Stephen Newman, technical director of MITIE Asset Management, explains why he believes decentralised energy could play a significant role in the years ahead.
The starting point for a number of conversations I have is ‘what exactly is decentralised energy?’ The answer is actually pretty straight forward - decentralised energy is energy generated close to where it will be consumed. To me therein lies its beauty, whilst central (or grid) energy creation responds to an average which is then distributed throughout the energy network, decentralised energy is created in response to a customer need and so generates exactly what is needed. A perfect match if you like.
The approach to grid energy generation results in inevitable losses in distribution – for example two thirds of energy is wasted heat at power stations or lost in transmission. In contrast, decentralised energy infrastructure increases energy efficiency at point of use which is the cheapest, most efficient way to reduce carbon emissions and aggregate energy demand. The energy centres we have developed for Waitrose at their stores in Bracknell and East Cowes are a good example. The biomass energy centre generates the majority of electricity, heat and cooled water for refrigeration, significantly reducing the retailer’s reliance on the grid, as well as reducing cost and carbon.
So what decentralised energy is and the benefits it can bring are quite straight forward. To me the exciting part is the potential of this emerging market, particularly given the government trajectory of where we have to get to. As we all know the UK is committed to an 80% reduction in greenhouse gas emissions by 2050 (compared to 1990 levels). The power sector alone accounts for 27% of all UK emissions and given that 74% of electricity is generated by coal and gas, the Government’s focus is on decarbonising this industry. At the same time firms face the dual challenge of energy security risks as well as the long-standing challenge of above-inflation rises in energy costs.
Another big challenge we face is the cost of replacing our aged energy infrastructure and who will bear the burden of that cost. Decentralised energy is more attractive in this respect - the investment risk is spread across multiple smaller assets which tend to have higher returns as the percentage of primary fuel converted to output is higher, thereby providing a better hedge against varying costs.
So the scale of the challenge we face is, as we all know, pretty significant and requires bold action. Looking back, the last 20 years have seen some major changes in both the design and the application of technology of sustainable energy systems. At the start of my career at London Electricity I experienced the transition from a nationalised business sector to the current commercial scenario we have today.
I believe that we are on the cusp of another fundamental change, with a shift from a centralised to a decentralised energy system. You only have to look to countries like Denmark, Sweden and Germany to see what is possible. Not that I’m saying the whole energy system will be decentralised – there will always be a mix and like any sector you need new entrants to create a healthy competitive market. But in a news agenda dominated by rising energy prices and the big six, decentralised energy has become a bit of a lost voice. But I’m convinced this sector will play a significant role in the transition to the much talked-about low carbon economy - and that business has an important role to play in spearheading that.
Tell me if you think I’m right or wrong. I’d love to hear your thoughts.