A surprising solution to the UK’s energy needs

London, 29 Feb 2016

With the UK's coal-fired plants scheduled to close by 2023 and most of its ageing nuclear power plants to shut down over the next decade, there is increasing focus on how to meet the country’s future power needs.

National Grid estimates the current spare capacity in the electricity system is five per cent, raising concerns about continued power supply as coal and nuclear plants come offline.

However, Macquarie Energy Markets EMEA Co-Head Erik Petersson says this scenario fails to take into account the rise of micro-electricity generation.

"When people speak about the capacity reserve margin being five per cent, they are not taking account of distributed generation," he says.

Local power generation

The main form of distributed electricity generation comes from micro-renewables, and in particular rooftop solar power, where a major increase in local generation is expected in coming years.

Macquarie Securities Head of European Research Shai Hill says this is because rooftop solar can compete with the traditional fossil fuel-based generation on price.

"Because rooftop solar is used by the end consumer, it only has to compete with the higher retail electricity price, rather than the lower wholesale electricity price. Even as governments cut subsidy levels, rooftop solar, will be competitive," he says.

The main form of distributed electricity generation comes from micro-renewables, and in particular rooftop solar power, where a major increase in local generation is expected in coming years.

Markets including Germany, California, Spain, Italy and Japan are all expected to reach grid parity between 2018 and 2020. This means that solar power, as an alternative energy source, will generate power at the same cost or less than that of the grid. “In Germany and Japan’s case, this is because of the high retail price of electricity rather than high levels of solar radiation, explains Hill. “The UK will take longer, as retail electricity prices do not carry so many taxes, and the UK has relatively lower irradiation levels. But even that could change with the advance of storage and network technologies."

A new demand response market

As the popularity of rooftop solar increases, Petersson says new network technologies could enable electricity to be sold locally between different properties with rooftop solar PV panels.

"We are currently looking at a potential investment in a platform that would allow households to sell energy to one another within certain distribution networks," he says.

There is also the potential to boost spare grid capacity through the electricity demand management market, where major energy users are paid to reduce their electricity demand at peak times.

"Demand response is going to grow and develop significantly," says Petersson. "It is something which exists as a substantial market in America, where we have financed the rollouts of the meters at the early stages."

While National Grid has secured 542 megawatts of capacity through its Demand Side Balancing Reserve scheme, the Department of Energy and Climate Change estimates the technical potential for load shifting could be up to 4.4 gigawatts in the commercial sector and 2.5 gigawatts GW5GW of demand response capacity could be found in the domestic market.

Through its work with EDF and British Gas, Macquarie is the UK’s biggest financier of smart meters that allow households to see their electricity consumption and adjust their usage habits.

As technologies develop and integrate with household devices to control consumption habits, the smart management of electricity could be yet another way that the localisation of electricity helps support the UK’s future power needs.

For more information on the report "Global solar PV" (5 November 2015) contact Macquarie Research.

1 As at 31 March 2018

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