Click to add title Policies to support local energy systems: do they go far enough? Jim Watson, Research Director UK Energy Research Centre EG&S KTN Annual Conference, London, 27 th March 2014

3. Innovation systems & development Local energy: back to the future?

3. Innovation systems & development Current / future role of local energy  More attention to local energy in recent years, but still plays a minor role in energy policy  Community Energy Strategy: ’Putting communities at the heart of energy policy’  Modest ambitions, e.g. community renewables could supply 1.4% of electricity by 2020  Also important for public engagement and legitimacy?

3. Innovation systems & development Local investors less important than in some other EU countries 11.3% of electricity in 2012 (41TWh) EU target implies ~ 30% by 2020 Source: DECC 14-15% in 2013?

3. Innovation systems & development Policies to support local energy: some considerations Governance not government  Key role for government, but many other actors are also involved  The UK is a centralised state: how can government enable diverse, bottom up action?  Community benefits debate: benefits for which members of communities? Not just an energy policy agenda  Community development (CLG)  Financing and incentives (Treasury)  Transport (DoT)

3. Innovation systems & development Policies to support local energy: some considerations Government at several levels  National government (UK), including devolved administrations with significant differences  EU legislation is part of national policy framework  Local authorities: capacity varies; some already leading developers and/or supporters of community schemes Scaling up and replication  Can community energy become more ‘professionalised’? Is this appropriate for this type of local energy?  Importance of local context for many initiatives: some limits to learning and knowledge transfer

3. Innovation systems & development Electricity Market Reform  Mainly focused on large scale, low carbon electricity generation and the provision of large-scale capacity  But it highlights the risk of a ‘missing middle’ in energy policy; local energy could fall between the cracks  Larger community / local projects are eligible for long term contracts, but the mechanism is complex  Fairer power purchase agreements for smaller players has been discussed extensively, but not fully resolved  Links to broader issues of competition in energy markets: see today’s Ofgem announcement! Electricity market reform

Click to add title Electricity market reform ‘To complement EMR, we should unleash a completely new model of competition and commercial opportunity … we will need companies, communities, public sector and third sector organisations to grab the opportunity to generate their own energy at real scale and start to export their excess energy on a competitive, commercial basis. Not just a few exemplars, but tens of thousands of them.’ Minister of State Greg Barker MP, Sep 2013

3. Innovation systems & development Other economic incentives Demand-side incentives  Opportunities for more ‘collective’ local action through ECO and the Green Deal  Dedicated incentives for communities & Green Deal  Both policies struggling due to politics and slow uptake Energy supply incentives  Grant schemes and FITs have both been essential for community energy; frequent policy changes problematic  Proposal to raise FIT threshold to 10MW welcome  More support for local heat network development from central government

3. Innovation systems & development A key role for Local Authorities?  Many Local Authorities are already developing and implementing projects and/or have energy strategies  But many less active, and do not have significant capacity to act  Key barriers include attitude to risk, lack of competencies  Multiple targets and restrictions from central government  Prudential borrowing is possible, but risk aversion reinforced by pressure for them to reduce debt levels

3. Innovation systems & development Innovation and learning  Many local energy schemes are not innovative from a technical perspective: they use familiar technologies  But institutional / financial arrangements and business models are often less well known (at least in the UK)  Important to support demonstrations see ‘what works’  Some notable examples: Ofgem Low Carbon Network Fund ETI Smart Systems and Heat programme  Not enough emphasis on learning from experience, both for future implementation and future policy development

Click to add title Thanks