: “In terms of heat networks, what we need to achieve, if district heating has a role and the analysis repeatedly indicates that district heating in the right place and done well has a role in achieving a cost-effective zero carbon economy. If we are going to achieve that there are two things we need. The first is that we need heat networks to be investable as infrastructure assets. The second thing we need is that customers are treated fairly in a transparent way that gives them appropriate recourse if things go wrong, with affordability part of that.”

“Those two things may be delivered by a combination of industry activity and government intervention.”

“The ADE has a piece of work that is ongoing that is addressing this very question – what is the role for increasing regulation and what is the role for increasing business commitment in the sector to deliver those two outcomes.”

“That Task Force is seeking to report later this year or early 2018. We have as observers in the group, The Competition and Markets Authority, Ofgem, the Scottish and Welsh governments, Citizens Advice Bureau as well as industry representatives. So there are people from all the different groups around that table and that is the exact question we are trying to grapple with because if regulation has a role, what we need to do is to make sure it works to meet those two goals.”

“Very often when people talk about the need for regulation in energy they don’t necessarily focus on one of the things that has been successfully achieved in the gas and power network industry and that is that regulation has been there to de-risk the investment in long term infrastructure assets.”

“The role of the regulatory system under Ofgem enables institutional investors to examine and invest in network assets with long lifetimes proving low cost capital which helps drive down the costs of efficiency to customers.”

“It may be necessary for a regulatory intervention to do the same for district heating because right now district heating does not have that level playing field in which the regulatory environment facilitates investment. And of course, if you facilitate investment you naturally also make all kinds of requirements of those whose investment is enabled. Rightly so, in erms of customer protection and what to do when things go wrong.”

DE: If you were the head of Ofgem would you be placing district heating under that regulator’s auspices as a matter of priority?

TR: “If I was the head of Ofgem, I would be engaging with the work the ADE Task Force is currently doing and I would wait for its results. I don’t think it would be right to announce what the results are until we have done the work. I’m not seeking to avoid the question. There is a piece of work going on right now that seeks to answer the question you are asking.”

“But it’s really important that the principles we come out with are the right ones. If regulation has a role in driving down the costs and improving the customer experience that’s great. Regulation can also add burden and add cost and it can do both. We have to examine the different options and lead a framework for approaching the solution that delivers the right results. It’s all about the outcome.”

DE: Decentralized energy is at a tipping point it seems. When you think of how the situation has evolved over the last fifty years what do you envisage to be the least optimistic and most optimistic scenarios for the sector in 2067? 

TR: “The challenge of predicting the future is that you have a much greater probability of being wrong than being right.”

“But what I would say is that there are two trends that I don’t see changing – the digitalisation of energy and that drives decentralisation because it gives people control. And then there is the decarbonisation agenda. Those two trends are clear and appear to me irreversible. My view is that decentralised energy has a very strong future.”

“The worst-case scenario would be if the policymakers did not use the opportunity for decentralisation and user-led energy for cutting energy waste in the system.”

“ It means taking strategic decisions about investing in heat networks, about improving productivity and efficiency in energy in industry and homes. The one real risk is that we are careless about our energy and cutting waste. There is a great deal of energy waste in the system.”

“Steven Forbes has a blog called ‘Only 11 per cent’ because the analysis that he and others performed shows that only 11 per cent of energy installed in the system in the final accounting is used for its final purpose which means that 89 per cent of energy that we bring in is actually lost in the system and not captured.”

“The optimistic scenario is that we really drive the focus on a cohesive and user-led system.

The interesting thing about the energy user is that they are the only actor in the system that bring together all of the different aspects of energy policy.”

“So energy users have a genuine interest and concern in their security of supply, the cost of energy and increasingly the carbon content of the energy they are using, be it from their homes or business or their driving and for heat.”

“The fact that they bring those things together and look at generation and demand, they generate their own heat on site and also have the ability to control consumption through demand reduction measures, the fact that all of the silos that exist in energy policy are brought into one big area of focus under the user gives an amazing opportunity.”

“If you put the energy user at the heart of policy making we have the opportunity to create a system where all the traditional tensions between cost, supply and carbon are addressed through the user.”

DE: Do you benefit from district energy, or indeed smart energy, and on-site power technology in your home?

TR: “In one way I do in that all of the energy measures that are being done by all of our members  across the country are contributing to the reduction of the costs in the system and that reduces every single energy users bill.”

“We did some research on the value of combined heat and power to the UK system and we calculated that every year it cuts costs to the system by £400m a year. That cutting the costs has a direct effect on me and every other householder.”

“I currently rent a home and because I rent I don’t benefit from these things and have limited ability to impact my future. It’s worth thinking about as we move into a more rental world, how are we going to enable those users to benefit in the same way that householders can?”

“I can’t put solar panels on my roof and so forth. I can’t choose to invest in the efficiency of my home and so there is an interesting challenge for government to consider in how the renter can engage in the energy system in a way that works for them.”

For more on the ADE’s 50^th anniversary visit https://www.theade.co.uk/about/the-ade-at-50

Source: Decentralized Energy