My Lords, this amendment is the result of a representation to us by the Combined Heat and Power Association. It is designed to allay the impression that a demand-side response is simply a matter of staunching demand. It points to the fact that much wasted capacity can be saved by rescheduling the demand for electricity within the days, within the weeks, and even more widely within the year, so as to diminish its variability.
A proper definition of what constitutes a demand-side response is provided by this amendment, whereas as it stands the Bill lacks such a definition. In the course of being alerted to this lacuna, we have also been advised of some of the hazards that might arise. The association fears that in the process of assimilating demand-side responses to the capacity mechanism, there is a risk of creating a mechanism designed around a traditional large-scale generation plant. Such a design risks limiting or even excluding the demand-side response of small-scale embedded generation.
Traditional large-scale generation comprises baseload generation by large power stations running at or near capacity, accompanied by intermittent generation by peaking power plants—“peakers”, as they are known colloquially—which run only when there is high demand. The power that they supply commands a much higher price per kilowatt hour than the baseload power. The peakers are typically run with much lower thermal efficiencies than baseload plants and they often use obsolescent equipment that is close to its retirement.
Small-scale embedded generation, which the Bill is in danger of neglecting, is carried out by small businesses, hospitals, university campuses, et cetera, and not by sophisticated electricity-generating companies. Small organisations have fundamentally different needs from the large-scale generators. If they are to participate in the capacity market, the system must be designed around their requirements. At present there are no proposals to support the trading of small volumes of electricity capacity within the market. The provisions cater to large plants, which typically trade hundreds of megawatts of power, and these provisions risk excluding those who trade, as we have heard, just 2 megawatts or 3 megawatts. We alert the Minister, therefore, to these facts, in the hope that they will be accommodated within the primary or secondary legislation in this Bill.
I will take this opportunity to describe some of the realities of electricity demand. The statistics of electricity usage are readily available. The leading page of the National Grid’s website displays graphically the electricity demand over the preceding 24 hours. It also shows
demand over the previous eight days. At the lowest point last week, Monday night, the demand in Great Britain was 56% of the highest demand, which was recorded in the late afternoon or early evening of Wednesday. This kind of variation is greatest in winter. In September the minimum demand, at around 4.30 am, would be a mere 50% of the peak demand, at around 3.30 pm. These figures point to a huge potential for flattening the profile of demand.
Other interesting facts can be garnered from DECC’s literature. The report from the Building Research Establishment on the impact of changing energy use patterns in buildings on peak electricity demand in the UK is particularly revealing. It points to the surprising fact that 50% of our electricity is consumed within buildings for heating and lighting, and by appliances of one sort or another. Apart from being fascinating in their own right, such pieces of evidence convey an important message: if we are to manage our electricity demand in a meaningful way, we must do more than simply assimilate the large-scale generators to the capacity market by means of differential tariffs and incentives. We need to study in detail the components of electricity demand in order to understand the scope for demand reduction, and more particularly for demand smoothing. That is another point we want to emphasise.