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DER Self-Consumption as a Growth Driver in the UK: Part 2
Part one of this blog looked at the challenges faced by the UK distributed energy resources (DER) industry due to the government’s decision to end support to solar installation. It also discussed how self-consumption could help drive growth if the industry focuses on bringing effective integrated DER solutions, instead of selling solar (or solar plus batteries) only. This blog looks at opportunities for DER that do not depend on regulation to succeed.
Self-Consumption as a Successful Business
There is a growing European market purely supported by self-consumption. According to the Spanish PV Union, in 2017, the annual installed capacity increased by 145% thanks to new self-consumption facilities, growing from 55 MW in 2016 to 135 MW in 2017. This development has been driven by the high degree of competitiveness achieved by PV, the costs of which have been reduced significantly in recent years.
Most of the growth in 2017 came from agricultural use and rural electrification. In most of these installations, DER has an advantage as it competes with either high fuel costs in applications like water pumping (that use diesel generators) or in the case of new rural facilities (that have expensive grid expansion costs). The challenge now is not to reduce the price, but to convince potential customers of the value DER installations can bring. For example, farming operations can reduce diesel consumption to power irrigation pumps by around 70%, with the addition of a solar plus storage system these types of installations have a payback of just a couple of years.
The example in Spain shows that if the arbitrage between electricity from the grid and distributed generation exist, self-consumption enabling technologies can be used to increase the level of self-consumption to improve the overall DER system economics.
The difference in solar resources between Spain and the UK means that the hurdle is higher, but the levelized cost of solar for a residential system is already below most residential tariffs, creating the arbitrage necessary for self-consumption solutions. Therefore, companies offering DER must focus on low cost solutions to bridge the time-of-use gap between solar generation and consumption. Simple solutions like immersion heater controllers already exist and add little to the cost of the system, although it would displace relatively cheap gas instead of electricity (another, more expensive option would be to replace the gas boiler for a heat pump, potentially increasing the system output by three or four times). My report on DER Self-Consumption Enabling Technologies shows the technologies available to increase self-consumption.
The Future Focuses on the Customer
It is possible that incentives will be needed for some time as the industry adjusts to the new business model, but the incentives could be more beneficial if they are targeted at increasing self-consumption through integrated DER systems, rather than simply incentivizing distributed generation. The future belongs to companies that can successfully morph from being solar installers into DER solutions providers.