Policy Power: Progressive Legislation Energizes UK’s Energy Transformation

2023 was a year marked by geopolitical turbulence, high inflation, and tight monetary policy. In the United Kingdom (UK), gross domestic product (GDP) declined during the final two quarters of 2023, marking a technical recession. Nevertheless, amidst the economic downturn, UK energy transition spending jumped 84% in 2023 compared to 2022, underscoring a robust secular movement towards decarbonization. The UK's steadfast drive towards renewable energy has led the government to implement technical standards for the grid integration of renewable devices. Implementing these standards not only protects against failures and outages but also paves the way for innovative business models and market opportunities.

Among advanced economies, the UK stands as a leading advocate in the energy transition, being the first major economy to legislate net-zero emissions by 2050. Despite the UK's commitment to net-zero, the efficient integration of renewables, in the face of outdated grid infrastructure, remains a significant challenge.

Due to sudden supply-demand imbalances from renewables, the UK has experienced significant grid failures that have led to widespread power disruptions, affecting over one million customers and impacting critical infrastructure. These events highlight how decarbonization is destabilizing UK’s electricity system, with a working paper from the University of Cambridge’s Energy Policy Research Group (EPRG) highlighting the increased probability of failures due to the decarbonization drive:

“Over the last 10 years or so the GB power system has changed quite rapidly due to the decarbonisation drive and penetration of smart grids technologies. Hence it is increasingly difficult for the ESO to fully monitor, model and control the whole system and therefore the probability of hidden common modes of failures has increased.”

In the UK, the importance of grid stability, reliability, and the continual integration of renewables has led to the establishment of technical standards G98, G99, and G100; with the G100 having its most recent revision in early 2023. Collectively referred to in this article as "the standards," these have been developed by the UK’s Office of Gas and Electricity Markets (OFGEM) and the Energy Networks Association (ENA) to help accommodate more renewables into the UK’s electric grid without causing marginal strain. The standards stand as beacons of innovation in grid stability and efficiency, poised to inspire and shape similar legislative endeavors worldwide, aiming at grid optimization, reduction of energy waste, and the global stride towards net-zero emissions.

Below, we explore UK’s energy sector shift, the role of the standards, and the opportunities they support.

Although the growth of DG supports the transition towards a low-carbon energy future, it also raises the risk of grid system failure. Research by the Institution of Engineering and Technology in February 2022 highlighted that the UK has historically had a lack of technical requirements for DG to provide system support and for network operators to monitor, control and gather detailed information on DG installations. Shown in Figure 1, the Scottish Power Energy Network's Distributed Generation Heat Map demonstrates that many regions in the UK are facing constrained DG connections (Figure 1), which can inevitably lead to grid instability and inefficiency.

Figure 1: Concerning constraint levels in DG connections

UK, Grid supply substation

Empowering the Expansion of Energy Communities

The standards facilitate the development of energy communities – locally-based organizations dedicated to harnessing DERs, such as small-scale solar panels and wind turbines, to generate clean, renewable energy close to where it is used. These standards ensure that integrating DERs into the distribution grid is not only feasible but also safe and reliable. In doing so, they bolster the transition towards more sustainable and community-driven energy systems, empowering communities to produce their own energy and contribute to a greener grid. This approach aids in decentralizing energy production, reducing transmission losses, and enhancing grid resilience.

Figure 3: Illustration of an energy community

Deriving Benefits from Energy Communities

The emergence of energy communities brings notable benefits for both consumers and companies in the energy sector:

For consumers, energy communities signal a shift toward lower energy costs through shared investments in renewable energy sources. This cooperative approach not only grants individuals more control over their energy use but also promotes local economic development through the creation of jobs. Moreover, it enhances the dependability of energy supply and strengthens community resilience to disruptions. The impact of this model goes beyond simple cost savings; it nurtures local economies and bolsters the stability of energy infrastructure. By adopting renewable energy practices, these communities make a significant contribution to environmental protection, lowering overall carbon emissions and paving the way for a more sustainable future.

For energy companies, the advent of energy communities represents a fundamental change, prompting a rethink of conventional business models. This change leads to an emphasis on customer-focused services, including tailored energy management, consulting, and support for incorporating renewable energy systems. Additionally, energy communities reduce the need for energy companies to commit substantial capital investment in new infrastructure and lessen reliance on large-scale power generation, supporting a shift toward a more distributed, resilient, and eco-friendly energy network. The emergence of energy communities also supports the role of aggregators, who leverage Active Network Management (ANM) to oversee a collection of DERs and enable participation in wholesale power markets.

The Rise of Energy Communities

In the 2022 State of the Sector Report sponsored by Scottish Power Energy Networks, the UK had 495 energy communities in 2021, up from 228 in 2017 (Graph 3), marking a compound annual growth rate (CAGR) of 21%.

Graph 3: Expansion in energy communities supported by regulatory framework

UK, number of communities

The establishment of the standards for the connection of DERs to the grid in the UK supports the growth of energy communities by simplifying the integration of localized renewable energy sources, thereby encouraging the transition towards decentralized energy systems such as energy communities.

Fostering Peer-to-Peer (P2P) Electricity Trading

The standards play a pivotal role in fostering a favorable environment for robust peer-to-peer (P2P) electricity trading by (1) facilitating the connection of small-scale generators, expanding the potential for consumer participation; (2) allowing the integration of large renewable energy projects, thereby increasing the overall supply of renewable energy available for trading; and (3) supporting the efficient balancing of energy supply and demand, which is crucial for P2P trading stability. The standards ensure a stable, efficient, and scalable infrastructure, creating a solid foundation upon which dynamic and sustainable P2P electricity trading ecosystems can flourish.

P2P electricity trading, based on an interconnected platform, facilitates a space where buyers and sellers can exchange electricity directly (Figure 5a & 5b). This method eliminates the necessity for middlemen in the transaction process. Often likened to the energy sector's equivalent of "Uber" or "Airbnb", this model enables individuals or businesses generating energy locally to set their own prices and connect with consumers ready to purchase electricity at these rates.

The Benefits of Peer-to-Peer Electricity Trading

P2P offers several benefits and advantages for participants:

• Improved Efficiency and Lower Costs: By eliminating intermediaries in the electricity market, P2P trading can reduce transaction costs, leading to lower prices for consumers and higher returns for producers. This increased efficiency can make renewable energy sources more competitive and accessible.
• Empowerment of Consumers and Producers: P2P trading gives consumers and producers more control over their energy use and production. Producers can set their own prices for the electricity they generate, while consumers can choose from whom they buy electricity based on price, source, and other preferences, fostering a more dynamic and participatory energy market.
• Enhanced Grid Stability and Efficiency: P2P electricity trading can contribute to grid stability by facilitating the distribution of energy generation across a wider area. This decentralized approach can help balance supply and demand more effectively, reducing the risk of blackouts and improving the overall resilience of the energy system.
• Financial Benefits for Producers: Small-scale producers, such as households with solar panels, can monetize their investment by selling surplus electricity, providing an additional income stream, and improving the economics of installing renewable energy systems, supporting the energy transition.

The Proliferation of Peer-to-Peer Electricity Trading

Electricity trading on a P2P basis in the UK is still in the early stages (due to the market structure, a complex regulatory framework, technical challenges, etc.), but interest is growing, as evidenced by pilot-scale trials conducted by some of the country's largest energy firms, such as Centrica and EDF Energy. The UK is at the forefront in terms of academic research on P2P energy trading, contributing to nearly 20% of the global academic output on the subject (Graph 5a), and ranking among the top five countries in terms of the number of energy trading projects (Graph 5b), up to 2022.

Bolstered by the standards, which facilitate the safe and efficient integration of renewable energy sources, the UK is laying the groundwork for an environment where dynamic and sustainable P2P electricity trading ecosystems can thrive, contributing to a more decentralized, efficient, and user-empowered energy future.

Conclusion

The UK's energy landscape is experiencing a significant transformation, driven by investments in low-carbon technologies and supported by the G98, G99, and G100 standards. These standards play a pivotal role in integrating renewable energy sources into the grid, thereby energizing the potential for existing opportunities in the UK's energy sector.

As the UK progresses towards achieving net-zero emissions, it highlights the essential role of clear regulatory frameworks and technical standards in enabling a successful energy transition and unlocking new opportunities. With other nations also committing to net-zero goals and embarking on the decarbonization of their energy sectors, the pioneering efforts and achievements of the UK are poised to serve as a source of inspiration and be replicated elsewhere, thus bringing similar opportunities to a global scale.