- Reg Platt
Are you ready to take the lead in the race to net zero?
You know all too well the housing industry is on the front line when it comes to tackling climate change. It will be up to you to find the money to buy and install the necessary net zero technologies in your properties, and to explain to your residents and customers why the way they use energy in their homes is going to dramatically change in the years ahead. But what will you get in return?
It’s an important question, for there will be winners and losers in the race to deliver net zero, and we each have a role to play in determining which side the UK housing sector will be on.
Who is leading today in the race to deliver net zero?
One need only scan the websites of the leading energy companies to get a sense of who’s leading the pack today, for while the housing industry trade press is understandably filled with concerned debates on how net zero can possibly be afforded and delivered, energy suppliers are busy enjoying the benefits of championing their green credentials.
Never mind the fact the renewable energy that makes up the ‘green tariffs’ marketed by suppliers has almost exclusively been funded through government mandated levies on all our energy bills. This nuance is lost on most consumers, which has enabled a new breed of supplier to achieve spectacular rates of growth while sporting their ‘green’ credentials. Meanwhile, on the ground progress on energy decarbonisation still depends on actions taken by the government, and not the suppliers.
Perhaps even bigger winners in the net zero race, at least in terms of effort to reward ratio, are the monopoly distribution network operators (DNOs). These entrenched companies enjoy the fortunate position of knowing that the need for their networks is going to increase dramatically as the UK’s heat and transport sectors are electrified, strengthening their bottom lines.
This leaves housing companies on the back foot with many believing they’re not doing enough. So if the housing industry is losing in the net zero race today, what can it do to turn the tables and get on the front foot?
Today’s energy markets are not fit for purpose
The first step to answering this question lies in understanding that, despite all the noise and rhetoric in the energy industry about going green, there are significant, structural problems that are holding back progress.
But don’t take my word for it. Take it from the people who are in charge:
- Government innovation body Innovate UK (part of UK Research and Innovation, housed in the Business, Energy and Industrial Strategy department (BEIS)) is ploughing over £100m into a programme to help smaller, decentralised zero carbon technologies, like batteries and heat pumps, get to market at scale. The programme, called Prospering from the Energy Revolution, was established following realisation that despite all the technical advances made with these technologies, something is holding them back from getting delivered on the ground. What? A lack of business models for funding the technologies and providing them in ways that are desirable to customers. Current energy regulation is believed to be a central constraint preventing these business models from getting to market.
- Ofgem, the body whose job it is to regulate the energy market, has similar views to Innovate UK about the challenges for business model innovation in the industry. This includes business models that are more locally focussed than the models seen in today’s nationally structured sector. Ofgem is trying to make innovation in this space easier to achieve, with initiatives including a joint review of the energy retail market structure with BEIS, a new approach to applying the license conditions placed on energy suppliers, and new mechanisms for providing derogations from aspects of regulations to enable innovations to be trialled in the market to (more on this later).
- Other influential voices, arguing that the market structure needs an overhaul, include industry innovation body, the Energy Systems Catapult, and former MP, turned all-round energy system thought leader, Laura Sandys.
So what does all of this mean for the housing industry? Well, that depends on whether the industry chooses to grasp the opportunity these market issues present.
The strengthened role for the housing industry in an increasingly localised energy market
The housing industry is ideally placed to benefit from the localising trend in the energy sector. Why is this?
It’s a simple but important observation that the new, smaller energy technologies that are driving the localising trend (heat pumps, batteries, solar PV, EV chargers) need to go somewhere. They have to be installed in a place.
Consequently, the people and organisations who own and control places are suddenly a much more significant factor in the operation of the energy market than they have ever been in the past.
In fact, with responsibility for delivering net zero being placed onto housing companies through increases in building standards, the housing industry as a whole is set to become one of the biggest investors in UK electricity infrastructure. The question that follows is how that position can be leveraged to the benefit of the industry; to precipitate, if you like, a shift in the ‘balance of power’ in the energy market so that the housing industry gains the rewards of the green investments they make, rather than those rewards flowing to national energy companies.
Going cap in hand to government is not a strategy for success
First, let’s rule out what not to do: don’t wait around for a magic government money tree to come and save the day, and certainly don’t waste effort lobbying for more money.
As the net zero emissions belt tightens on the whole UK economy in the run up to 2050, industries and companies from across the economy will be lining up to ask for more support. Everyone will plead their special case. In that context, what level of priority can we expect the government to give to the housing industry? The historical record does not look good. And that’s without even mentioning the long shadow Covid will cast on the government’s finances.
Better is to find an approach where support from the government would help, but where that support doesn’t cost the government money. Which, in other words, means regulatory change. Better still with our current Conservative government, find an approach based on deregulation, where the removal of regulatory barriers opens markets to greater competition in a way that improves outcomes for customers and drives innovation.
But the ideal is undoubtedly an approach that doesn’t require any help from the government at all.
And that’s where Emergent‘s new solution for the housing industry comes in.
A new opportunity for the housing industry to get ahead in the net zero race
Since 2018, Emergent has been piloting a new way to deliver net zero technologies within housing developments. Working with the housing teams of Gateshead and Brighton city councils, amongst others, we have helped deliver and currently operate nine smart local energy systems, or microgrids. Six of these are retrofit schemes, applied to existing homes, and three are in new build developments. They comprise a range of technologies including solar PV, batteries, heat pumps and combined heat and power plants. We have also produced outline designs and feasibility studies for various other potential systems.
It was on the back of this work that we successfully convened and led a project that was awarded several million pounds in grant funding through Innovate UK’s Prospering from the Energy Revolution programmes. With that funding support, and the engagement it helped us undertake with leading housing companies, such as social housing provider Stonewater, we were able to evolve the idea behind our initial pilots from a mere technical solution into a solid commercial product offering that works for the housing industry. You can learn more about our offer on our website home page here.
A better deal for you
From an energy market perspective, the central ingredient of our approach that makes it so powerful for the housing industry is that we create a trusted intermediary between the national energy companies (suppliers and distributors) and the residents of housing developments. It’s through this intermediation that we can capture and return value to housing companies from their energy technology investments.
Through our approach, instead of the money the residents spend on their energy use going straight to the national energy companies, we capture it locally as income. Of course, capturing that value comes with a cost, and that’s why we operate microgrids to optimise how electrical supply and demand is balanced on a site. It means we reduce running costs by both reducing the volume of electricity we need to buy from the grid (by maximising use of on-site generation) and the price we need to pay for it (by importing at times when prices are lowest). The result is a profit we share with you that helps fund your costs of installing the net zero technologies that make up the microgrids.
A better deal for the energy sector
What makes our solution even better is that it works for the national energy system too. As we optimise electricity balancing at the local level, it means each housing development needs less electrical capacity from the national grid, particularly at peak times. This can reduce the need for costly upgrades and maintenance on the local networks of the national grid.
Operated at scale, our solution would result in lower peaks in overall national electricity demand. This would reduce the amount of costly new low carbon generation, like offshore wind located in deep waters, or nuclear, that UK taxpayers need to help fund.
It’s for reasons like these that we received support for our solution from Innovate UK.
A better deal for customers
The jewel in the crown though, from an energy market perspective, is what it means for individual energy customers - the residents of your housing developments.
Of course, we all know how badly energy customers have been treated by suppliers historically.
What might surprise some is that the situation for many customers is going to get worse. For while it’s true that new entrant suppliers have been pushing up standards in some customer segments, these gains looks set to be more than outweighed as existing inequalities increase on the race to net zero.
Yes, some people will be happy to foot the costs for batteries and at home EV-chargers, and will enjoy playing around with complicated tariffs. Most will be reluctant to part with the cash, and will anyway have far better things to do with their spare time. Others will fare badly, excluded from the benefits because they have no chance of affording the technologies, can’t practically install them in their homes (try installing solar PV in a downstairs flat), and don’t understand the complicated new offers available in the market.
Our solution overcomes all these issues and makes the benefits of net zero available to all.
The residents connected to a microgrid pay nothing upfront to benefit from the technologies. Everyone on a housing development, regardless of the property they live in, get access to the benefits. And of the complexity of them participating in the smart grid is managed by us.
For the customers of our microgrids, their experience is no different than if they were being supplied by a national supplier from the national grid. They have a standing charge and a unit rate. They have a smart meter, typical payment options, accessible customer services and they can still switch.
The only thing that’s different is the electricity they use is supplied from local generation sources and is genuinely green.
So what now?
I hope by now you can start to see that the approach we have developed at Emergent has huge potential for the housing industry.
It doesn’t just work for housing companies, it works for all stakeholders, and with a bit of ambition and entrepreneurialism there is nothing stopping it from being rolled it out at scale today.
But at the end of the day, it’s not up to Emergent if this solution succeeds or fails. It’s up to you – the housing industry. For its ultimately your properties that need to be decarbonised and your customers who will live in those homes. Our role is simply to help you address your challenges cost effectively.
It is a long journey to net zero emissions housing and we don’t promise to have all the answers to get you there today. What we can offer you though is a new way forward - a way to get you out in front on the race to net zero.
When you’re ready, we’re ready to start.