David Robinson, International Energy Consultant
Today, most of us consume electricity produced by large power stations burning fossil fuels. When we pay for electricity, the price often includes taxes to finance a range of public policies unrelated to the costs of supply. In short, consumers are on the bottom; we have little influence over how electricity is generated and are expected to pay for decisions taken by others, who are at the top. However, this is changing. Increasingly, consumers will participate actively in these decisions. I call this people power.
Below are some of the reasons why consumers are becoming more important, why governments and civil society should support people power, and how to do so through decisions at COP20.
Three trends driving people power
- De-carbonisation – consumers can help balance the system
Electricity is responsible for the heavy lifting in the effort to decarbonise energy, especially through renewable power. Electricity supply and demand must always be in balance and, traditionally, generation provided the flexibility for balancing. However, intermittent renewable generation (wind and solar PV) depend on weather conditions. As the generation mix becomes more inflexible, demand-side flexibility becomes more important for system stability.
- Decentralisation – “prosumers” now make decisions
Electricity generation has been centralised in three senses: investment usually followed central planning; it required very large power stations; and the system was subject to centralised system operation. Increasingly, consumers produce their own “distributed” electricity and sell it to the system, thereby becoming “prosumers”. This reduces the generation required from the centralised system.
- Information technology – smart power replaces dumb consumption
Smart systems facilitate consumer participation: smart meters enable billing based on real-time consumption and real-time prices; sensors and smart devices help consumers make smart consumption decisions to lower costs; and communication networks enable consumers to participate in markets. Prosumers can lower their electricity bills and also earn money selling their services to electricity markets.
Three reasons for government to support people power
- Lower system costs of electricity
Consumer participation can lower system costs through “demand response”. For instance, by shifting demand from the busy (peak) hours to the less busy ones, costs fall because the systems needs less peak capacity and because the price of energy during peak periods will be less. Furthermore, distributed generation and demand response compete with conventional generation, helping to reduce wholesale electricity prices. Consumer participation can also lower the cost of distribution networks by reducing the required network capacity at peak hours. For example, generation at night can be stored in electric vehicle batteries for use in the daytime.
- Enhanced energy security
Typically, the concept of energy security is confused with security of supply. In fact, energy security is about getting the right balance between supply and demand. Consumers can enhance energy security by providing flexibility on the demand side, as well as through distributed generation and conservation.
First, as explained, demand flexibility facilitates the penetration of renewable energy. Second, distributed generation increasingly involves renewable sources of power, whose costs are falling rapidly. Third, demand response and self-generation reduce the need for fossil-fired generation.
How to encourage people power
There will be resistance to these changes, especially from some incumbents, special interest groups and even from some governments and consumers. And while we should recognise that people power opens up many important new commercial opportunities, we should not underestimate the difficulty of creating a commercially attractive offer for consumers.
Nevertheless, the benefits of people power are large and growing. The COP20 meeting should embrace this trend and encourage all countries to introduce measures that will enhance active consumer participation in the electricity sector. One important measure would be to establish an open dialogue between the electricity sector and civil society, so that the transition can be made in a transparent and effective way. The evidence, for instance from Germany, suggests that public engagement – e.g. in the form of community energy schemes – makes the transition much easier because it then becomes something "we" are doing rather than something "they" are doing to us. Even if this slows the process somewhat, in the end it will be worthwhile if it improves the prospects for a successful transition.