DER Self-Consumption as a Growth Driver in the UK: Part 1

On July 19, The UK’s Department for Business, Energy and Industrial Strategy (BEIS) confirmed its intent to close the small-scale feed-in tariff (FIT) program on March 31, 2019. It also stated it will close the export tariff to new applicants at the same time.

The UK government’s impact assessment paper estimates that the closure of the FIT program and the end of export tariffs would reduce the internal rate of return for residential systems installed in 2019 from 7%-8% to 2%-3%. BEIS estimates that small-scale annual installations will drop from around 210 MW (with the FIT and export tariffs in place) to between 51 MW and 103 MW in 2019.

As I argue in my recently published report, DER Self-Consumption Enabling Technologies, the future of distributed energy resources (DER) lies in maximizing self-consumption to reduce the amount of electricity bought from the grid and selling grid services to create new revenue streams.

Cost and Benefit

Without subsidies and assuming no payment to the electricity exported, the attractiveness of solar without optimized self-consumption falls significantly. For example, a solar system costing £5,995 (~$7,700) with an annual production of 4,173 kWh in a household with a natural self-consumption of 20% (standard for a working family without changing behavior to increase it) would only save around £125 (~$160) per year from its electricity bill—a payback period of almost 48 years. If the same household could boost self-consumption to 100%, the payback period would drop to 9.5 years. With lower commercial and industrial electricity rates, the situation is not much better, although there are some tax benefits that households cannot obtain.

The key components in a self-consumption future are smart system designs that use the technology available for optimization without significantly increasing the initial investment. The simplest way to increase self-consumption would be to install a battery along the solar system; however, this has a high initial cost—around £4,000 (~$5,100) for the residential system used as an example. With a battery, the payback period of the system would be 16 years. On the other extreme, a costless option is a behavioral change to make sure they shift electricity use to primarily be during sunny hours.

Technologies and Challenges

In the middle, there are a range of technologies that can be used to increase self-consumption at different investment points with varying characteristics that can act as both generation and load control on the grid. Guidehouse Insights covers seven technologies:

• Energy management and control systems (communications)
• Asset monitoring 
• Resource forecasting
• Smart devices (e.g., thermostats, smart plugs, etc.)
• EV chargers
• Solar PV
• Energy storage

Despite differing operating characteristics, these technologies represent new and dynamic resources that can challenge prevailing industry business models and standard operating procedures.

There are barriers to a self-consumption driven DER market. For example, the development of each self-consumption enabling technology has happened in silos, and each has developed different tools to provide similar services. This has created a fragmented technology and developer ecosystem that complicates the deployment of integrated DER projects.

Another barrier is the lack of awareness around self-consumption optimization, both by some installers and the public. Installers are more focused on selling only solar or other big-ticket items, like batteries, as this increases their margin. Meanwhile, the end user, who would benefit the most from increasing self-consumption, lacks the knowledge required to design an optimal system.

To overcome these barriers, the industry needs to come together to overcome the current fragmentation and increase awareness of the current state of the technology and the benefits it provides. The second part of this post will look at what is happening in other European markets.