As the UK’s energy systems undergo major reforms, from grid investments to evolving market mechanisms, energy and facilities managers must stay ahead. Graham Paul, service delivery director at TEAM Energy, explores the latest developments, including Ofgem’s £24bn grid upgrade and the Future Energy Scenarios report.
The majority of the changes happening to the UK’s energy systems are set to occur beyond the confines of our buildings. Grids will be upgraded, energy markets transformed, and new technologies for generation and storage will be introduced en masse.
However, it would be a mistake to think that these changes won’t impact energy and facilities managers simply because they’re not ‘in the facility’. Although efficiency improvements – such as lighting upgrades or water heating management – are important, the energy feeding into buildings arrives through the UK’s networks, and is bought and sold on soon-to-be-transformed markets. Changes happening in both could have a big influence on your operations.
As well as these changes, the innovation of new low-carbon technologies, along with self-generation of renewables, will demand a change in outlook from energy managers and their C-suite. Businesses may need to reframe the way they see energy – from an operational cost, to long-term capital investment that results in the ownership of energy storage or generation assets.
Grid investment, and goodbye to zonal pricing
At the beginning of July 2024, Ofgem green-lighted a £24 billion investment in the gas and electricity grids. While this should help drive growth, increase grid capacity, and bolster energy security, energy managers shouldn’t expect the improvements to eliminate any variability, anomalies, and inaccuracies within their bills.
Accordingly, energy managers will still need a way to mitigate against that, especially as the UK grid undergoes all of the transformations, I’ll go on to explain below. Bill validation services that can automatically check all forms of transmission and distribution charges will be needed as a hedge against future risk, as research shows 3-4% of utility bills have errors.
The increase in transmission capacity that the £24 billion will fund is necessary to help get energy from where it’s generated to where it’s consumed. The UK grid is already constrained, with limited capacity to carry energy from major renewable generation centres to major centres of use. The government has recently declared that it will not pursue zonal pricing, one potential fix to the constraint problem that would have encouraged generation to be built closer to centres of demand.
The move to rule out zonal pricing is controversial. There were strong opinions on either side of the debate, and lots of lobbying to accompany them. The takeaway, however, is that national reform is still taking place under Reformed National Pricing. What energy managers need to be conscious of is that, while some components contributing to bills may fall, their buildings’ location and local capacity may still affect their costs. This is because of reforms to the Transmission Network Use of System (TNUoS) Charges and how new grid infrastructure will be planned out. Energy managers, therefore, will need ways to monitor and break down their bills to reveal the varying charges and ensure value while minimising any errors.
Future Energy Scenarios and the shift in cost focus
Alongside massive grid investment and the decision not to introduce zonal pricing, many energy managers will be aware that the National Energy System Operator (NESO) launched its fifteenth Future Energy Scenarios (FES) report on 14 June. The FES provides an independent view of three future pathways by which the entire energy system can achieve Net Zero by 2050. It’s a collaborative exercise in outlining what’s possible and feasible, inviting a multitude of stakeholders to participate in working out the details.
The report emphasises energy efficiency as a critical enabler for managing demand growth, and reducing costs and emissions. It states that improvements in building and appliance efficiency could reduce electricity demand by up to 127 terawatt hours (TWh) by 2050, equivalent to 18% of the UK’s total consumption. This focus underscores the importance of future energy efficiency requirements for UK organisations – energy managers, therefore, should be prepared for this trajectory.
Demand-side response (DSR) – the ability of power users to reduce their consumption when asked – represents another area of soon-to-be-unprecedented growth. The FES report suggests that by 2050, peak demand could be reduced by 56% thanks to DSR activities. These are a benefit to the grid, but also to participants, who are paid for their flexibility.
Energy and facilities managers can maximise DSR opportunities by exploring and implementing smarter energy solutions, like heat pumps or the use of electric vehicles within their fleets. As energy managers adopt more electrified tech, however, they must plan for increased electricity demand in their facilities. The use of smart, load-managed and flexible tech is therefore imperative, along with the need for more storage and self-generation.
As the report concludes, in the UK there will be “a shift away from operational spend, including significant outlay on imported fossil fuels, towards upfront investment”. This is especially true for energy managers. This shift isn't merely a crucial consideration for immediate budgeting and financial planning; it represents a total change in outlook for those responsible for business energy use. Significantly, it also extends the time horizon on which energy and facilities managers should focus their attention.
Have your say on the changes
According to the FES, the UK is currently in the ‘acceleration’ phase of the net zero transition. And as things rapidly change, it’s important for energy and facilities managers to help shape the conversation. As new technologies, pricing reforms, and investment plans like those discussed above take hold, your insights can help guide industry responses and future planning. Don't let your voice go unheard. Share your experiences, challenges, and goals. Have your say and make your voice count by taking part in the TEAM Energy survey.