Stephen Stead 28 September 2020

How local authorities can make money from energy

How local authorities can make money from energy image

As we begin to slowly emerge from the other side of COVID-19, and with around three quarters of UK local authorities declaring a climate emergency, now is the time to create a 'better normal', not just a 'new normal'.

All levels of government, including local authorities, will be feeling the budgetary constraints more than ever before as we return to work and begin our post-pandemic economic recovery.

What many local councils may not realise, however, is that their existing assets have the potential to generate new revenue streams - helping to ease pressures on budgets and assist the fight against climate change.

Making money from buildings

The simplest way of reducing carbon is to use less energy. Deploying energy efficiency measures across building stock has the added value of generating work for local contractors. Getting the basics right is an essential first step – from fitting insulation and double glazing to energy efficient lighting. A greater benefit can be achieved through the deployment of low carbon assets such as solar, energy storage, and high efficiency boilers or heat pumps supported by alternative funding models ranging from a basic Salix loan, through an Energy Performance Contracting (EPC), to an Energy as a Service (EaaS) model.

In tandem, further benefits can be delivered by making buildings 'smart'. Depending on building type and size, this may involve the installation of a Building Management System (BMS) to provide energy optimisation and core control. With or without a BMS, sensor-based services can be applied that utilise measurement, intelligence and control to drive efficiencies. For example, occupancy sensors to tailor lighting and heating or to enable needs-based maintenance. Reducing carbon goes hand in hand with saving money when it relates to power.

Additionally, it can also present a revenue generation opportunity. As the country moves toward zero carbon, the penetration of intermittent solar and wind into our power system will increase. However, unlike coal and gas power plants, wind and sun cannot be controlled. Hence the energy system needs a way of balancing generation and load to align to a new world of low carbon generation intermittency.

To achieve this, markets have been established that enable asset owners to reap financial benefit from turning electrical demand and generation up and down in order to keep the market in balance. A building is essentially a large load. Even more so when heat pumps are installed and EV chargers connected. Where solar and storage are installed, it can additionally deliver controllable generation. As such, it can allow energy firms to control its assets and generate revenues for them. Alternatively, it could simply use this smart control to accommodate local power network constraints and hence defer investment.

Thinking of energy as a service

Real time control of local energy generation and consumption is already playing a vital role in decarbonising our economy. Without it, it would be impossible to increase the level of intermittent wind and solar generation versus controllable coal and gas. However, to support greater decarbonisation, these systems need to do more.

Matching intermittent generation with load is only part of the problem. With electrification of heat and transport, working around available grid capacity will be equally important for any local authority struggling to decarbonise, especially if it wants to avoid significant reinforcement costs for its own networks, increased connection costs for the local regulated network and/or delays waiting for this network capacity to be upgraded. Hence these systems realistically need the ability to control energy assets both to generate market revenues and manage constraints in the underlying network.

Additionally, given the demise in renewable subsidies, it is all the more important that the systems can trade output across multiple markets, including Ancillary, Wholesale, Balancing and DSO. This in turn needs advanced trading intelligence to optimise asset portfolios across a range of market opportunities.

Switching to electric vehicles

Carbon reduction is not just about power. It is also about transport. As the number and range of EV models on the market increases, so too does consumer appetite to switch although this will remain muted until confidence in availability and speed of chargers increases. Local authorities can impact this by influencing third party charger deployment. They can also lead by example with their own fleet, incentivize the conversion of grey fleet, and influence EV bus deployment.

The revenue play here is that as take up increases, so too will the demand for forecourt style EV charge hubs. By targeting their own fleet and/or that of large local businesses, sufficient anchor demand can be enabled to seed their funding hence providing convenient infrastructure for the wider community. These hubs can be fed by solar power through private wire, increasing both green credentials and earning potential. They can be done on authority land, fed by authority solar power, or even done in partnership. All of which would generate much needed revenue.

Each of the above can be considered on its own merit and deployed at speed to bring in much needed revenues. However, benefits can be maximised by also considering each component in the context of the wider local energy system. For example can costs be reduced through shared trenching across heat power and EV chargers? Can an oversized battery at an EV charge hub also provide backup power for local businesses? Is each asset enabled for wider control such that the entire local energy system can be optimised across heat, power and transport? This Whole Systems approach will prove critical for a successful, cost-effective transition to zero carbon.

Stephen Stead is director of strategy and digital services at SSE Enterprise’s distributed energy business

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The LATCo model

Mark Scott explains how local authorities can deliver profit with a purpose.
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