Local Energy: What next? Session 1 Simon Morris © Ricardo plc 2017

Local Energy Supply Options CARES Conference 2019 Local Energy Supply Options Community Heat Supply Company (the easy option) Decarbonising domestic heat Small scale project requiring modest investment Short term development Modest investment returns Direct social impact Energy Campus (the complex option) Decarbonising commercial scale power and heat Large scale project requiring significant capital investment Medium term development Significant investment returns

Energy Systems Catapult: Modern Energy Partners (the complex one) The Challenge and Opportunity Both public and private sector energy consumers and the supply chain, currently have limited expertise to scope, install and operate ‘integrated energy solutions’ . This has been compounded by the current focus on single technology  distributed energy solutions, which can have unintended negative consequences on the wider energy system. Informed consumers and an attuned supply chain for integrated energy solutions do not yet exist. Campus approach Campus scale sites are ideal for integrated energy solutions because, typically, their energy demands are large enough to have material economic impact, but not so vast and complex as to be unmanageable. Campuses include: Airports NHS campus University

Multi vector campus energy systems Campus control system Fully integrated campus buildings Power Generation EV consumption and charging V2G power storage Heat centres and distribution Distributed heating Heat and power storage Energy pricing/ time of day

Multi vector campus energy systems – local energy options for communities Campus control system Fully integrated campus buildings Power Generation EV consumption and charging V2G power storage Heat centres and distribution Distributed heating Heat and power storage Energy pricing/ time of day

Campus heat, power and transport upgrade phasing New 11kV cable installed across site to connect power generation Localised energy generation now the main source of energy, able to cover the power, heat and transport demand Phase 1 Transport upgrade heat generation and transport install Phase 1 Heat network Phase 2 Heat network Control redesign to match needs of V2G, DSR, supply and demand balancing Control – Review to match future needs Heat/ transport feasibility determine energy demand Power generation development Feasibility provides further analysis of future supply and demand Transport feasibility Feasibility provides further analysis of future supply and demand Heat feasibility Control - Install/ upgrade Now 2021 2023 2025

Two campus options for community energy CARES Conference 2019 Two campus options for community energy Local supply of power Local supply of heat

Community Heat Supply Company (the easy one) CARES Conference 2019 Community Heat Supply Company (the easy one) Based on the principle of Assignation of Rights of the Domestic RHI Community group with access to capital pays for Air source heat pumps to be installed in domestic properties by a community owned Energy Services Company (ESCO). Renewable heat incentive (RHI) paid to community ESCO, Householder gets a new heating system and any associated saving. Householder still has full control of heating. Householder responsible for paying electricity bill to their electricity supplier as normal Optimal for oil or electrically heated properties (eg storage heaters)

Local Energy: What next? Session 2 and 3 Simon Morris © Ricardo plc 2017

Local Energy Supply Options CARES Conference 2019 Local Energy Supply Options Energy Campus (the complex option) Decarbonising commercial scale power and heat Large scale project requiring significant capital investment Medium term development Significant investment returns

Multi vector campus energy systems – local energy options for communities Campus control system Fully integrated campus buildings Power Generation EV consumption and charging V2G power storage Heat centres and distribution Distributed heating Heat and power storage Energy pricing/ time of day

The complex option - Campus Energy Systems Power Generation Siting issues are changing, with consequences for the land, grid, planning package Power prices 5p wholesale, 9-10p retail. Grid costs still incurred, may be complex at point of connection inside a site. Need to be short to be viable Completely different site search and selection, Generation profile versus demand profile Sizing (all used on site vs % export) Ofgem: Targeted charging review is looking at charging demand for avoided demand residual charges

Projected power prices

The PPA The site supplied is usually the only point of connection. In order to avoid a stranded asset, (or an expensive mainly redundant connection) a Power Purchase Agreement is needed to secure the connection. The connection will be inside a live site so there are rules about what can and cant be done, who pays, (and consequences of breach) The value of a PPA is a significant uplift on wholesale prices. Both the connection and the value uplift need to be for the lifetime of the project. This in turn requires a mechanism to revalue the power over the life of the agreement, and redress if the contract is broken (eg the site no longer demands power) the counterparty to the agreement (the customer) needs to be of good standing in credit terms to stand such a contract. Some power may be exported from the customer, and the contract needs to cover this as well.

Typical Power Projects: wind at Micheline Dundee Site address: Michelin Tyre PLC, Baldovie Road, Dundee Running Since: May 2006 Number of turbines: 2 Rotor diameter: 71m Hub height: 85m Capacity: 4 MW Generation 7GWh p.a Around 25% of site demand https://www.ecotricity.co.uk/news/news-archive/2014/wind-turbines-at-michelin-dundee-pass-milestone

Typical Power Projects: solar Crookedstone Road Solar Farm & Belfast International Airport A 4.84MW Lightsource funded solar farm connects directly into the airport’s private network. The solar plant generates around 4,000 megawatt hours a year Meeting 27% of the airport’s annual energy demand

Local Energy Supply Options CARES Conference 2019 Local Energy Supply Options Community Heat Supply Company (the easy option) Decarbonising domestic heat Small scale project requiring modest investment Short term development Modest investment returns Direct social impact

Community ESCO – Distributed heating CARES Conference 2019 Community ESCO – Distributed heating Community group with access to capital pays for Air source heat pumps to be installed in domestic properties by a community owned Energy Services Company (ESCO). Renewable heat incentive (RHI) paid to community ESCO, referred to as Assignment of Rights). Householder gets a new heating system and any associated saving. Householder still has full control of heating. Householder responsible for paying electricity bill to their electricity supplier as normal, no billing for heat as is the case in District Heating networks. In many cases RHI is not metered but is paid based on the Energy Performance Certificate (EPC) for the property

Air source heat pumps: the myths CARES Conference 2019 Air source heat pumps: the myths Heat pumps are noisy Heat pumps don’t work when it’s cold Heat pumps only work in new builds Heat pumps breakdown regularly Heat pumps can’t heat hot water

Air source heat pumps: the benefits CARES Conference 2019 Air source heat pumps: the benefits Decarbonising heat Reduce operating costs compared to oil and electricity Simple to operate Require you to insulate your home

CARES Conference 2019 For householder Allows a new, efficient, renewable heating system without capital outlay. Point of contact locally within community ESCO Knowledge and experience can be shared between people with the same system. Householder has control over operating the system and responsibility for paying the electricity bill. Many heat pump suppliers have monitoring packages (e.g. MMSP) which can be used to verify system performance. This can also be used to diagnose any problems (either with heat pump itself, with the heat distribution system or the way the system is being operated). Private rental tenants could benefit as Landlords may be more willing to grant consent if capital outlay not required. There are RHI obligations which the householder will need to meet to ensure RHI payments continue to investor

CARES Conference 2019 For the Community ESCO RHI income allows capital to be repaid to the community ESCO, allowing funds to be re-invested in the future. No billing for heat, householder pays electricity bill for heat pump. Properties eligible for deemed heat use do not require heat to be metered. In rural locations, having several properties near to one another increases bargaining power in negotiating service/maintenance contracts. Scalable – additional systems can be added over time as funds are available and/or properties wishing to participate. Purchasing of multiple installations as part of one contract can reduce costs. Some skills could be provided in the community, possibly through training for local tradespeople.

Example Capital cost £ 8,000 SPF 3 Property heat usage (kWh) 20,000 CARES Conference 2019 Example Capital cost £ 8,000 SPF 3 Property heat usage (kWh) 20,000 Existing fuel Oil Existing fuel price (£/kWh) £ 0.055 Electricity cost £ 0.15 Existing boiler efficiency 80% Existing cost of heat £ 1,375 New cost of heat £ 1,000 Householder saving 27%   RHI Tarrif £0.1071 ESCO income/year £ 1,428 Community ESCO payback 5.6 Total RHI income £ 9,996 House uses 20,000kWh of heat Currently heated by an oil boiler Community ESCO pays for an air source heat pump system costing £8,000 (including heat emitter upgrades) It operates at an SPF of 3 Householder pays 15p/kWh for their electricity resulting in an electricity bill of £1000, meaning a saving of £375 or 27% compared to gas. Community ESCO paid RHI for each unit of renewable heat (heat produced minus electricity consumed). £1,428 annually resulting in a payback of 5.6 years. RHI payments for 7 years Under RHI rules, installation owned at all times by the householder so they continue to benefit from it after RHI is paid. There are ongoing obligations for both householder and the ESCO to continue to be eligible for RHI.

Simon Morris Ricardo Energy & Environment Tel: 01237 75 3407 Email: simon.morris@ricardo.com