Li, PH; Barazza, E; Strachan, N; (2022) The influences of non-optimal investments on the scale-up of smart local energy systems in the UK electricity market. Energy Policy , 170 , Article 113241. 10.1016/j.enpol.2022.113241.

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Abstract

Rapid and deep decarbonisation of electricity systems is critical in many pathways to meet net-zero emissions by 2050. Smart local energy systems (SLES) have been touted as key for both a rapid scale-up of renewable electricity and flexibility for stability in decarbonised electricity systems. A novel agent-based model – incorporating local investor and governance agents, improved temporal resolution, and demand-side flexibility – was used to investigate strategic decision making in the scale-up of SLES. From the perspective of this model, key modelling insights include: SLES investors, initially supported by local governments, can successfully boost the uptake of renewable energy up to 80% of total generation; SLES scale-up significantly erodes the market share and profitability of incumbent utilities, however national level agents are still key for capital-intensive low carbon plants; Demand-side response facilitates balancing electricity supply and demand, but it can result in non-optimal policy agents postponing required incentives for heterogeneous investor agents to build new low carbon plants; National carbon prices (in conjunction with local SLES and technology support mechanisms) are needed to maintain overall system stability. Therefore, understanding the critical role of non-optimal investor decision making is key to fully understand the drivers and implications of a rapid scale-up of SLES.

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