Initial analysis into the energy business sector in the UK highlights considerable scope for developing ‘local’ and ‘smart’ energy systems

Initial analysis into the energy business sector in the UK highlights considerable scope for developing ‘local’ and ‘smart’ energy systems

By Fabián Fuentes González and Jan Webb, School of Social and Political Science, University of Edinburgh

The local energy business sector in the UK currently comprises a rich mix of companies with different ownership, sizes, revenue sources, technologies, and forms of localism and smartness. Debate around the potential for implementing more local and smarter energy systems is currently catching the attention of researchers, policy-makers, government authorities, and energy market incumbents as well as new entrants. This debate is critical for the development of more localised energy businesses in the UK.

Local and smart energy systems can be the foundation for new energy businesses structured around maximising efficiencies from distributed generation and demand management and integrating heat, power, storage, and mobility at a local scale. They can also contribute to a reduction of costs while driving forward the transition towards a net zero carbon system. Yet, one of the main challenges around fostering the development of this sector is how to effectively identify and typify local energy systems, projects or businesses, which are becoming more complex, as well as more innovative, through digitalisation.

The EnergyREV report  Describing a local energy business sector in the United Kingdom presents a sector analysis based on a first-of-a-kind database of legally-constituted UK energy companies. This analysis introduces a new methodology for assessing energy businesses with the aim of understanding and mapping forms and degrees of localism and smartness and their potential future trajectories.

Each of the energy businesses was assessed against different components and levels of localism and smartness, and then mapped in a simple and intuitive matrix, which categorises businesses according to the resulting combinations of localism and smartness. Our research has enabled us to characterise the local energy business sector in the UK which illustrates the breadth of forms and the degrees of localism and smartness.

In regards to localism, some businesses, such as those owned by investment funds with limited evidence of benefit provision to communities or which provide some specific local benefits like local waste management and recycling or employment, show a low degree of localism. By contrast, there are other businesses, such as those owned by trusts, community groups, foundations, local authorities or universities, which present a high degree of localism. The main difference resides in how such businesses (would) address local ownership, (non-monetary) benefits’ delivery, relationships with local stakeholders, and local involvement in (business) decision-making.

When it comes to smartness, most of the businesses are, as yet, making limited use of digital systems for smart operation; the main difference for those businesses which present high levels of smartness is their ability to adapt and optimise - automatically or semi-automatically – service provision, mainly via energy storage.

The above results do not imply “good” or “bad” forms, degrees of localism and smartness; a certain form or degree will develop based on the needs of a specific geographic area, businesses’ resources, governmental policies or incentives, market conditions, among other elements.

The insights so far indicate that there is considerable scope for developing a local, and smarter, energy business sector in the UK. For instance, there are opportunities to develop more innovative mechanisms to involve communities in energy businesses’ key matters, to implement advanced technologies - such as artificial intelligence or machine learning and to put into effect other financing tools, like securitisation. By stimulating a more local and smarter energy business sector, the trajectory towards a more decentralised, democratic, decarbonised, and digitalised UK energy system can be enhanced. However, all interested parties, chiefly through their decisions and actions on the above, will have the final say.