Communities and local generators often want to supply electricity directly to local customers and it feels intuitively right that doing this should cost less than if they used the full national electricity network.

Regen has recently completed some work for Western Power Distribution, working with Open Utility, Reckon and Lux Nova Partners, looking at how local consumers and local generators might be able to see the value from network savings flowing from more locally matched electricity.

The research looks at two key questions:

  • Can local matching of demand and supply generate value for networks and how much?
  • What models might be possible to access this value?

The research first looks at quantifying the potential cost savings through higher levels of local matching of demand and supply. Areas of value were identified as lower losses due to lower flows on the network, and lowering peak utilisation that could avoid or delay network investment in areas facing constraints and subsequent reduction in the cost of new connections.

Achieving these savings for the network obviously requires some incentivisation for local generators and demand customers to shift their usage into periods where they can be matched at a local level. If the generator is a solar farm, can you encourage customers to use electricity during sunny days? (see Regen’s work on the sunshine tariff). If there is a high evening peak can you encourage the solar farm to invest in a battery?

The only local electricity model that currently encourages matching is a private wire where demand and supply are directly connected. A number of economic incentives exist in these cases to maximise their use of privately generated electricity. These private wires can, however, deliver dis-benefits to others due to duplication of network assets and higher residual taxation, which is then shared around remaining customers.

We looked at alternative models that might encourage matching behaviours and allow the savings to be available to more participants (those unable to invest in their own generation or private wire). One model was a theoretical virtual private wire, where existing network assets that link local demand and generation are leased. Regen used industry interviews and analysis to explore the current market for private wires, and the potential for virtual private wires – a solution that would avoid potential duplication of assets.

The second option explored was to provide an economic signal by setting local DUOS tariffs for matched and unmatched electricity. Though the price signals in DUOS could be quite small, they would theoretically provide a price incentive across a defined area to change behaviour. Options could be that DUOS savings are applied retrospectively to bills or aggregated and given to a local or community fund.

Challenges exist with all models that do, and could, encourage local matching. The virtual private wire, though appealing, has cost avoidance and regulatory issues. The matched DUOS rates provide quite small signals and may be a very complex way of reducing system peaks.

Matching supply and demand at a local level is going to be a key feature of a decentralised and democratic energy system. This research shows that there is value available, but we need changes in regulations and charging models to enable these new models to emerge. We hope to take these points forward in our work on the Charging Futures Forum.

Click to see the full report, and appendix A, appendix B, appendix C, and appendix D.

Author: Poppy Maltby

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