The New Metric for Local Energy – Overcoming Governance Barriers – an interview with Maarja Meitern and Rolf Bastiaanssen

The Local Levelised Costs of Energy is a new metric to help communities (cities, consumer cooperatives, industrial agglomerations) determine if the local sustainable energy system is a financially viable alternative to the cost of current centralised energy generation, compare long-term costs between approaches as well as demonstrate the value of smart grids,” say Maarja Meitern and Rolf Bastiaanssen from Bax & Company in this interview where they highlight the relevance of such a new comparative basis in support of the equitable development of sustainable energy systems.

Sebastian Klemm: What purpose and impacts does Bax & Company look for? Which instruments does Bax & Company apply to create these aspired impacts?

At Bax & Company, we strive to create more liveable, safe and prosperous places, creating value from science and technology and accelerating innovation. Working with our extensive international network of partners and clients, we develop solutions through EU-funded projects and commercial services.

In the world of energy, we support the European Union’s energy transition to a low-carbon Europe, bringing together stakeholders from academia, policy, business and technology.

With sustainability as the end goal, we promote the business case development of sustainable solutions to encourage uptake and upscaling across Europe and beyond.

Sebastian Klemm: What is the current set-up for generating and distributing energy, and which issues around inefficiencies and externalities arise from that?

The current system was set up 200 years ago when electricity could only be produced on the scale of coal plants. To ensure stability, we needed to build power plants that could meet peak demand, meaning that most days, the energy produced is going beyond the energy demand. Furthermore, the energy supply from coal, nuclear and even hydro plants cannot be shut off immediately – sometimes, it takes days!

There is a mismatch between centralised energy production / management and actual energy demand and it translates into over or under production of energy, which means more expensive energy bills for the consumer.

This wasted capacity is the catalyst for developing innovative new energy technology from local networks of smart grids to battery storage.

Sebastian Klemm: How may the costs for inefficiencies in traditional energy generation and distribution evolve over the coming years? Using which forecasts & sources?

Energy prices have actually gone down but consumers are paying increasingly more to cover the costs of transmission, distribution.

The grid is ageing, consumers are switching to all electric consumption and bi-directional energy flows are coming into play. This all means that the current grid needs huge investments to keep up. That’s why, in spite of the energy price getting lower over the past years, the actual costs for the consumers have increased. Self-consumption is the answer.

Sebastian Klemm: What advantages do decentralised energy networks present in this respect?

By producing and consuming locally, we can reduce the pressure on the current grid infrastructure. In addition, energy is best consumed on the spot, as all transmission activities will mean energy losses.

As people become increasingly interested in the idea of a local, community-based, eco-friendly energy system, the “Local Levelised Cost of Energy” metric (LLCOE) enables the comparison of energy costs between various approaches and demonstrates especially the value of smart grids. The LLCOE covers the lifetime costs of energy generation and distribution in a system, divided by energy production. Read more on the project website: “The Local Cost of Energy” by Bax & Company

Sebastian Klemm: What is the LLCOE – Local Levelised Cost of Energy ? – What change and what positive impacts can it bring?

The Local Levelised Costs of Energy is a new metric to help communities determine if the local sustainable energy system is a financially viable alternative to the cost of current centralised energy generation, compare long-term energy costs between approaches as well as demonstrate the value of smart grids. It covers lifetime costs of energy generation and distribution, divided by energy production. This measure calculates present value of total system costs operations for the community it serves. This allows comparison between different system designs of unequal model (centralised, decentralised), life span, size, capital costs, etc.

The measure differs from the known LCOE Levelised Costs of Energy, which considers only individual assets. By including transmission and distribution, the measure allows comparing smart grids, and crucially, allows comparison with current centralised energy systems.

Currently such comparison is not possible beyond electricity, as not all energy vectors are monetised. The LLCOE allows for comparison against other grid models, while taking into account all potential energy vectors, allowing thus a truly comprehensive benchmarking model. Therefore, the Local Levelised Costs Of Energy-metric is critical in supporting informed decision-making for cost effectiveness of local energy systems.

Sebastian Klemm: What gave you the incentive: How did the idea for the LLCOE come to you?

The idea was born out of the need for a comprehensive benchmarking mode. The current system of energy production is not compatible with the emerging trends that will shape the future of energy, with microgrids being a clear example.

Sebastian Klemm: What feedback have you received so far on your related publication “The Local Cost Of Energy“? – What are your further efforts as a result of this publication?

As a result of sharing our insights, we have developed local energy communities in the Netherlands and the UK and we advise corporates and startups on market development, ensuring that their business models are consumer-centric.

Sebastian Klemm: Which technologies & applications are necessary to set up and run a decentralized energy network, manage its flows and enable Peer-to-Peer trading of energy?

In any district with any renewables and storage, the real challenge is dwelling-level smart meters, gateways and connection points at a sub-station level on which the software connects supply and demand within the microgrids as well as pricing on the wholesale markets.

The technology is not the problem anymore. Now, the legal barriers and needed proof of business case are the obstacles to setting up such a system.

More importantly, it is a question of at what size a microgrid can become viable. – Is it from 50 houses on?

Sebastian Klemm: Which importance might predictive artificial intelligence have for Peer-to-Peer energy trading?

Crucial! Sustainable energy is mainly used for self-consumption and you need your app to understand your specific consumption patterns. After all, you don’t want your AI selling your extra energy when you want to save it or use it.

When you do sell the excess from storage, you can either sell it to your neighbours or back to the grid – the AI needs to be able to predict and monitor prices. An unusually sunny spell in your region will mean everyone with a solar panel will enjoy the same boost in supply and it will be sold on at a (temporarily) cheaper rate. A smart, hyperlocal grid can start trading on your behalf and this would be an important development for both the client and consumer.

Once microgrids become mainstream, the apps and surrounding technology will be readily available in multiple, competing formats. As a consumer, you will use the one that is most reliable, while consistently bringing in the most money. This is where AI comes in – the better the intelligence and algorithms, the better the results for people using the app. The best trader wins.

Sebastian Klemm: To quote Fereidoon Sioshansi in an article of his: “(…) the critical service provided by the network is no longer energy per se but rather balancing services, voltage and frequency support, power quality and, most important, service reliability.”Hence my question to you: What are the critical technologies to enable those balancing services and their reliability?

To strike that balance, it is not a question of finding the technologies, it is about the interaction between the different actors in the market. And with so much money being funnelled into maintaining the ageing current system, from the consumer’s perspective, we have to consider what the future energy price will reflect.

Decentralisation means the old system will most likely become an emergency backup. There will soon be enough storage to create a sustainable system and we won’t need to pay for sustainability, it will be guaranteed within our own microgrids and the technology we have developed around them. Beyond storage, new technologies will also be needed to connect the systems and ensure sustainability and stability on a bigger scale.

Microgrids will have generation and storage capabilities that provide relatively stable self-consumption. In addition to offering security, the grid connection can also be mobilised as a way to sell excess energy. The current system is designed for reliability. – What if through smart grids and energy storage, we could create a grid that offers almost that same energy guarantee but with a vastly cheaper price tag for consumers?

The price of stability we currently pay is too high.

Sebastian Klemm: How do local micro-grids intertwine to form a hyperlocal system? How do we mitigate inefficiencies on the hyperlocal level?

There will be a battle for physical smart grids and virtual smart grids. There is a lot of effort going into community-level smart grids but using that digital connection, a different kind of system could be built up. People like the community idea because it feels cooperative. Once everyone has a smart meter and a gateway, the choice will be more like choosing a mobile phone provider.

Sebastian Klemm: If the preceding micro-grids may be community-driven: Who will manage the intersections & physical networks of the subsequent hyperlocal level?

It is either a public or commercial service aggregator.  A community organiser, a person who is present in the community, convincing people to join and building capital and funds but in the future, it will be fully digital as you get recommendations for upgrading your system.

Sebastian Klemm: How may hyperlocal networks interconnect even further to possibly form a (European) supergrid

It is more a question of how many levels you want to let nodes interconnect on. The potential of connecting local networks ought to be discussed in terms of stability. The extent depends on how many networks are willing to participate and collaborate and what the technology will allow.

Sebastian Klemm: Which current legislation within Europe actually constrains initiatives for developing energy trading communities? Which countries might provide exemptions?

Most European countries are currently unprepared for the transformation in the energy market, that has begun with local initiatives but need to be connected to the national grid to go to the next level. Thankfully there are exceptions. The Netherlands offers a 10-year exemption from Dutch electricity law and Switzerland has gone so far as to liberalise its energy markets.

However, even in such instances, physical constraints remain that limit the uptake of new systems. As other countries are starting to express interest, we must capitalise on the momentum and encourage the necessary exemptions and regulatory changes to scale up the ideas we are seeing at a local level in communities across Europe.

Sebastian Klemm: Could you elaborate on respective pilot projects of yours where you enable energy trading?

Currently, the challenge is to get regulatory approval and sufficient participation within a given community. We start working with a bottom-up approach, usually turning to a municipality or a large housing provider as a reliable partner. We’re nowhere near the commercial market, we’re talking about innovators and early pilots right now. We need to simultaneously overcome legal barriers, technical challenges, devising new business models and convince people to trust this new system. This trust is happening at a community level, not an individual level. It’s crucial to have a strong, local, neutral facilitator – and that’s where the municipality comes in.

Sebastian Klemm: How do you envision the future of the traditional energy grid? Coal and Nuclear Power Plants are only efficient if they run constantly. Whereas renewables are intermittent. – How is the organisational shift possible & in what ways can the transition and Energiewende be mediated?

The change will be less drastic than people expect. Some nuclear plants might even keep running. It’s not about generation capacity, it’s the difference between the rise in energy consumption and the rise in the use of renewable, local energy meeting that demand.

On a microgrid level, the decentralised production of intermittent renewable energy will be widely used but factories and energy-hungry constructions will still depend on national grids. Local renewables are going to meet most household consumption long before they feed electrified transport, energy-intensive industry. Such industries will still require centralised and stable energy production.

Sebastian Klemm: Who owns & who maintains the power lines in a decentralised energy network, for the micro-grids as well as for subsequent hyperlocal systems?

This remains an ongoing debate! We foresee two main models, with the more traditional one following in the footsteps of DSO-owned networks and locally owned initiatives. The more experimental would be for energy service companies (ESCOS) or local communities to go from financing the refurbishment of dwellings, we see explorations of the financing of smart grid upgrades.

Current electricity grids are built by public money and should belong to the community. But it all depends on the legislation.

Sebastian Klemm: Could you imagine micro-grids organized and run decentrally in itself e.g. as a Decentralized Autonomous Organization (DAO)?

Early modelling suggests that in the long term, energy costs will be notably lower in local energy communities than the national energy system. So it makes financial sense, as well as perhaps socially responsible sense, to operate in something like a DAO. However, it all will be dependent on legislation.

Sebastian Klemm: To quote Jennifer Greyson in our previous interview:Cooperation is key. I’m frustrated by the amount of similar platforms we’re seeing. Why do we need more than one energy platform? Why are these developers not working within those existing ecosystems? Same with any duplicate platform. To me, that is nothing more than a money grab, which speaks of ego, of wanting to have the BEST platform. That’s silly and a waste of good tech that could be a collaboration to create ONE energy/ cellular / data / security platform. I’d like to think platform cooperation is possible, but only if it’s done in the truest sense of collaboration, and we seem to have lost that.” – Therefore my question to you: Why are we still striving for more than one (energy) platform?

To date, there is not enough evidence of any one platform being the answer to all the potential future challenges the markets face. That is why we need to keep testing the different platforms in different market models.

As with all other new technologies, there has to be a great deal of experimentation, testing all theories in the full knowledge that a fair amount of them are bound to fail. The big question is really whether we will end up with a winner-takes-it-all situation or a more collaborative environment of several platform options.

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