Energy flexibility is a term that has grown in prominence over the last 12 months and media mentions have increased by 97% compared to the previous year (Source: Meltwater). The energy flexibility ecosystem is growing in line with its profile but what role does it have to play in the UK’s shift towards renewables?
In February, the UK’s Climate Change Committee published its Seventh Carbon Budget, advising Government that greenhouse gas (GHG) emissions need be cut by 87% by 2040 compared to 1990 levels if we are to hit our goal of net zero by 2050. Despite Conservative Party leader Kemi Badenoch’s position that net zero by that date is unachievable, the transition will continue. And to achieve this, electrification will be key to decarbonise the economy, across transport, the heating and cooling of property, manufacturing, industry and agriculture and, of course, our energy systems.
But the power must come from somewhere. At present, the International Energy Agency state that nearly 50% of electricity generation comes from a mixture of fossil fuels and nuclear power, with natural gas the largest source, at nearly 34%. The remaining half comes from a renewables blend, with wind the largest source, at nearly 29%. The UK Government has set a clear goal on how this mix must shift in its Clean Power 2030 plan – 95% of electricity demand by 2030 must be from renewable sources, with wind and solar being the backbone of the power system, and a remaining 5% back up from natural gas.
But the UK faces a dilemma here. Increasing demand for electricity – expected to increase by 50% by 2035, and double by 2050, entails that there must be a huge expansion in Variable Renewable Energy (VRE) capacity to meet this and replace the lost fossil fuel output. The challenge is that by its very nature, VRE is variable; fewer sun hours (solar), fewer windy days (wind power), and less rain (hydro) means that electricity generation goes down while demand does not. The turbines must keep turning if we want to keep the lights on.
Until now, we have relied primarily on gas peaker power plants to generate the electricity needed to plug this gap and meet our capacity needs. But these are highly carbon intensive, very costly, and have a detrimental effect on the wholesale market by raising prices, and even inflation, as was seen in the 2021 – 2023 energy crisis. This is why they must be phased out.
Another challenge is wasted energy. Much of the UK’s wind power is generated offshore or in remote areas of the far north, rural Wales, and Scotland, with low or little demand local to the sites, and in transmission to areas of high demand, such as major urban areas, much of this is lost due to insufficient grid capacity or inefficient, outdated infrastructure. And in many instances, where output exceeds capacity, VRE operators in fact are paid to shut down temporarily, while gas plant owners are paid to fire up to meet the demand where it’s needed, as highlighted in the FT. It is an inefficient, costly system, though Government has pledged to give it an overhaul. When this will happen, remains to be seen.
But this will take time. The UK needs to fully harness the potential of its vast renewable capacity, and very quickly, as major infrastructure projects, and an overhaul of transmission infrastructure, will take several years, and come at great expense.
This is where distributed energy resources come in, in the form of energy flexibility. Flexible capacity – modifying generation and consumption patterns in reaction to external signals, such as peak demand and price spikes – are key to decarbonisation, cutting consumer costs, and energy security. Essentially, they allow us to do more for less, keeping capacity up without draining the grid. The National Energy System Operator (NESO) made this clear in its December 2024 report, highlighting the need for intelligent flexible solutions to support Labour’s pledge for a clean power system by 2030.
But the technology in this space is innovating and expanding very quickly to meet this need, with grid-level battery energy storage systems (BESS) and digital demand-side response (DSR) technology being two instances of how aggregating energy from the grid can support this market demand. According to Cleantech for UK, the UK is a standout performer globally in terms of innovation and investment, with £2.3 billion in equity funding, and £2.79 billion in debt funding seen in 2023. While many of the UK’s cleantech innovators are in early stages of their financing, with capital primarily sourced from VC and private equity, as we can see, many are shifting towards more traditional debt financing, reflecting an increased maturation of the sector.
Firms emerging in this space have a significant opportunity ahead and need to seize it with both hands; proactively building trust from this investor audience while also educating broader stakeholders about their potential impact. Communicating efficacy will be key and building trust should be a priority.
If you are a business operating within the net zero space, get in touch today to discuss how we could support you.