Flexible energy is paramount to solving the energy crisis

Flexitricity founder and chief strategy officer Alastair Martin highlights the importance of flexibility to alleviating the worst impacts of the current sky-high energy prices and the huge savings that could be achieved by reducing demand when the energy system is under the greatest stain.

Back when Iain Conn was chief executive of British Gas owner Centrica, he accused me of “talking my own book”.  This was at some Edinburgh event, at which I was probably sounding off on how giving energy users access to the fast-moving flexible electricity markets that keep the lights on would make energy cheaper, greener and more secure for everyone.  Iain, it’s a fair cop.  But it’s easy to talk your own book if you work in something you believe in, and I believe in this.

Iain doesn’t work at Centrica anymore, so when on Radio 4 recently he called for the government to act now to reduce winter energy bills, he wasn’t talking his own book.  He was talking reality.  Pretty much every other industry grandee I can think of – from leaders of major integrated suppliers like EDF and Scottish Power, to those of their smaller, niche, supergreen or techy competitors – has said more or less the same thing.  This much agreement from such disparate viewpoints is unprecedented.  If any of them are talking their own books, it’s because they don’t want their customers’ bills written off in bankruptcy, or funded by loan sharks.  A better explanation is that they’re just human beings whose jobs give them clearer-than-average visibility of the damage that these energy prices would cause if ordinary people are forced to pick them up.

The price squeeze began before Russia invaded Ukraine, but the war intensified it profoundly and made it impossible to predict when it would end.  Solutions proposed include means-tested subsidies, capping the cap, upstream taxes, spreading the cost over time, and so on.  I’m not qualified to choose between the alternatives or to plot a route for the short term, though it’s absolutely clear to me that immediate action is needed.  But there are a few things we can think about to help us shorten the crisis and avoid a repeat.

In energy policy over the years, there has been one glaring success and one glaring failure.  The failure is energy efficiency, which has had scant policy attention resulting in disappointing, patchy progress, leaving us hopelessly exposed to world commodity prices.  Running counter to the saying that one should never waste a good crisis (and anyone who wants to call this a “good” crisis doesn’t understand what’s really happening) is the tendency to reject ideas on the grounds that “that won’t help me right now”. The first time I heard an energy regulator use that argument was in the last gas crisis, when the Rough offshore gas store was damaged in 2005 and several power stations spent the winter burning tractor fuel.  That was bad enough, especially for industry which paid for most of it.  In comparison to today, it’s a storm in a teacup.  But where would we be now, if we’d acted properly then?  We’ve missed seventeen years of steady progress on good quality home insulation.

The success is renewable generation, mostly wind and solar, which has gouged huge holes in the nation’s gas bill already and continues to do so.  As I type, on an ordinary day in late summer, wind

and solar are providing about a third of our electricity needs.  All of that would otherwise be coming from gas.  But wind and solar face two difficulties.  The first is geography: every year, a small but noticeable percentage of our renewable generation is discarded (that is, we let the wind blow past some of the turbines, and let the sunshine bounce off some of the panels) because we don’t have enough capacity on the wires to carry all of it into our cities.  The second is timing: wind and solar generate when nature tells them to, rather than following our varying levels of need.  It doesn’t necessarily land when our system is closest to the edge and when we are running our most wasteful power stations.  We do put that energy to use, but we could do better.

When the invasion of Ukraine began the International Energy Agency put out a ten-point plan to reduce Europe’s dependence on Russian gas.  One of those points was to use flexibility to make our electricity systems more efficient and secure.  We, among others, proposed ways to do this in the short term.  One of those – which we nicknamed Green Shift – involved putting green energy to work by better scheduling energy consumption in areas where there’s a lot of renewable generation.  There are tens of thousands of electric vehicles in Scotland, but few if any of the drivers have the incentive or the means to time their charging to periods of high wind generation north of the border.  The same also applies to sunshine charging in south Wales and south-west England.  We have a solution to this; it requires us to trudge through the mud of regulatory reform, but we’re doing that, and we’ll deliver it.

The other proposal – which we nicknamed Greener Peak – looks like it coalesced with similar initiatives from around the industry, which will hopefully lead to a quicker result.  We’re expecting the imminent launch of National Grid ESO’s winter demand turndown service, in which energy users of all kinds will be rewarded for allowing any flexible energy-using devices they have to be turned down for short periods when the supply of electricity is tight.  For home energy users, that might mean a car charger or a heat pump.  In business, it might mean refrigeration or pumping.  It doesn’t mean the lifts, the trains or the cooker – you’ll still get home and those soufflés will still rise – it’s the customer who chooses what’s flexible.

National Grid ESO is launching winter demand turndown to help prevent blackouts.  True, the risk of blackouts this winter is probably higher than last winter, and demand turndown helps reduce it.  But it isn’t rationing.  Rationing means closing down a market; this means opening the market up.  It’s not a complete job – winter demand turndown isn’t so useful for the majority of people who have gas heating and petrol or diesel cars.  But making electricity more flexible and efficient reduces the nation’s gas burn, and that benefits everyone.

California had an energy crisis in 2001, and a variety of demand turndown measures were deployed.  Some were harsh, and some felt a lot like rationing.  Economists then estimated that 5% off peak demand could take 50% off the peak price.  Now, we can’t take that isolated statistic and bank it, any more than we can take one lucky find on the discount shelf and apply it to a whole year’s shopping.

But it does reveal something about how energy works when things are tight.  Conversely, it tells you something about the value of doing the right things – investing in energy efficiency, flexibility and renewables – before the next crisis hits.