Navigant Research Blog

Cities Seek a Bigger Say in the Energy Market

— February 26, 2016

Bangkok SkylineNavigant Research estimates that the market for smart energy technology for smart cities will be worth almost $21 billion by 2024. Early smart city and smart grid projects focused on the city as a site for technology and market pilots, with utilities taking the lead role. As documented in the Smart Energy for Smart Cities report, cities are now taking a more proactive role in the evolution of local energy provision. Cities are becoming active players in their energy markets, collaborating with their existing utilities where it makes sense but also becoming increasingly willing to challenge and even compete with those traditional providers. This is becoming particularly evident in the United Kingdom.

In February, Bristol became the latest U.K. city to launch its own community energy company. Bristol Energy is owned by the city council and run for the benefit of the whole community. As well as offering competitive energy deals, the company’s objective is to reinvest any profits to fight fuel poverty and support locally generated renewables. It also aims to increase low-carbon energy generation in the city and to eventually manage a new district energy network for the city.

Increasing Initiatives

Bristol is part of a wave of initiatives to form new city-owned energy companies in the country. In September 2015, the Nottingham City Council established Robin Hood Energy, the first non-profit city-owned energy company in the United Kingdom since the nationalization of the industry in 1948. The country nationalized and centralized its energy grid and market after World War II and since then has had no equivalent to the myriad of municipally owned utilities found, for example, in the United States or Germany. The process of deregulation and privatization in the 1980s created a clear split between the transmission, distribution, and retail markets, with the retail market led by the Big 6 energy suppliers. The new city energy companies have been established within this market structure and in response to some of its perceived weaknesses, not least of all a lack of local influence on the market.

Other major cities in the United Kingdom are considering setting up their own energy company alongside other initiatives such as the establishment of new energy service companies and increased investment in district energy networks. The Greater London Authority, for example, is in the process of establishing itself as a junior energy supplier, which will enable the city to support renewable energy generation and provide energy to local public bodies at an attractive rate. Some advocates are calling for London to go even further and follow the same path as Bristol and Nottingham.

A Worldwide Trend

Beyond the United Kingdom, this trend echoes broader moves by cities worldwide to be more active players in defining their energy future. In some cases, this is leading to a move toward remunicipalization (as in Hamburg, Germany), but this is not the only path for cities looking to accelerate their energy transition. Many are working in close partnership with their local utilities to drive the adoption of renewables and to introduce energy efficiency schemes.

Utilities cannot be complacent. The continued interest in smart city ideas reflects a new confidence and impatience among city leaders as to the pace of improvement on a range of issues including energy policy. If existing energy markets and utility models are not helping them achieve those goals, then we can expect to see more cities challenging the status quo.


Doubts Surface About U.K. Smart Meter Rollout

— March 26, 2015

Serious doubts have surfaced about the rollout of smart meters in the United Kingdom, with a key government committee raising the issue to a new and alarming level. In its most recent report, the Energy and Climate Change (ECC) parliamentary committee concluded the program “runs the risk of falling far short of expectations. At worst it could prove to be a costly failure.”

The smart meter rollout is large, expensive, and complex. By 2020, a total of 53 million electric and gas meters are to be installed in some 30 million British homes and small businesses. The estimated cost is $16.2 billion, which is to be passed on to consumers. The cost is supposed to be offset by an estimated savings of $25.5 billion, in part from greater energy efficiency. One of the more complex features of the rollout is a communications infrastructure that aims to coordinate meter data among the energy suppliers, network operators, and authorized service providers. A government-appointed company called Smart DCC is charged with setting up this infrastructure.

Shaky Foundation  

The rollout is still in its early stage, called the foundation phase. The committee’s report expresses disappointment with several unresolved issues to this point: meters unable to communicate in multiple occupancy and tall buildings; interoperability issues among different types of meters and in-home displays; a shortage of installation engineers; network rollout delays by Smart DCC; and delays in public engagement around the program. So far, about 550,000 smart meters have been installed and are in use, which is about 1.2% of all domestic meters under management by the country’s largest energy suppliers.

The start of the next phase, called the mass rollout, has been delayed twice, as noted in a previous blog. As of now, the mass rollout is to begin in the fall of 2016. However, with this latest government report and the ongoing technical issues, that start date could slip once again.

Eventually, smart meters will be deployed widely in the United Kingdom. But given the complexities involved, it’s a good bet that the 2020 target will be missed—and perhaps by a wide margin.


U.K. Smart Meter Deal Gives L+G Smart Meter Lead

— September 25, 2013

Meter manufacturer Landis+Gyr (L+G) struck gold last week with a mammoth deal valued at $956 million for the delivery of more than 10 million smart meters to British Gas (BG) during the next 6 years.  The nearly $1 billion contract provides L+G with a well-defined runway for its business and pressures competing meter manufacturers to come up with similar transactions in the deregulated energy market in the United Kingdom.

Under the terms of the deal, L+G will be the majority supplier of smart meters to BG, the leading energy supplier in the United Kingdom.  BG plans to install a total of 16 million smart meters in customers’ homes by 2020,  the deadline year imposed by the U.K. government for all homes throughout Great Britain to have smart meters installed.

The Competition

With the announcement of this deal, both companies will be adding employees.  L+G, which is owned by Toshiba Group, expects to double its U.K. workforce to 1,200, as well as expand its manufacturing facilities.  For its part, BG will hire 500 additional workers to install the meters and provide energy efficiency advice to customers.

British Gas has installed more than 1 million smart meters in homes so far.  It leads its rival energy suppliers as it tries to solidify its position as an innovator ahead of the massive rollout of smart meters set to begin in 2015.  The strategy seems to be working, as suppliers I’ve talked to say BG has seen a reduction in customer churn because of the new meters, which tend to increase customer engagement.  Also, the company estimates customers save about 5% on annual energy bills after the new meters are installed.

The deal between BG and L+G was not a big surprise; the companies have been working together on smart metering for a couple of years.  Competitors like Itron, Elster, and Sensus will have to continue looking beyond BG for smart metering deals in the United Kingdom.  Energy suppliers like E.ON UK, npower, ScottishPower, and SSE will be the likely targets for these competing meter makers hoping to win a share of a market that will eventually total some 50 million smart meters by the end of 2020.


Renewables in U.K. at a Turning Point

— April 18, 2012

The United Kingdom seems to always be trailing the European renewable energy starting line-up of Germany, Denmark, Spain, Sweden, and any one of Holland/Finland/Portugal.

As we’ve observed in our offshore wind, small wind, and marine and hydrokinetics reports, though, the U.K. has taken enormous strides to stimulate its renewable energy industries and is taking on some of the most difficult technological challenges in cleantech today.  (See this map to locate offshore wind and marine energy activity.)  Below are a few of the highlights:

  • The U.K. has a current target of 15% target for renewables across electricity, heat and transportation sectors and has enacted almost 50 policies and programs to achieve that goal
  • The U.K. has been at the forefront of offshore wind since 2000 and is one of the world’s leaders in terms of current installations, nearing 2 gigawatts (GW), and a potential pipeline of more than 40 GW
  • The U.K. is the clear leader in incubating marine energy companies with leases approved for 1.6 GW of wave and tidal projects; with Scotland aiming for 2 GW installed by 2020
  • The UK is home to one of the largest markets for small wind turbines, in large part thanks to a generous feed-in tariff scheme passed in April 2010 and great wind resources

Current events, including the recent announcement by German utilities RWE and E.ON that they are scrapping their plans to build two nuclear reactors in the U.K., plus The Economist’s apparent obituary on new nuclear plants in Europe (and the United States), seem to underscore the trend in favor of renewables.

At the same time, however, U.K. members of Parliament are increasingly scrutinizing the country’s renewable energy incentives, and there are even hints that the U.K. is moving closer to a “low carbon” strategy, opening the door to a wider role for nuclear which currently provides approximately 20% of the U.K. electricity mix.

No doubt the financial crisis has changed the equation for many U.K. political leaders, and each country will choose its own carbon reduction path – but members of Parliament must keep in mind that there are trade-offs.  The most critical trade-offs include the possibility that tying up precious capital on nuclear could reduce investment in smart-grid/transmission infrastructure required to realize the ambitious offshore targets and to enable distributed generation to succeed at scale.   Opting out of new nuclear, of course, is the path that Spain, Sweden, Denmark and Germany decided to take, instead doubling down on renewables (Germany’s reduction in solar feed-in tariff rates notwithstanding).  That’s why they’re in the starting line-up.


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