The Environmental Audit Committee is conducting an overarching inquiry looking at technological innovations which could contribute to tackling climate change. Each part of the inquiry looks at a specific technology or strategy currently in use or in development and considers its potential and how Government policy can facilitate the UK making the best and most cost-effective use of that technology.

This session considers the role of community energy projects (schemes that are wholly owned and/or controlled by communities or through partnership with commercial or public sector partners) in the UK’s energy sector. This inquiry is an opportunity to highlight UK-based examples of innovation and excellence, and the Committee is particularly keen to hear from those at the cutting edge of each sector.

Key points

Energy Systems Catapult believes that the potential of decentralised energy resources, many of which could be owned or operated by communities, can only be realised through improved energy market design and supporting policy/regulation.

• A major barrier to community energy and local energy more broadly, relates to the challenging economics associated with developing viable business models due to:
  • Inadequate reflection of locational value in wholesale electricity prices and/or network charges
  • Incoherent carbon price signals across energy vectors
  • Non-CfD supported community projects must compete against CfD supported projects and low wholesale electricity prices
• The Catapult recommends that evaluation of current policy be holistic, extending to assessment of market failures and interaction of the existing policy with markets and other policies. Our analysis of the current energy market environment points to the case for ambitious reforms (not confined only to incremental reform of existing policy measures) to make markets work more accurately in time and space. This would reveal and reward more accurately local and decentralised energy resources, including those owned and/or operated by communities.
• Ofgem/BEIS need to prioritise development of open, competitive energy markets with prices and charges reflecting full marginal costs and externalities. Getting this right reduces the policy support that zero/low carbon energy resources, including community energy, will need.
• The Government & Ofgem should assess options to incorporate locational value in wholesale electricity prices (e.g. zonal pricing, locational marginal pricing and nodal pricing) and all market actors/technologies should be exposed to market signals so they locate in optimal locations.
• Local Area Energy Planning (LAEP) approaches, with strong local authority leadership, can create well-targeted and evidenced Net Zero investment and infrastructure plans for localities, towns and cities. This can support better decision-making, and help regions (including community led initiatives) take a lead in delivering green recovery and growth nationwide. Government support for the national roll out of LAEP could be a key policy measure to ensure that community energy projects are designed in ways that are closely aligned with local social, environmental and economic priorities.