Written evidence submitted by Alan Simpson - ex-MP and former Sustainability Advisor to the Labour Shadow Chancellor (2017-2020), Board Member of both the Schools Energy Co-op (national) and the MOZES community energy co-op (Nottingham).(COM0135)
Overview:
• Britain will not meet its 2030 carbon reduction obligations without a radically enhanced role for community (and decentralised) energy.
• Community energy in the UK is stifled by an obsessively centralised energy system and the blocking powers given to existing energy companies.
• Linked to new programmes of energy storage and sharing, community energy offers the prospect of radical reductions energy costs and in UK transmission and generation losses. NB over 50% of energy is currently lost at the power station (70% for nuclear) or in transmission.
• Some mayors and local authorities have given significant support to community energy programmes, but a statutory duty to deliver 10% annual carbon reductions is now needed if Britain is to its meet national targets. (For community energy to play a central part in the growth of local grids, such a duty must apply to Ofgem and National Grid as well as to mayors and local authorities.)
• Britain does not have to ‘invent the game’. It just has to learn from existing European counterparts about the delivery of faster, more coherent approaches to both the financing and growth of community energy.
Committee Questions
1. How could the Local Power Plan to be produced by Great British Energy build upon existing community energy support schemes, such as the Community Energy Fund?
The Local Power Plan is stifled by having no local roots and few statutory powers to override existing Grid constraints.
In Nottingham, The MOZES community energy co-op has spent several years applying (unsuccessfully) for the right to develop a local energy grid. Detailed schemes were submitted (with university and energy technology partners) but blocked by the DNO, Ofgem or existing energy suppliers. Current approaches are largely tokenistic and designed to be non-disruptive of the existing UK energy cartel.
In some parts of London, however, development funding (via the Mayor or local authority) has helped community energy co-ops get through the planning and administrative stages of new schemes. The Local Power Plan needs to have a much stronger Community Energy Fund, restructured around localities themselves. The Fund itself must also be re-focussed, however, to include energy sharing, saving and storage as much as on (clean) energy generation.
Britain should learn from Germany’s use of its KfW Development Bank to de-risk and accelerate community energy programmes. This would extend the reach of the existing Community Energy Fund and bring about a much needed step-change in the growth of community energy in the UK.
2. How should the energy market and licensing regulations be reformed to enable community energy projects to sell the electricity that they generate to local customers, without the current barriers, and be properly remunerated for doing so? What lessons can be learnt from other jurisdictions?
Denmark and Germany offer the two most accessible models supporting community energy that the UK may wish to consider. Post-war Germany was obliged to develop a decentralised energy system. This made the emergence of community energy much easier (though its pioneers in Schönau would rightly point out that this was not without an enormous fight with Germany’s existing energy cartel).
Communities are allowed to sell to themselves (at local prices) before selling surpluses into the high voltage grid system. This allows benefits to be shared by communities and not just investors. Germany now has almost 1,000 community energy co-ops.
Denmark’s approach was different. After the 1973 oil crisis, Denmark restructured its entire energy sector. Energy was redefined as a service, not a market. Energy cannot be sold at a profit. Moreover, local grids must offer combined heat and power services.
Denmark’s electricity grid is publicly owned by Energienet (accountable to Denmark’s Ministry of Climate, Energy and Utilities), operating through a national framework and a series of decentralised grids. At the last estimate there were 633 community energy cooperatives in Denmark. Only in apartment blocks is ‘behind the meter’ sharing allowed. Beyond that, energy sharing cascades through local (low voltage) grids before surpluses are either stored or shared into higher voltage networks.
Much of Denmark’s clean energy generation is via wind turbines. Community ownership of these is given priority within the planning process, so communities become the drivers of their own energy security decisions. This offers a stark contrast to the UK, where applications are mainly from corporate developers more interested in profit harvesting than community accountability or local grid stability.
In the USA, and elsewhere, there are already examples of Smart Grids. The Brooklyn Microgrid allows neighbours to produce, consume and sell clean electricity from within their neighbourhood. A local IT company partnered with Siemens and residents to produce their own digital trading platform to do so. In the UK, the closest we have to this is the Octopus’ approach to smart energy planning at a household level. This still falls a long way short of community energy grids.
Blockchain technologies play an important part in the coordination (and security) of community energy systems. But so too does the ability to weave local community grids into wider urban or regional ones. Both Germany and Denmark offer much greater experience in doing precisely that. The UK has a lot of ground to make up.
Tomorrow’s energy security will be found in some variation of these models. This is what the UK government has to embrace. A better yesterday is not the answer to the UK’s current energy system deficiencies.
Replicating either the German or Danish approach to local grids and community energy programmes offers the best starting point. Both allow community energy organisations to supply into their local grids. What the government and its Regulators will then have to do is ensure there is an effective, supporting market for balancing and storage.
One absurdity in the current energy system is that clean energy storage is double taxed, both when electricity surpluses go into storage and when they are taken out. There is no coherent logic to this. Similarly, ‘grandfathering’ rights, given to existing power stations, mean that wind turbines are stood down when the marginal cost of the electricity they generate is zero. The public end up paying more when they should be charged less. This is a good moment for a strategic rethink of both the tax treatment and priorities given to existing balancing mechanisms.
When the National Grid was originally set up, after the Second World War, it was referred to as the nation’s ’strategic reserve’. This was a public safety-net not a private (for profit) market. National Grid’s high voltage transmission lines carry electricity at 275-400kV. Substations reduce this to the 230 volt level that supplies most town and cities. Community energy planning can all be addressed within existing voltage networks. What will have to be addressed separately are the needs of high energy consumers in the industrial, financial and digital economies.
Dublin is one of a number of cities now limiting the growth of data centres because of the excessive demands they place on the electricity supply system. In the post-fossil fuel era we are entering this will become an increasing part of the regulatory framework that government (and Ofgem) will have to keep from undermining the growth of community-based energy systems.
As an aside to this, the government needs to end the extortion racket practiced by the gas industry during Britain’s recent freeze. To threaten to close down gas power stations unless gas prices were increased multiple times was little more than blackmail.
It makes the case for balancing mechanisms that turn the system back to a not-for-profit strategic reserve. This is not the role of community energy. But it is the safety-net within which community energy can be a much bigger driver of energy security and accountability.
3. How could existing government support mechanisms, such as the Smart Export Guarantee, provide community energy projects with more financial certainty?
As far as community energy is concerned, the Smart Export Guarantee (as currently constituted) is not fit for purpose. It makes more sense to expand the existing Community Energy Fund but making this available through local authorities, along with the duty to deliver annual 10% carbon reductions.
This, in itself, would drive new partnerships in energy storing, saving and sharing. It would also provide a real boost to the task of rebuilding public trust in democracy and accountability.
4. What are the regulatory solutions needed to minimise the high costs and long delays incurred in securing a grid connection for community energy projects?
The most effective way of accelerating grid connection for community energy schemes and the development of local grids is to take the regulatory framework out of the hands of the big generators. Central government has to do this.
If the Committee was looking for one simple mechanism to trigger this process it would be this: government should mandate Ofgem and National Grid to deliver annual carbon reductions of 10% across the energy system, in line with the UK’s 2030 climate obligations.
To do so would require a fundamental restructuring of the current regulatory framework. It would force a shift from dirty to clean, from corporations to communities, from speculating and profiteering to saving and sharing, and from subsidising waste to wasting less. Given the climate roller-coaster we are already facing, anything less than a fundamental re-think will be ineffective.
5. Should the local benefits of community energy projects be formally recognised as a material consideration in planning decisions?
Absolutely. And in requiring planning decisions to prioritise the 10% annual carbon savings community energy schemes would become an integral part of wider local plans. A good example of this would be the use of community energy surpluses to power local tram, bus and EV networks. Alternatively, the sale of energy surpluses could lever in finance for energy saving programmes. For communities, it is a win, win, win formula. Unit energy costs fall, energy security becomes a local matter rather than a distant obligation, and public accountability becomes on-street rather than off-shore.
What Denmark has discovered too is that positively favouring community ownership in the planning process impacts upon the acceptability of ‘scale’. This is so in respect of both wind turbines and solar arrays. Local energy pricing has an obvious appeal in respect of household energy bills. But communities themselves also become the best judges of the scale at which something goes from being an asset to an intrusion.
6. What should be the role of Neighbourhood Plans and Local Area Energy Plans in building local support for community energy projects?
Neighbourhood plans are an essential part of genuinely decentralised energy systems. They also allow community energy surpluses to be used in broader climate/carbon reducing programmes. These can range from direct use of the electricity in local tram networks, to the development of EV charging facilities and/or to power other neighbourhood amenities. Where the benefits are retained locally, community energy becomes an empowering tool for broader change.
We have yet to fully grasp the role this might play in play in restoring public faith in accountable local democracy.
7. What is the potential for community energy to incentivise consumer demand flexibility at the scale needed to achieve the UK’s net zero targets?
Once community energy generation is linked with local energy pricing communities across both Germany and Denmark developed far more ‘climate conscious’ approaches to its merits. “We need to do our bit to save the planet” is a sentiment regularly expressed in doorstep conversations in all the communities where this has taken root. It has also led people to address energy saving as much as energy generating (and can provide some of the resources needed to do so).
As it stands, Britain will struggle to meet its net-zero targets. Even the most ambitious local authorities struggle to get beyond the superficial. In part, this is down to the limited powers and resources local authorities must survive on. A much more ambitious (and empowered) framework is needed. Community energy will be central to this.
Octopus Energy has made a start in offering customers more agile tariffs but it is at the level of community generation that any real shifts in favour of net-zero targets are going to be met. This is what tomorrow’s smart grids will look like. The sooner the government engages with this transformation the better.
January 2025