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Research

The Challenge

Mitigating climate change is a major challenge for the 21st Century and requires a transition to low carbon energy systems. Energy use is responsible for the majority of greenhouse gas emissions, so transitioning to a low carbon energy system is critical to mitigating climate change. Variable renewable energy sources will play a key role, mainly through a large contribution to electricity generation. Integrating them effectively into electricity systems is therefore a critical challenge.

Retaining a secure electricity system, rather than resource availability or generation cost, is increasingly seen to be the major, long-term constraint to the adoption of high shares of variable renewables. Supply and demand need to be balanced and there are potential imbalances on time scales from seconds to seasons, as well as other technical issues for system and grid operation.

Our Approach

This programme is based on a framework for understanding technical, market and policy requirements for integrating renewables across a wide range of scales, resource types and contexts. Through our work we have, and continue to, develop the conceptual tools needed to understand the role and combination of different approaches in different scenarios, how these might be adopted in electricity markets and how such innovation might be stimulated and governed. Through the life of this programme we have already seen change and are looking to assess what further disruption is needed at a number of scales, ranging from new mini-grids to continental systems.

The programme brings together an interdisciplinary team of experts on energy issues, from different Oxford University departments. It has support from key industrial and government organisations and works collaboratively to deliver both theoretical and practical results to relevant technical, commercial and policy problems.

Ambition

Our ambition with this programme is to provide frameworks for both governments and industries to integrate renewable energy sources into the mainstream, in order to help them achieve targets on carbon emissions.

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Consumers

The large-scale deployment of renewable energy poses challenges to the task of balancing electricity supply and demand, including the risks of periods of surplus generation, unmet peak demand, and flexible thermal generation operating at uneconomically low capacity factors. To address this challenge, there is considerable interest in demand-side engagement and the potential to support system balancing by securing demand response, that is, encouraging consumers to shift their electricity demand in time, usually in response to an electricity price signal.

The IT and communication revolution has meant technology can be used to enable demand response in the domestic sector, such as smart meters that can support the wide-spread introduction of dynamic electricity pricing. The paradigm-case for technology-enabled demand response is that of the ‘smart grid’, consisting of smart appliances, electric vehicles, distributed energy generation and storage technologies with automated smart control systems scheduling the operation of devices to meet household needs while also providing support to the grid.

The conceptual ‘demand response space’ consists of three dimensions which can, in various combinations, provide demand response.

  • The ‘technology change’ dimension represents demand response that is provided solely by technology change, such as replacing a conventional fridge with a smart one that can respond automatically e.g. turn itself for short periods .
  • The ‘service expectation change’ dimension represents people being flexible in their expectations, such as altering thermostat settings, or eating a cold meal rather than a hot one.
  • Finally, the ‘activity change’ dimension represents the potential for people to be flexible in the timing of their activities, for example, turning on the washing machine at a different time.

Fundamentally, achieving the full potential capacity for demand response in a given population, means considering the capacity and desirability for flexibility in people’s service expectations and activities, alongside that of technology change.

Markets & innovation

Market design and innovation

Integrating renewable energy resources into electricity grids in a way that is affordable, ensures system security, and delivers reliability is an enormous societal challenge. To meet it, we must develop a deep understanding of the markets, institutions, and regulatory structures governing electricity systems.

Market structures and policies do not provide sufficient incentives for capacity, flexibility, and innovation in electricity systems around the world. While technological progress and new mechanisms for integrating renewables continue to drive down costs, enable accessibility, and enhance operational efficiency, these improvements are not occurring fast enough to ensure that the world does not exceed its carbon budget. The market design, innovation, and grid requirements for transitioning to low carbon energy systems in the 21st century are substantial.

The key economic challenge is to create market, regulatory, and institutional arrangements that provide sufficient incentives for investment and operational efficiency—arrangements that are compatible with the technological and economic characteristics of low carbon power generation.

To address this challenge, the economics research team is undertaking economic analysis, systems modeling, empirical research, and political economy analyses focusing on two related areas: system and market design and innovation. Examples of the questions arising from the integration of large-scale renewables are as follows:

System market design

  • Power market arrangements, including challenges for wholesale markets, capacity and balancing markets and associated system rules;
  • Electricity pricing at geographical nodes and at different times;
  • Optimal balance of investment in flexible generation technologies, storage, interconnection, and demand side management;
  • Industrial organization and competition issues in the power sector;
  • Quantifying the industrial capabilities of countries to produce low carbon and renewable energy products in the future.

Innovation

  • Understanding the main drivers of cost reductions in key renewable and integrative technologies;
  • Design of instruments and interventions to accelerate technological progress in electricity system technologies;
  • Optimal public and private spending on innovation in flexible generation technologies, storage, interconnection, and demand side management;
  • The impact of innovation policy on security and capacity adequacy in future low carbon energy systems.

Energy storage

Challenges and solutions

Electrical energy storage refers to a process of converting electrical energy to another form of energy which can be more easily stored, and then converted back to electrical energy again at a later time when it is required. It is possible to store energy in a variety of ways including electromagnetic, electrochemical, chemical, mechanical and thermal mechanisms. Although today, bulk energy storage is dominated by pumped hydro, which accounts for ~99% of global energy storage, it is expected that the vast majority of future storage technology deployment will be in other mechanisms.

The ever increasing penetrations of storage, particularly electrical, on the grid is partly motivated by the desire to increase the penetration of renewable energy sources on the grid. The inherent variable nature of renewable sources and the requirement to establish a stable electrical grid system requires new ways to manage these variable inputs to produce a stable output and efficient energy storage would greatly facilitate the mass integration of renewable electricity generation globally, and potentially improve existing grid infrastructures and permit the development of entirely new power architectures, markets, and business models.

Storage challenges exist across four major time scales:

  • Real time – e.g. maintaining the stability of the grid. Real time storage likely requires high power and millisecond response times with storage up to several minutes.
  • Intraday – e.g. time-shifting energy within the day, typically shifting peak energy production several hours to late afternoon during peak demand. Intraday storage likely requires reasonably high power and second response times with storage up to 4 hours.
  • Interday – e.g. challenges in interday balancing due to fluctuations in weather patterns. Interday storage likely to require reasonably high power again and quick response times but with storage durations possibly in excess of 24 hours.
  • Seasonal – e.g. balancing variations in energy demand over the year. Particularly challenging in countries like the UK with significant peak demands during the winter months. Seasonal storage will require moderate power capabilities but massive quantitative of energy are most likely required.

In general, the current generations of storage technologies often struggle to deliver the necessary performance or an acceptable cost to make storage viable. When considering the role of storage in integrating renewables the challenge is to evaluate how the current storage technologies might evolve to meet the demands of performance (e.g. lifetime, efficiency and operational flexibility) and cost, as well as what disruptive new technologies might be possible in the future. This stream of the programme will consider the future potential and likely technical developments in the storage space towards each of the above challenges.

Policy & regulation

Policy challenges

The changes in technology, social engagement and market structures, described on other project pages, that are implicit in the move towards a low carbon energy system have major implications for regulatory and institutional arrangements. The transition will need to be achieved at reasonable cost, whilst providing modern energy services with the high degree of reliability, which advanced economies already expect, and to which developing economies aspire.

This systemic nature of the energy transition, including changes to policy and regulation, but also the actors involved in the system, constitutes a change in energy governance.

The number of actors likely to be involved in power generation, demand side response and distributed storage vastly exceeds the number of traditional dominant players in energy systems. Engaging these actors in investment and real-time operation of power systems is a new challenge. This implies that governance structures will have to include better engagement of these smaller scale actors, possibly at more local levels.

New technologies, such as energy storage are already raising complex regulatory issues, and the governance of energy is increasingly connected to governance of information technology, e.g. in smart grids, and other infrastructures, notably transport. At the same time, new market structures are being developed to deal with capacity and flexibility, and these require appropriate regulations and institutions. Traditionally largely passive, grid operators will play a much more active role in balancing the system across space and time. And new infrastructure systems, e.g. for hydrogen, may need to be developed.

It is likely that there will be increased trans-national governance to address international electricity flows, development of more cross-border interconnection and carbon markets. The low carbon energy transition therefore increases complexity at the traditional (usually national) scale of energy regulation, but it also has increasingly diverse spatial dimensions. While security and affordability remain critical to the delivery of any energy policy, the law and institutions through which they are managed will have to change.

This workstream is undertaking research on governance and policy challenges, and their potential solutions. We are looking at some of the fundamentals of energy governance. For example, we are using insights from the wider governance literature on common pool resources to rethink how electricity grids might be governed. We are also using specific case studies, at a range of scales, to understand how energy governance is changing in practice in response to the pressures of the transition to renewables. For example, we are looking at potential policy arrangements for heat in the UK in high renewables scenarios.