Smart electricity grids crucial to meeting carbon targets

Published Date: 22 August 2009
By Trevor Hatton
THE UK has gone well beyond other countries with its greenhouse gas targets, having committed to a carbon emissions reduction of 34 per cent against 1990 levels by 2020.
In June, the Scottish Parliament voted for a 42 per cent cut, but our post-Kyoto experience shows the world has been long on targets and short on action.The UK's task is complicated by the power crunch that will strike in the middle of the next decade, when a third of existing electricity generation capacity will have become obsolete. New nuclear plants, renewables and carbon capture and storage will not fill that gap in time, leaving us dependent on gas.If the supply of low-carbon energy is a challenge, we must focus more on demand. Here, smart grids will be crucial, helping us to tap into distributed sources of renewable energy and allowing us to change consumption habits with adjustable tariffs. By redistributing excess power from local generation or electric vehicles, they will also help minimise energy waste. It was good to see ITI Energy announce a £3 million investment in smart grid research last month. And Ofgem's announcement of up to four smart grid cities is welcome, particularly given it has set aside £500m to support the initiative. There is no reason why one of these cities could not be Scottish. But if we are to make smart grid infrastructure a reality, we must face an inconvenient truth: aside from subsidised pilots there is no financial case for a utility to build a smart distribution grid in the UK. The most critical step we can take is to radically revise UK utility and energy regulations – designed to encourage utilities to cut unit costs and prices in a competitive market. They discourage R&D, innovation or long-term outlays in smart grids by preventing investors from making a reasonable return. The second step is for city authorities to take a leadership role. Cities can pull together consumers and businesses associated with energy, transport and other services to form a coherent plan. And the business case for smart grids can be transformed if utilities collaborate with city authorities. At my firm, Accenture, we calculate that a smart grid will cost about £290 per household for a large British city. Over 15 years, the private sector would face a deficit of £71 per household if was to invest alone. By collaborating with city authorities, that becomes a net benefit of £93, transforming their incentive to invest. The UK would do well to look abroad for inspiration. Amsterdam aims to reduce emissions to 40 per cent of 1990 levels by 2025. It has launched a range of low carbon pilots that build on smart grids – from electric canal barges to residential smart meters and plans for a virtual power plant that will connect hundreds of rooftop solar panels and wind turbines. The local distribution utility plans charging stations for 10,000 plug-in electric vehicles. By co-ordinating players, the city and its agencies have improved the financial appeal of the investment. Scotland must recognise the opportunity that smart infrastructure presents in helping to meet emissions targets.• Trevor Hatton is managing director of Accenture Scotland