The Energy Onion — a simple conceptual model for a smart system

  • Physics and engineering — how do we adapt our networks to transport the energy we need?
  • Economics and markets — how do we do this at the least cost using markets for price discovery?
  • Technology and communications — how do we coordinate and automate all the players in our energy system in a secure way?
  • Behavioural economics — how will customers react to the incentives in this system?
  • Planning — how does this system serve new models for housing, heat and transport?
  • Regulation — who pays for all of this?
  • Social policy — how do we make this system work for the most vulnerable in society?

The current, generation driven model

  • Unidirectional flow of electricity from high voltage generation to low voltage demand
  • A small number of large generation assets
  • An inflexible, single peak, national demand curve built up of passive off-takers
  • Treat demand as atomic, non-cooperative, non-interactive entities
  • Rely on the diversity of customers rather than coordination to size network capacity
  • Use generation as the tool to meet demand
  • Balance and optimise the whole system from a central command model

A new demand driven model

  • Multidirectional flow of electricity around the networks
  • A large number of small generation assets often colocated with or near demand
  • A set of local demand curves, built up of active off-takers, with different peaks at different points in the networks
  • Maximising network utilisation and renewable generation
  • Treating demand as cooperative and interactive
  • Shaping the demand curves in the different parts of the networks to meet generation
  1. Maximise the consumption of renewable energy vs non-renewable energy
  2. Minimise the pressure on the outer layers of the onion when they are most constrained — e.g. avoid importing energy from the networks when there is no space on them
  • Efficiently use the existing network infrastructure
  • Minimise the cost of balancing and stabilising the system
  • Facilitate an increasingly high proportion of renewables in the generation stack

Where does flexibility fit in?

How do we achieve this?

  1. Clear cost signals that reflect carbon intensity and network constraint in real time
  2. A rethink of our settlement model to better reflect the benefits of local settlement — this doesn’t necessarily mean nodal pricing, it means having a better toolset to reward efficient local balancing
  3. An iterative approach — moving to this way of operating doesn’t need big bang industry changes but can be achieved through a combination of the existing reforms and mass in-market, in-system testing, iteration and calibration. We should be thinking about all ongoing reforms like RIIO2 and Access and Forward Looking Charges in the context of an overarching operating model. At the same time we need to develop rapid in-system, in-market testing for cost signals and settlement.

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