carbon limited

A few weeks ago, my business partner and I were walking to a meeting in Stratford when we realised we were surrounded by several heat networks (seven actually): each one standing alone, isolated from its neighbours, each dependent on its own small boilers or CHP, each its own tiny monopoly. Seven networks right next to each other, brazenly missing the opportunity to reduce cost and carbon by linking together.

Here he his, pointing them out:

The scene on that Stratford street corner highlights a failure of coordination on the part of planners and a lack of incentives to link small heat networks to each other and to larger-scale sources of low-carbon heat.

But what if we put it right? Imagine for a minute that we do stitch together groups of small networks, perhaps using the £320 BEIS funding to do it. Technically it might be straightforward, but what about commercial structure? What do you do with all those little monopolies?

The obvious commercial solution is to choose one (probably the largest in each group) to become the heat supplier for all, with each individual scheme maintaining its own plant for backup and peak load. In other words, you expand the largest network to subsume the smaller networks around it.

It’s not an ideal solution. While it might help to reduce carbon (e.g. in the case where the unified network is sufficiently large to make use of low-carbon heat sources), by swapping one monopoly for another it only marginally improves the customers’ ability to obtain value for money.

So let’s consider an alternative, one not based on expanding monopolies. Imagine that each residential or commercial block is a customer, free to choose among several heat suppliers. Those suppliers, in turn, might purchase wholesale heat from a range of generators (say, a waste-to-energy plant, a gas CHP backed up by gas boilers, and a water source heat pump) all feeding into the unified network. A network operator could get paid to transport heat between generators and customers.

Imagine that customers who weren’t happy with the price or level of service from their supplier could simply switch to a different supplier. Generation capacity could be so diverse and reliable that the customers wouldn’t need backup or peaking plant in their basements. And demand side response could be baked-in from the start, allowing customers with flexible loads to benefit from reducing or increasing demand when appropriate.

Imagine breaking up the “vertical” of monolithic onsite energy schemes into their constituent parts: generation, distribution and supply, with genuine competition between multiple players in each segment (except distribution, but I’ll come back to that later).

A competitive heat market sounds fantastic but as soon as you start to consider the detail, lots of questions spring up, many to do with coordination. For example, how do you match supply and demand across multiple parties in real time? What happens if a supplier requires more or less heat than they’ve contracted for? What if a generator puts more or less heat into the network than was planned? Etc.

To formulate answers to these questions, we can look at how they’re addressed in other sectors. In the next post, I’ll look at whether the electricity market might provide us with a model solution.