Energy stability on the horizon

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At the time of putting this article to ‘bed’, turmoil in the world’s financial market rages on. A massive ‘bail out’ of the banks and co-ordinated action on interest rates still leaves stock markets deeply depressed and a scarcity of lending. Governments worldwide are desperate to find the ‘silver bullet’! Will this affect worldwide utility investment more generally and smart meter deployments in particular? Will there be a political reluctance to press ahead on some fronts because of the anticipated worldwide recession and the ‘knock on’ to consumers’ bills and their ability to pay? Well, not in the UK!

As their House of Lords sought to introduce some amendments to the ‘Energy Bill’, on its passage through parliament and the legislative process, the UK Government unexpectedly announced….

“The Government indisputably shares noble Lords’ belief in the potential of smart metering and their wish to see progress in this area. Therefore, in response to the debate, I am pleased to announce that the Government has taken the decision to mandate smart meters for all households. This is a major step forward; no other country in the world has moved to an electricity and gas smart meter roll-out on this scale.”

Many countries’ utility bills have gone up over 100% in just a few years. In the UK over 125% since 2003! The world’s energy industry is already geared to spend billions on new generating capacity, be it renewable or otherwise. In Europe, we hear more calls to cut carbon emissions – now 80% reductions by 2050 by the UK. Meanwhile, some of the new EU membership seeks to unpick the already agreed emissions trading scheme, fearful its cost will impact their competitiveness. Are all these forces going to create delay and indecision in some parts of the world? Could this outcome be tolerated with many of our leading and tiger economies having worthy environmental aspirations, some backed up with legally binding targets?

European leaders have set a target date for its renewables legislation to come into effect during the first six months of 2009. It will require EU members to source 20% of their energy needs from renewables by 2020 and to submit their National Action Plans by 31st March 2010.

The UK’s Carbon Emissions Reduction Target (CERT) came into effect this year and will run until 2011. It is the principal driver of energy efficiency improvements in existing homes in Great Britain. It requires UK suppliers to spend some £1.5 billion on measures to reduce household carbon emissions and deliver overall lifetime carbon dioxide savings equivalent to the emissions from 700,000 homes each year.

To the smart metering convert, there should be no indecision or ambiguity about the need for smart metering investment. It is seen as part of the ‘must have’ infrastructure that will provide the means to bring all the capacity drivers and carbon aspirations together and deliver the environmental ambitions and essential customer engagement. In the following we build and expand on the last edition’s feature of PRI’s new Horizon™ solution where it seeks to position Horizon™ as the future of Energy Management, both for the home and small business. Let’s examine the scenario anticipated in 2020 and review it in the light of the Government policy making context of today.

We set the scene in the last edition with news year’s day 2020 and reviewed our imaginary customers Horizon™ energy log. This revealed the automatic control of a micro energy system and recharging of an electric vehicle. The charging was taking place at predetermined price levels that had been programmed by the customer.

Let’s now compare that Horizon™ energy log of 2020 to the current energy strategy of France, for example and not the UK. What could be the potential smart metering synergies with their evolving energy policy?

The French government has declared its intent for wind and solar power to be at the centre of their strategy to increase their renewable share of the country’s total energy consumption to the 20% required by 2020. Jean-Michel Parroufe, head of the renewable energy division at the French Environment and Energy Management Agency said, “These targets mark a new era in the development of wind and solar power in France, and though they are ambitious, they can be achieved,”

This will see installed capacity for wind power increasing to 25,000 MW and photovoltaic power to 3,000 MW by 2020. From a Horizon™ perspective, managing the demand side for their nuclear fleet with their declared renewable energy mix has obvious benefits. The ability to remotely connect and disconnect customer authorized loads, such as electric vehicles for example, will also provide further creative opportunities for system balancing and the all important customer engagement. The French government did, in fact, lay the foundations for growth in renewables by introducing more favourable feed-in tariffs for electricity from wind and solar power in July 2006 as well as tax breaks. Horizon™ could also facilitate more creativity in this context, with the potential for system marginal pricing as opposed to an average price.

Finally, and before we leave the French connection, in the UK, EDF Energy (the British arm of EDF France) and Toyota have teamed up to ‘road trial’ the first Plug-in Hybrid Vehicle introduced by a car manufacturer to the UK. They are a modified version of Toyota’s Prius. Trials started 10th September this year and will continue for more than one year.

So, was the vision of the imaginary customer’s 2020 Horizon™ energy log that fictitious? Well yes, but not that far from what will ultimately be the reality and probably much sooner than we think. The aspiration of the French energy mix is also not too dissimilar to many other European member states.

Meanwhile, what is certainly with us today and, to an extent not many had predicted, is the volatility of the world’s energy market with events beyond a nation’s borders exerting unimaginable influence over its cost of imported energy. Whilst this has typically been the case for oil it was less so for gas.

ENERGY LOG

The Horizon Energy log.

Gas now has to ‘travel’ a very long way to get to many parts of Europe. The massive infrastructure projects to move the gas around attracted favourable costs of capital because the related long-term gas contracts were indexed to the price of oil. The emerging influence of Russia with its growing energy super power status must be respected. We also have the increasing ability for LNG to be shipped around the world, creating a whole new economic dynamic. But, despite the falling price of oil its indexation to gas contracts, will ensure the retail price of gas and some electricity will stay at a level many customers increasingly cannot afford.

Energy and its affordability is now a real issue for governments of both the industrialised and emerging economies. In the USA, The Louisiana Public Service Commission unanimously declared the states first-ever “energy emergency,” on the 12th August. This move allows elderly, low-income and disabled customers to defer paying portions of their electricity bills for as long as a year. The Commission also called upon the state to appropriate $20 million for energy assistance and efficiency programmes.

The UK Government recently announced its latest figures for households in fuel poverty. Fuel poverty in the UK is defined as a consumer who spends 10% of their income after tax on fuel to cook, heat, light and power their home. In 1996 the UK had 6.5 million households in fuel poverty. By 2004 this figure had fallen to 2 million households. However, following the recent seismic shifts in retail energy prices, with retail gas price increases of up to 35%, it is now anticipated some 5 million households in the UK would be in fuel poverty at the end of 2008. Furthermore, current gas wholesale prices for the winter of 2009 are currently above those being charged to UK retail customers today.

Smart Energy International put the challenge of fuel poverty to PRI; how would their Horizon™ solution help both the customer and the utility with the increasing spectre of unaffordable energy prices?

PRI responded and recount their extensive history in the pre-payment market with over 250,000 customers in Northern Ireland and many more worldwide using their Liberty prepayment solution. Horizon™ has enhanced pre-payment functionality compared to Liberty and now includes pre-payment for gas as well. Horizon™ also has the ability to set limits in terms of kilowatt demand as well as financial credit limits.

The ability for the creative supplier to remotely control thermal storage devices can also be facilitated. Being able to input energy at variable and cheaper prices opens a whole new concept of ‘affordable warmth’. Alternatively, for Louisiana it could be ‘affordable cooling’ too. Either way, Horizon™ has clearly thought it through.

From a political perspective, the way ahead is clear. The American US$700B ‘bail out’ had some environmental ‘sweeteners’ to get the bill approved. There are tax breaks for renewables, US$7,500 credits for the first 250,000 plug in hybrids and confirmation that smart metering can now be amortised over 10 years and not the usual 20 years.

The cost and implications for energy are massive and developing at speed with a retail price volatility that is hard to predict. Smart metering and its deployment are inextricably linked to a range of legally binding targets plus environmental and societal imperatives. It behoves all political masters not to be deterred from taking the difficult decisions and quickly. They should follow the bold and brave declaration by the UK government to mandate smart meters and get on with it!