Project LEO is a pioneering testbed for smart local energy systems and much of the work we undertake focuses on testing the technical, social and commercial aspects of implementing these systems in a variety of formats and settings. However, behind the practicalities of implementing these systems, international, national and local energy policies and regulations need to be working in synergy.
In our first Policy and Regulatory Review, published in November 2021, we set out to define and review the legal, policy and regulatory material that relates to energy policy and the development of smart local energy systems. The report includes areas of interest arising directly from LEO partners’ experience in developing Local Energy Oxfordshire. They are still relevant in the light of the just-released British Energy Security Strategy.
Smart and local energy
To set the scene, let’s define smart local energy systems (SLES). These are systems that incorporate information and communication technologies (‘smart’) and work from the grid edge, harnessing local assets and community support to increase flexibility and the ability of network operators to manage a zero carbon local system. The report identifies four characteristics for SLES, matching LEO’s aims: they need to be smart, local, equitable and environmentally sustainable. It looks at current energy policies and regulations in light of these.
The need for a framework review
The UK is beginning a major shift in understanding our need for energy transition. We have seen widespread community support for the development of zero-carbon renewables-based energy systems, but this needs to be backed by policy and regulatory support at a number of levels. The current regulatory framework is outdated as it was developed in line with a centralised energy system with a small number of large power stations and fuel depots. It needs fundamental change to help us reach our decarbonisation goals.
Here are a few examples of the policy and regulatory issues identified in the report.
International
Brexit
There remains considerable uncertainty over the details of the post-Brexit realignment of energy systems and what impact that will have on SLES, and this adds risks (including regulatory risks) to business planning. To date, these risks have had a disproportionate impact on SLES, which are more susceptible to market shocks because of their smaller size and novelty.
Brexit also means that SLES will no longer have access to European Investment Bank funding, which reduces their pool of financing options. The report lists seven Brexit-related legislative instruments on energy and concludes that they do not give a clear indication of what the energy market will look like post-Brexit, much less its effect on SLES.
National
UK 10 point plan
While the report highlights some positive promises from the UK’s 10-point plan for a Green Industrial Revolution, including Electric Vehicle infrastructure and heat pump investment, it also surmises that some of the policy background is not encouraging from the standpoint of a low-carbon energy transition. It names the closure of the Renewable Heat Incentive grants as just one example.
Local Electricity Bill
The report recognises the potential benefits of the Local Electricity Bill (if it becomes law) to facilitate the transition to smart local energy systems by changing the dynamics of local electricity supply, but notes that the emphasis of the bill is on the local aspect and not so much on flexibility. LEO experience has shown that flexibility is essential for workable local systems.
Local
We know that local authorities are crucial to the future of SLES: they have responsibilities for planning, transport and built environment, plus the local knowledge and contacts to implement change. The report looks at some regulatory and policy instruments put in place locally and their potential impact.
Oxfordshire Plan 2050
The plan is still under development and open to public consultation. It has nothing specific to say about smart energy but is working to the goal of a carbon-neutral county by 2050. Specifically, it cites ‘energy-efficient and affordable homes’, a more equal, fair and inclusive society and transformed levels of connectivity.
Oxford City Local Plan 2036
The Oxford City Local Plan is also positive in recognising a role for demand management, (enabled by smart metering), in relation to energy, water and travel, and for bringing new technologies into use as part of climate and energy strategy. Policies within the Plan for energy efficiency in new builds and zero-emission vehicles are welcomed.
Key messages
The report has highlighted the importance of law at various levels. There needs to be high-level agreement on policy goals. There are mismatches between ambitions – the widely shared aim for decarbonised and equitable energy systems – and the regulations and resources needed to achieve them. Finance, governance and planning policies need to be analysed and developed in some sort of synergy to create the conditions for viable renewables-based energy services.
Some of the main messages from the 45-page report are:
- There are disconnects between instruments and tiers of law, policy and regulation with considerable variability in resourcing, technical capacity, net zero ambition and planning. A much more joined-up approach from central and local government is called for.
- Brexit-related legislative instruments on energy do not give a clear indication of what the post-Brexit energy market will look like and there is uncertainty over what the impact will be on SLES in the longer term.
- The overall structure of the electricity market and its regulation have the potential to inhibit SLES and future low carbon innovations.
- There is a need for a national strategic direction for local energy, but the trend in recent years has been moving away from policies that support local energy.
- There is a strong perceived need for local and national policies that fit together better, building on what appears to be strong cross-party support for Net Zero among local authorities, along with funding to enable the policies to be implemented.
- There is a failing in policy support, finance and planning tools for building retrofit, which is needed to prepare for heating electrification and the reduction of fuel poverty.
- The smart meter rollout needs prompt completion, creating access to the necessary data to facilitate SLES.
The report makes clear that implementing a SLES can only be achieved with the right policy and regulatory support. However, the current regulatory framework for electricity is still mostly designed for a centralised supply from fossil fuels and needs to be revised in order to shift to zero-carbon energy from highly decentralised sources. This will be central to the success of future smart, local energy systems.