Ofgem’s current competition enquiry into the Big Six is the latest in a series of events pushing communities to take back control of energy.
This year’s Edelman Trust Barometer revealed that trust of the energy sector has fallen to an all-time low, with only 32% of the UK population trusting the sector. (This puts it in last place, behind the banking sector). Just over 70% of respondents said the industry isn’t being regulated enough at the top.
At a grassroots level, many consumers frequently vote with their wallets (using the plethora of switching websites available) to get a better deal on energy.
Mistrust sparking energy activism
Aside from switching, a new form of consumer activism on energy is emerging. Increasingly, communities are collectively reducing, purchasing, managing and generating energy locally. Community energy is of interest to any organized body that stands to gain more from managing its own energy interests, rather than leaving it in the hands of a supplier. Many different types of community energy users could benefit, including Scottish islands, rural farmlands and urban settings, as well as corporations such as banks.
Community energy is already popular in Europe. In Germany, for example, almost 50% of energy-generating plants are owned or run by local groups.
The atmosphere of mistrust, price rises and the need for grid modernization are combining to create the right conditions for a shift to community energy. Currently, there is more than 60 megawatts (MW) of community-owned renewable electricity capacity in operation in the UK. At the launch of its Community Energy Strategy, DECC estimated that, by 2020, community electricity could generate up to 3 gigawatts (GW) (from a mixture of solar photovoltaic, onshore wind and hydro projects) — enough to provide electricity for over one million homes.
Price rises are one of the main reasons for discontent; energy prices have roughly doubled in the past 10 years and government figures predict a further 50% increase over the next 10 years. A recent survey commissioned by DECC revealed that 42% of people said they would be interested in taking part in community energy if they could save money on their energy bills.
Members of the UK public are now increasingly making connections between the infrastructure they see, the energy they use and the price they pay for it. For example, the blackouts caused by Hurricane Stephen on Boxing Day left around 350,000 homes in the South East without power. Network operators compensated consumers with up to £75 a day for the inconvenience caused. While for many that didn’t make up for Christmas in the dark, it did cover the daily charge to hire a diesel generator. That’s exactly what many people did — spawning a new group of first-time energy generators.
Self-sufficiency learned in a crisis can be a powerful thing. In the US, when Hurricane Sandy caused mass blackouts, the lights stayed on for large groups across Maryland, New Jersey, New York and Connecticut. The reason those communities were left unscathed was their power was separate from the main national grid: it was generated by small-scale diesel, wind and solar, supported by energy storage. They were operating microgrids.
Microgrids — localized power systems that reduce costs and increase reliability by combining energy production and storage — are a key delivery model for community energy projects. Navigant has identified 4,393 MW of microgrid capacity throughout the world, up from 4,148 MW last year. North America is leading adoption, with 66% of the global microgrid capacity planned or deployed there. This is being driven by the declining reliability of the US centralized distribution grid.
Back to the future
This is not new thinking. The UK’s National Grid didn’t start out life as a centralized network. It was conceived only in 1938 so that cities did not have to live next to the dirty coal power stations that supplied them. We created a centralized grid system to transmit energy to our homes, via pylons and cabling, from the power stations where it was generated. Before that, power came from a patchwork of small, independent supply networks that served small village communities.
Significantly, looking back, energy was a revenue generator, not a cost, for communities. Up until the end of World War II, UK local authorities generated around half of their income from trading energy from town gas works and local electricity plants. With renewable technologies of all shapes and sizes now available at falling prices, there is a serious case for communities to shift away from the National Grid to a model where energy generation is clean, limitless and, most important, local. Moving from the big six to the “Big 60,000” represents an ideological shift, making energy a matter of devolution, where the more local the energy, the greater the independence gained by its consumers.
Small-Scale Energy, Big Society
The UK government’s Community Energy Strategy is a major step forward in encouraging communities through advice and funding. This includes a new £10 million Urban Community Energy Fund that supplements the existing £15 million fund for rural projects. According to Greg Barker, Minister of State for Energy & Climate Change, “Community energy is a perfect expression of the transformative power of the Big Society … enabling communities to generate their own heat and electricity, and their own profits, and as a by-product, help the UK to save energy and help to cut carbon emissions.”
Cynics are prophesizing that the Community Energy Strategy will follow the same path of low engagement that blighted the Green Deal. (Despite national advertising campaigns, at the end of January 2014, just 746 households had Green Deal energy efficiency measures installed.) But one of the main issues with the Green Deal (which does not apply to community energy) is that small-scale, individual energy efficiency actions — such as insulating lofts or installing double glazing — and their resulting savings do not excite householders, let alone entire communities.
The beauty of community energy is its scale: shares can be small enough to be within reach for ordinary people, but large enough to make a significant difference.
Take the Westmill Cooperative, for example. Its two share offers raised over £10m in share capital. Both offers were over-subscribed and attracted outside funding to finance the balance of the project. Westmill Solar, for example, received £12.5m from the Lancashire local authority pension fund. Combined, the two projects now generate enough energy for nearly 5,000 homes.
There are many hurdles ahead in forming a strong UK community energy movement, including technological and regulatory complexity, getting access to the grid and ongoing uncertainty over feed-in tariffs. There is also the issue of finding investment. But in the current low interest savings market, shares in community schemes can be very appealing.
In 2013, Britons collectively invested £1.4bn in equity ISAs, despite those delivering only small returns after bank fees have been deducted. Just 5% of that annual ISA equity investment could create a transformational £70m-a-year investment in community energy.
To live up to their promise, community projects should aim to become “goodwill factories” that clearly deliver — and communicate back — tangible benefits, whether financial or social, to the community. Trust, fairness and courtesy must also be exercised, especially when acknowledging uncertainties of opposition groups.
Consumers are ready to take back control of energy, the technology is proven, and government is in support. Now it’s up to communities to align their interests and rally behind the promise of community energy.
Editor’s note: This was a guest post developed in conjunction with a recent Arup-Edelman event titled “Back to the Future: Could the UK Return to a Community-Based Grid Model?” Nick Hay is the Director of Edelman’s UK cleantech practice, a specialist communications team dedicated to helping clients catalyze growth in the new energy economy. Twitter: @naughtster