Energy demand and energy security

Chapter 6: Richard Hoggett, Nick Eyre and Malcolm Keay

Two big questions

1 Why the focus on supply security?

2 How does energy efficiency fit in?

Security is about the balance of supply and demand

Mismatches are symmetrical - causes

Too little supply Too much demand

Too much supply Too little demand

Balancing mechanism failure

Potential responses are also symmetrical

Balance can be restored:

• By increasing supply/reducing demand

• By reducing supply/increasing demand

• By fixing the balancing mechanism (markets, delivery infrastructure etc)

So why the focus on supply? • Top left part of matrix (supply<demand) has

been main focus of concern (eg statutory security “of supply” document).

• Mainly due to supply side bias – demand side treated as a given (consumers must have access to “the services they need”); security therefore taken as ensuring enough supply to meet that demand.

• Balancing mechanisms often ignored (though they are the usual suspect in a crisis).

But there are some asymmetries

Disruptions have been more common on supply side (they can happen on demand side but have been constrained or predictable).

Some further (recursive*) asymmetries:

• Most of our information relates to supply side

• Value of lost load (VOLL) much higher than cost of supply

(*both are effect as well as cause)

Asymmetries 2: responses

• Supply side has large scale response mechanisms

• Responses on demand-side (diversity, storage, redundancy) may be (regarded as) trickier to mobilise

But:

• Governments have a legal responsibility to have the capacity to reduce oil demand by 10% (IEP)

• In practice, this has often been achieved or exceeded (IEA 2011b)

In any event, the future balance will be different

• Growing supply side inflexibility (non-dispatchable and capital intensive low carbon plant; gas imports)

• Growing demand side flexibility (smart grids, smart meters etc)

• Growing demand side complexity (uncertain trend of demand; new demands – EVs and dg; policy driven demands; gas/power interactions)

• Rising cost of energy (greater incentives for demand side – VOLL relatively lower)

UK Sources of Power Generation 2009 – Daily (3.8 GW Wind Capacity)

Sources: National Grid, Own Analysis

0

200

400

600

800

1,000

1,200

1

13

25

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61

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32

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h/d

ay

Wind

Gas

hydro

Pumped Storage

Oil & OCGT

Imports

Coal

Nuclear

UK Sources of Power Generation 2025 Daily 43.2 GW Wind Capacity (OIES)

Sources: National Grid, Own Analysis

0

200

400

600

800

1,000

1,2001 13

25

37

49

61

73

85

97

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Wind

Gas

hydro

Pumped Storage

Oil & OCGT

Imports

Coal

Nuclear

2025 Hourly Analysis (OIES)

Sources: National Grid, Own Analysis

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

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h/

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Wind

Gas

hydro

Pumped Storage

Oil & OCGT

Imports

Coal

Nuclear

Demand

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

57

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57

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57

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57

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58

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Pumped Storage

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Imports

Coal

Nuclear

Demand

Days 121 – 127 Days 241 – 247

Balancing in Spain

Two

days

in

Spain

Electricity demand may well have peaked last decade (as may oil, gas

etc)…..

• Extended recession – lost decade(s) for Europe

• Energy efficiency (government policies plus AEEI)

• Higher electricity prices (global fossil prices plus cost of decarbonisation)

• “Negative demand” (small scale solar, CHP etc)

Demand: composition more significant than level -

but dependent on policy (National Grid scenarios)

The policy discussion revolves around energy efficiency

“Energy efficiency is the most cost effective way to reduce emissions [and] improve energy security ….. [It] can be seen as Europe's biggest energy resource”

(Commission – Energy 2020)

“Energy efficiency must be the starting point [for increased energy security]” (Malcolm Wicks]

Energy efficiency is one of the “six pillars” in the Government’s latest security of supply document

But energy efficiency is about reducing inputs, not service outputs

• Energy efficiency means less energy for same amount of services

• Doesn’t reduce dependence on energy services - except where non-energy services substituted (eg cycling)

• Dependence not represented by GDP share of energy or energy imports as in many policy docusments

• Greater efficiency = higher value energy (ie the pain of loss is greater; VOLL is higher)

Efficient A vs inefficient B

• A and B use the same amount of energy services. A is more efficient and spends 3% of GDP; B 5%.

• With a given %age supply reduction, both lose the same %age energy services

• With a given quantity reduction A loses more services

• B likely to be able to reduce demand more quickly and cheaply in an emergency because of inefficiency

• B also more likely to have greater diversity of supply and infrastructure because of higher energy flows

On the other hand

• B pays more for energy and suffers more from higher prices (but always did)

• B has a bigger gap to fill in an emergency (so …?)

• A may have better “buffers” (like insulation)

• A may have greater consumer awareness and responsiveness

• A may be less exposed to imports and fossil fuels in general

Role of energy efficiency

• Effects complex – no straightforward link with security

• Efficiency should not be considered in isolation or in an undifferentiated fashion; it’s the system effects of particular forms of efficiency that count

• Need wider strategy for informing and empowering consumers

Conclusions

• Demand has received too little attention in relation to security in the past, though demand reduction has been important

• Energy efficiency has been treated too simplistically

• In future, the demand side will take on a much greater potential role as energy markets decarbonise

• Governments will need to develop a coherent and integrated strategy to harness this potential effectively and need to pay attention to the balancing mechanisms that link demand and supply