The Energyst – April/May 2016

The Energyst – April/May 2016

Supply and Demand: Why We Need a New Energy Trilemma

Ian Marchant, former head of SSE and of the Energy Institute, argues that there is a need for a demand side trilemma in addition to the supply conundrum.

The biggest energy policy issue facing us is not the so-called energy trilemma but the various perspectives and drivers of the demand and supply of energy.

The demand side involves decisions by millions of different people and businesses all over the country, whereas there are probably only 100 or so companies involved in the supply side. The scale of decision is also different, ranging from hundreds of pounds to hundreds of millions.

For all these reasons, and because supply side energy assets are interesting and give good photo opportunities, it dominates the policy agenda. The three issues of affordability, security of supply and sustainability are a useful framework for a policy discussion but it is invariably a supply side discussion with occasional kip service to the demand side.

Electricity policy debates quickly descend into who should build what power station, using what technology, where and when. The supply side trilemma is important, but it is only half the story. We need a demand side trilemma.

Balancing Act

I think that policy on energy demand needs to balance three forces – flexibility, meeting of needs and affordability.

Our current energy system is actually remarkably flexible but in an oddly constrained way. The constraint is economic in that the cost of providing that flexibility varies enormously over the day and the year – but we are completely unaware of that variable cost as our tariff is fixed regardless.

As users, we want to be able to control our central heating and lights from wherever we are. As businesses and consumers, we increasingly want to be able to match our own generation with our own demand.

The electricity industry also wants to increase flexibility and control to manage its networks more efficiently. This is why network operators are exploring smart grids and the generation and supply side of the industry want to move to prices that vary over time to reflect their costs. All these three sources of flexibility can pull in different directions.

The supply side addresses the unit cost of energy but the demand side looks at unit consumption. Energy efficiency is a key part of making energy affordable but we must not simply be wasting energy more efficiently.

It is no good if my car has good fuel efficiency if I drive it when I should be video conferencing. The two energy trilemmas need to sit alongside each other in the policy debate and be given equal weight.

We also need to recognise that the two sides of the energy industry are fully interconnected and when a lever is pulled on one side, it has consequences on the other.

Policymakers, and those who week to influence them, need to be aware of this full picture as an over aggressive focus on one trilemma or a point on a trilemma will only be counterproductive and potentially damaging.

Remember the Demand Side

The biggest shift we need is to remember the demand side. On the supply side, policymakers and indeed engineers often like big solutions like nuclear/carbon capture etc. This centralised supply side thinking needs to change.

We have seen the democratisation of intelligence in the computer industry from large mainframes through to PCs and smartphones. The same needs to happen in energy and I believe that a new demand trilemma of flexibility, meeting of needs and affordability should help to achieve that refocus.