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416138_347722131972086_1739595764_oThe government is wrong to prop up an outdated model of large, centralised power stations and should be supporting smarter technologies that hold the key to a cheaper, cleaner, and more and secure electricity system that works better for consumers, think tank IPPR will say today.

Technologies such as solar power, wind turbines, smart thermostats, and batteries would lead to lower bills and a more efficient energy system, while ensuring more of the government subsidies offered for low carbon generation end up with communities rather than in the hands of big, foreign-owned utilities, IPPR argues in the new report.

The report argues current government policies are tilted in favour of large-scale low carbon generation technologies, such as nuclear reactors and offshore wind projects, which merely bolster the declining large scale utility business model. Instead, ministers should begin work on a large-scale roll out of solar power, accelerate the development of a nationwide smart grid, and restricting the Big Six’s ability to trade electricity between their generation and retail arms, IPPR claims.

The report will make concerning reading for large utilities, which have experienced plunging profits and credit downgrades that have wiped 50 per cent off the value of Europe’s top 20 utilities over the last six years.

Solar power in particular is driving drastic changes in the European energy market as rapidly falling technology costs allow solar electricity to compete on price in a growing number of markets. Analysis from Citibank said solar in the UK should be cost-comparative with grid electricity by the end of the decade. Meanwhile, the cost of onshore wind power is also dropping, approaching the average wholesale electricity price in Italy, Spain, China and the UK, while already proving competitive with fossil fuel generation in Brazil.

These technologies have no marginal cost so will be prioritised by grids when there is demand for power ahead of coal and gas fired power plants where generators have to pay for fuel, the report explains. And the market for utilities is expected to be further eroded by smart technologies that adjust and reduce demand for electricity, which could ultimately smooth out peaks in demand utilities have traditionally relied on to make money. IPPR says that in the US technologies such as smart meters, thermostats, appliances and lights have been shown to be capable of delivering a 90 per cent reduction in the peak time electricity price.

All this spells bad news for utilities and it has not gone unnoticed. Earlier this year, Barclays downgraded its credit rating for the entire US electric utility sector on the basis of its predictions for falling solar and battery costs, while Citibank has forecast distributed electricity generation will halve the size of the market open to utilities over the next two decades, which could see the utility business model “crumble”. Ex-npower bossVolker Beckers told BusinessGreen last month that the centralised model has “reached its natural end“.

As well as pressure from new technology and independent suppliers, utilities are also facing increasing competition from community energy projects. “Communities and consumers are fed up with the old energy model and can now get directly involved”, Philip Wolfe, a director of Community Energy England told BusinessGreen in an email. “Social enterprises are springing up all over the country with renewable and energy saving projects owned and controlled by local communities.”

However, IPPR contends the UK government has failed to recognise the prevailing direction of travel in the energy market globally and has instead introduced a package of measures to prioritise utility-scale generation through its Electricity Market Reforms. These include contracts guaranteeing electricity prices for new nuclear reactors, offshore wind farms, and other large low carbon power plants, as well as a mechanism to pay generators to provide back-up power so the UK’s lights stay on as it switches off aging power plants.

Nuclear plants and offshore wind farms do not currently have to compete for subsidies under these contracts, unlike onshore wind and solar, and have an allocation of funds that dwarfs that set aside for the feed-in tariff scheme that supports small-scale projects. Meanwhile, IPPR says the complexity of the contracts are better suited to utilities, many of which are headquartered overseas and therefore effectively repatriating UK billpayers’ money.

The report says this policy framework is “unnecessarily costly, limits competition, and risks undermining decarbonisation objectives”, and argues that now the positive impact of distributed energy technologies is increasingly clear the government should adapt its supposedly ‘technology neutral’ approach to ensure they play a more central role in the future.

“Distributed electricity technologies such as solar power, batteries and smart thermostats, give reason for great optimism but they are being held back by a bias in both policy making and regulation which favours the large-scale utility business model,” said Will Straw, associate director of the IPPR. “A fundamental change in direction is required so that the innovative businesses and entrepreneurs developing these new technological solutions have a level playing field with the incumbent utilities. It is time to break with the past and embrace the brighter new future that these technologies offer.”

This would mean a large-scale deployment of solar power, scrapping the capacity market in favour of a new approach focused more on delivering energy security rather than simply adding generation capacity, and a review of network regulations to accelerate the development of the smart grid. The report also recommends reforming the electricity markets to allow greater competition for the Big Six, which could include restricting self-supplying between their generation and retail arms and introducing a new ‘pool’ system for wholesale energy trading.

The Department of Energy and Climate Change (DECC) was still formulating its response at time of going to press, but it seems unlikely that having spent years forcing through its Electricity Market Reform programme it will suddenly tear up the guinding principles that shaped the programme. Moreover, such as drastic shift in policy would have a huge short to medium term impact clean energy investment, particularly given repeated warnings that policy uncertainty is undermining green investment.

However, the manner in which falling renewable energy and battery costs is continuing to strengthen the already compelling case for distributed energy could yet cause major disruption to the UK government’s plans through market forces alone. As IPPR’s report makes plain, there is good reason why so many senior executives within the European energy sector fear that the utility model is on its way out.

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416138_347722131972086_1739595764_oThe proposal, for a 3.05MW photovoltaic park on agricultural land east of Banbury Lane to the north east of Thorpe Mandeville, was refused by South Northamptonshire District Council in June 2011.

Applicants Mr CER and Mrs S Buckley lodged an appeal, which was recovered for the secretary of state’s determination because it involves proposals of major significance for the delivery of the government’s climate change programme and energy policies.

Pickles has now granted planning permission for the scheme, which would comprise up to 21,000 square metres of solar panels, in line with recommendations from his planning inspector.

A decision letter issued on behalf of Pickles by the Department of Communities and Local Government, dated yesterday, acknowledged that the proposed development would result in some harm to the local landscape and to the amenity of walkers using the local footpaths.

But Pickles concluded the support in the National Planning Policy Framework for renewable energy is “sufficient in this case to outweigh any harm to the intrinsic character and beauty of this part of the countryside”.

He said that the scheme would make a significant contribution to meeting targets for renewable energy, contribute to the reduction of greenhouse gases and provide energy security benefits.

The decision letter (DCS Number 200-000-082) can be purchased from DCS Ltd, call 01452 835 820 or email dcs@haymarket.com