Li, Pei-Hao; Barazza, Elsa; Strachan, Neil; (2020) Early insights into the non optimal investment outcomes in the scale-up of smart local energy systems. EnergyREV, University of Strathclyde Publishing: Glasgow, UK.

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Abstract

The scale-up of smart local energy systems (SLES) that combine renewable energy (RE) and smart technologies for system flexibility has been seen as a potential way to accelerate the energy transition to deep decarbonisation [1]. In particular, a wider range of energy investors in local energy systems could boost the adoption of RE to decarbonise the power sector [2,3]. Also, consumers within the setting of SLES are more likely to engage with demand-side response (DSR) such as smart appliances and smart heating controls, [4]. To date however, there has been little investigation into how the strategies of market players will affect the role of SLES in deep decarbonisation pathways. This Briefing Note aims to assess the role of SLES in the energy system transition. Unlike past work it does not assume a perfect world or optimal decision making. Instead it focuses on how non-optimal decision making by both investors and policy agents can influence the uptake of SLES and the UK electricity sector’s long-term decarbonisation. Different types of national and local investors with different characteristics and investment strategies (e.g. myopic decision-making) are explicitly represented in the modelling framework. The interaction between the major market schemes – such as capacity market and Contracts-for-Difference (CfD) – and market players is investigated in order to explore both how SLES can be scaled-up and the potential impacts of SLES on the whole power system. Key findings show that the strategies and decisions of investors and policy makers have significant and varied impacts on both the scale-up of SLES and overall national efforts to decarbonise the electricity sector. SLES are important for the uptake of RE, and allow a faster scale-up of the RE share. While carbon prices are important for system stability under market players’ investment decisions for decarbonisation, DSR 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.

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