Can a flexible energy system lead us to net zero?

A recent project launched by Carbon Trust and Imperial College will explore the potential for a flexible energy system and its future role in decarbonisation. EIC looks at what a flexible energy system is and how it can reduce the cost of reaching net zero carbon emissions in the UK by 2050.

What is a flexible energy system?

New technology has the potential to turn our passive energy system into a smarter, more sustainable one in the very near future. This means modifying generation and/or consumption patterns in reaction to change in demand or price.

There are three main ways to achieve flexibility in the energy system:

  • Interconnection: purchasing power from neighbouring markets at times of peak demand.
  • Storage: storing excess energy and using it at times of peak demand.
  • Flexibility on the demand side: consumers cut their discretionary power use at times of peak demand for financial incentive.

Until now, flexibility in the energy industry has typically been provided on the supply-side. Now it’s becoming clear that demand flexibility will be crucial for balancing the system in order to reduce costs and decrease carbon emissions. With smart meters that can reduce consumption at peak times and financial incentives, demand flexibility could be an easy and rewarding energy option for consumers and energy operators alike. A report from the National Infrastructure Commission says that £200 million a year could be shaved off the UK’s grid operating costs if just 5% of the current peak demand were met through demand-side solutions.

There are also smaller scale assets that could prove just as effective at balancing the grid, like distributed energy resources (DERs) such as nearby or on-site solar panels, wind turbines, heat pumps or batteries. By reducing demand on the system, there’s less reliance on non-sustainable energy sources during peak demand periods. These smart solutions are becoming increasingly cost effective and in-demand, evidenced by their sustained fall in price and rising investment interest.

Why the UK should lead the world in smart power

Greener policies have seen increased support in recent years, with an emphasis on renewable energy. A strategy set out in another NIC report for 2020 – 2050 recommended 50% of all generation should be supplied by renewable power by 2030, and an entirely zero-carbon electricity supply by 2050.

The question is, how can this level of renewable integration be implemented in a consistent and cost-effective way?

One of the current issues with renewable generation is it is fairly inflexible, so finding more flexibility through demand, interconnection, and storage is key. It could also be the most cost-efficient way to reach net zero. According to an NIC report, Smart Power, a more flexible power system could save consumers as much as £8 billion a year by 2030.

Finding flexibility with EIC

Achieving more flexibility in the energy system is an integral part of EIC’s client commitment. Through a variety of services, including flexible procurement, smart metering, and many years of experience working with carbon monitoring and compliance, EIC goes to great lengths to offer consumers freedom and flexibility. Our goal is to find the bespoke energy package that best suits your business or property, while simultaneously lowering your costs and carbon emissions.

Find out more about our energy management services.

 

6 things to consider negotiating a flexible energy supply contract

In our latest blog we outline some key factors you need to consider when opting for a flexible energy supply contract.

  1. Contract Duration

    The duration of your flexible energy supply contract is often driven by market liquidity. The trading windows cover 4 seasons (24 months) for power and 6 seasons (36 months) for gas but it’s always beneficial to put a longer term contract in place so seasons can be traded as soon as they become liquid. Longer duration flexible energy contracts provide optimum trading opportunities to manage prices over time. It is also worth ensuring a supply contract is in place to cover any duration that requires a budget to be set.

  2. Non-Commodity Charges

    It’s important to think carefully about your non-commodity costs when securing your flexible energy supply contract. There are many options available. These range from fully fixing all or some non-commodity charges, to having all charges fully passed through at cost. Having all, or at least some, of the demand related charges passed through will reduce premiums. As a result you can reduce costs by load shifting or load shedding. This will however increase the complexity of invoices as the non-commodity charges will be transparent on your invoices with some subject to reconciliations. Non-commodity costs will make up around 67% of your overall costs by 2025. So it’s vital to consider your wider energy strategy as fixing non-commodity costs could limit the potential gains from being more proactive.

  3. Trading Flexibility

    Although the commodity element of your costs now makes up a smaller portion of overall spend, this is the element we can influence the most through active trading. Access to supplier trading desks, the ability to refloat volume and the size of tradeable clips are some of the things that should be considered to maximise trading flexibility. Some suppliers will also charge trading transaction fees which can result in additional costs over the duration of the contract so these should be factored into supply contract negotiations. Your preferred trading strategy should also be considered to ensure you’re your contract offers you the required level of flexibility.

  4. Volumes

    When tendering a flexible energy supply contract, including accurate volume forecasts will enable a supplier to provide the most suitable contract offer. Some suppliers will apply a volume tolerance to a supply contract and set limits on reforecasting. So if there are any planned or known volume changes due occur in the future it is important to consider these. Having accurate trading volumes in place from the start also enables effective buying strategies to be implement from a trading and budgeting point of view.

  5. Administration

    When choosing a supplier to renew with it is important to consider your requirements relating to payment terms, invoicing and data access. Some suppliers can be more flexible than others regarding invoicing and payment terms, and certain factors such as credit can impact on the options available. There are also variations in what a supplier can offer in terms of data access. Whether this is access to consumption data or invoices via a dedicated contact or via an online portal.

  6. Negotiation & Analysis

    Suppliers will charge specific fees for managing a contract and offer different premiums for renewable energy for example. Therefore it’s vital to analyse supplier offers on a like-for-like basis to ensure you secure the most competitive contract available. Tender negotiations should consider all aspects of a supply contract to achieve the best contract terms in line with your requirements. The main aim is to procure a competitive contract with a supplier that meets all of your day to day needs whilst offering trading flexibility to suit your strategy.

 

Click here to find out how our Flexible Energy Procurement solutions can transform your electricity and gas buying strategies.