The group comprises experts from academia, trade bodies, public sectors, and veterans from the distributed energy industry, as well as analysts and policy experts from across the Department of Energy & Climate Change (DECC).
Role of the group
The Distributed Energy Contact Group (DECG) was set up by Greg Barker as an informal advisory group, to ensure due consideration is paid to distributed energy suppliers and generators during this period of market change.
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Terms of reference
The Electricity Market Reform White Paper made clear that distributed energy and local generation could have a much greater role to play, and should be seen as complementary to the wider centralised energy system. It also highlighted the importance of distributed energy for engaging consumers in their energy use and as an important step towards a more integrated and local approach that includes, for example, transport and waste. In line with this, the Government recognises the need to put in place the conditions to unlock its potential.
The Government Industry Contact Group on Distributed Energy is therefore being convened to monitor whether the framework which has been put in place is delivering the practical support intended, and to consider the barriers preventing distributed energy developing to its full potential. The Terms of Reference of the Contact Group are as follows:
- to build upon the framework contained in the White Paper by helping the Government identify the full potential of decentralised energy to support the objectives of the Electricity Market Review
- to help the government identify the barriers to decentralised energy delivering its full potential and the measures necessary to remove the barriers
Considering the benefits of distributed energy, the Contact Group will take as its starting point those which were set out in the White Paper, that:
- distributed energy can harness a wide range of smaller-scale renewable and low-carbon energy sources, so contributing to the decarbonisation of electricity and security of supply
- as it is local, it lends itself to community involvement and investment, and it can also reduce the need for transmission network reinforcement, since the electricity produced by distributed electricity generation is normally consumed locally
- distributed energy can act, especially when combined with community-scale heat storage, as an alternative to heat being generated from electricity, and therefore help manage demand on the electricity system - there is also potential for this heat storage to be charged by excess electricity generation resulting in further opportunities for demand side response
The Contact Group will also take as its starting point the barriers to distributed energy as being those which were alluded to in the White Paper, that:
- for independent generators including new entrants in particular, there is difficulty obtaining viable routes to market that meet their commercial needs and allow them to benefit from the Feed-in-Tariff (FiT CfD) and some capacity mechanism options
- for decentralised electricity generators and suppliers, there is difficulty managing the risks, costs and complexities associated with participation in the electricity wholesale and retail markets - some of these risks are outlined in the White Paper, including off take risks, balancing risks, credit terms, price risk associated with exposure to movements in wholesale and fuel prices and basis risk, being the market price achievable by the generator relative to the reference price in FiT CfD contracts
There is a need to quantify the extent and effect of these benefits and barriers, including with reference to others not referred to in the White Paper. In doing so, the objective of the Contact Group is, with a clear understanding of the direction of travel, to secure the place of distributed energy within the reformed structure of the energy market.