Generation Game Changer
As the market for embedded generation evolves, organisations with onsite generation may need to re-evaluate their approach. Russell Reading, ENGIE's Energy and Renewables Origination Director explains.
The market for embedded generation is changing. Electricity prices are increasingly volatile and revenue streams are under pressure. Many of the benefits and incentives for on-site generators are being removed or adapted. Further changes to balancing services, distribution and transmission network charges and the benefits associated with Triad avoidance are imminent, as Ofgem conducts its significant code review.
A changing environment
The government’s aim in incentivising small-scale generation was to help secure future energy supplies in an increasingly fragmented market. Indeed, these incentives have successfully grown the volume of on-site generation in the UK from 25GW in 2015 to more than 40GW in 2018.
But now, many of the cost-avoidance and charge-reduction benefits are potentially being removed, so businesses with on-site generation need to think differently about how they use their assets. For most businesses, of course, these assets are required first and foremost to fulfil specific operational tasks. Any financial benefits gained from exporting electricity or avoiding peak charges are incidental to that principal purpose. In the new world, businesses will still need their CHP plants for heating, and manufacturers will still need on-site generators for back-up power.
Fresh thinking required
In the absence of cost-reduction and other incentives, businesses will need new strategies to get the most out of their generation assets, above and beyond their operational requirements. That means working out when assets need to be run to fulfil their roles, when they can be used to capitalise on higher market prices for exported energy, or on lower prices on gas to fuel controllable assets. Embedded generation plant can still be a valuable asset in earning extra revenue for a business, or helping operations to run more efficiently, but businesses may need to enlist the help of a trusted specialist energy partner, such as ENGIE, to maximise those benefits.
Optimising on-site generation assets requires an understanding of a business’s energy or heat requirements, of its on-site generation capabilities, and of its attitude to risk. This knowledge and understanding, combined with energy market insights and expertise, can enable informed decisions to be made about when to run generation assets, when to export and when to self-supply.
Balancing controllable and renewable energy assets
Managing the output of generation assets, such as CHP’s and gas-fired plants, is relatively straightforward since these are controllable, fuelled assets. Adding wind turbines, solar panels and other renewable generation plant to the mix creates further complications, since businesses have no control over when the sun shines or when the wind blows. One solution is to combine renewable generation assets with battery storage, so that businesses can better control when to use the energy they have generated, taking into account operational needs and prevailing market rates.
For any businesses that don’t yet have on-site generation, but are considering it, now is the time to engage with an energy export specialist for advice on which type of generation plant meets your objectives. Another option, if green power is the main driver, could be to set up a form of corporate power purchase agreement, which establishes a direct supply arrangement between a renewable energy generator and a business. Such agreements enable the business to benefit from renewable energy sourced from a named generator at a fixed fee, while giving the generator a guaranteed buyer for its output. Businesses can even agree such contracts for a proportion of their energy requirements, allowing them to purchase the remainder at market-reflective rates.
Consider the bigger picture
What becomes clear when you start to investigate the opportunities for optimising on-site generation, is that any decisions must take into account operational requirements, energy purchasing contracts, energy management systems, carbon emissions and a host of integrated factors. It means embedded generation and associated power purchase agreements cannot be considered in isolation. A more holistic approach is required, which factors in when and where energy is consumed, how that energy is supplied, and from where it is sourced, and the costs associated with generating and consuming energy.
Looking at the bigger picture means finding ways to manage energy inputs and outputs in the most efficient way, to help save money and reduce carbon emissions. Low-carbon or renewable on-site generation certainly has a key role to play, but it must be considered as part of an integrated approach to business energy management, cost reduction and resource optimisation.
I firmly believe that the days of ‘transactional’ relationships between energy suppliers and businesses, in which energy is simply bought or sold as a commodity, are a thing of the past. Meeting the complex requirements of businesses today requires a partnership approach, in which the needs of the business are considered alongside opportunities for on-site generation, demand management, energy-efficiency optimisation, carbon reduction and revenue generation.
The article was first seen in The Energyst magazine (June/July 2019 edition).