Early Insights into the Non-Optimal Investment Outcomes in the Scale Up of Smart Local Energy Systems

Pei-Hao Li, Elsa Barazza, and Neil Strachan

October 2020

The scale-up of smart local energy systems (SLES) that combine renewable energy and smart technologies for system flexibility has been seen as a potential way to accelerate the energy transition to deep decarbonisation. To date there has been little investigation into how the strategies of market players will affect the role of SLES in deep decarbonisation pathways. This report assesses the role of SLES in the energy system transition, focusing on how non-optimal decision making by both investors and policy agents can influence the uptake of SLES. The interaction between the major market schemes and market players is investigated to explore both how SLES can be scaled-up and the potential impacts of SLES on the whole power system.

Key findings include: SLES are important for the uptake of renewable energy, and allow a faster scale-up of the renewable energy share. While carbon prices are important for system stability under market players’ investment decisions for decarbonisation, demand-side response might give mixed messages to prompt alternate strategies in a non-optimal electricity market. Although SLES significantly reduce the market role of incumbents, incumbent investors are still needed to ensure enough investments to maintain system stability.