Consumers should be encouraged to use more electricity at off-peak times if the UK is to meet its climate change goals, a think tank has said.
A report published on Wednesday by the Tony Blair Institute for Global Change said “fundamental changes” to the energy market were needed in order to meet the Government’s target of decarbonising the economy by 2050.
The report’s authors, industry experts Tim Lord and Phil McNally, argued that the current market was still geared towards a system where most energy is generated by fossil fuels rather than renewable sources such as wind and solar power.
They also said the renewables sector’s reliance on Government contracts meant it was incentivised to produce as much electricity as they can regardless of demand, resulting in times when we have “far more power than we need”.
But with renewables being less reliable than fossil fuels, there may also be periods of low wind and sun when supply falls below demand.
The report said: “To ensure the lights stay on (and the heat pumps continue to run), and at a reasonable cost, we need to build a more flexible system that can maximise the use of green energy when it is available, store the inevitable excess so that it is ready to be deployed during period of low wind and sun, and maintain secure supplies even during extended periods of low wind.
“One aspect of achieving that involves putting incentives in place to build technologies that can deliver flexible generation, such as hydrogen-fired power plants or gas plants combined with carbon capture and storage.”
But, the report added, it would also require consumers to “adjust their electricity use in response to the needs of the system” in order to reduce the amount of storage needed and avoid a situation where the UK had “vast amounts of (generation) capacity that is almost never used”.
This could involve cheaper tariffs for off-peak times or encouraging consumers to charge their electric vehicles overnight and then feed unneeded power back into the grid from their cars during the day.
The report does not make concrete policy proposals, but does call for a “wholesale reform of energy markets” to “ensure that incentives across the system are aligned with the outcomes we need to deliver”.
But it does suggest that there may need to be changes to the consumer price cap to allow companies more flexibility to invest in new business models such as “energy as a service”, where energy providers offer a wider range of services rather than just trying to compete on price.
These could include management of energy use, such as when to charge your electric vehicle, installation of energy assets such as insulation and general advice on how to reduce your costs.
Currently, the report argued, the price cap means energy companies avoid investing in long-term contracts and face low profit margins that “make it more difficult for suppliers to make investments in customer relationships and new business models”.
Mr Lord said: “The UK energy system is at a crossroads. While we have cut emissions rapidly in the last decade, we are on a path to a system which is over-centralised and inefficient.
“It is possible to deliver a flexible carbon-neutral system that encourages innovation and strikes the right balance between Government intervention and liberalised markets to keep the lights on and costs down – but only if we act now to fundamentally reform our energy markets.”