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It is important to remember that most of the countries considered by this project have privatised and liberalised their electricity supply industries to varying extents and along different vectors; this is the complex context in which we attempt to describe the range of potential benefits arising from avoided investment in energy supply infrastructure. Whilst a thorough assessment of these benefits could only be achieved by detailed nation-specific investigations, here we qualitatively describe generic benefits which might be found, to greater or lesser degrees, in any typical supply system.

Distribution network investment deferral

The maintenance of distribution networks is the responsibility of distribution network operators (DNOs). In liberalised and unbundled energy industries these market actors depend upon maintaining system integrity for their revenue; this is, therefore, their primary interest. Furthermore, DNOs have a corresponding interest in reducing capacity strain which is commonly the cause of supply interruptions.

Investment in distribution infrastructure has generally been maintained since privatisation because of the reliability-based revenue stream. However, due to extraneous system developments such as decentralisation of power production (whereby generation assets are connected directly to the distribution network as opposed to the high-voltage transmission grid), there is increasingly fractious debate over which actor (DNO/generator) pays for local grid reinforcement. These debates frequently lead to prolonged inaction and even evasiveness about the location of network ‘pinch-points’ in a form of industrial brinkmanship, from which the end result can ultimately be system breakdown and outages for consumers.

Reduction in demand is a comparatively obvious solution to many of these problems. High-rise buildings are connected directly to the low-voltage distribution network, whilst high-rise estates (depending on size) might be connected to the high-voltage distribution network via a transformer. These constitute relatively significant draws on local supply, and any reduction in the size of these loads will reduce or defer the need for asset upgrading in local distribution wires, connection points and power conditioning equipment.

Generation capacity investment deferral

Demand reductions from electricity consumers lead directly to decreased loads for generators. This can yield benefits in both ‘modern’, privatised markets where generation capacity strains are present as well as CEE markets with ageing generation portfolios.

In countries with modern generation assets competition and falling electricity prices have created a situation whereby generation companies are increasingly risk-averse and less inclined to invest in new capacity. Combined with other factors such as a widespread ageing of the generation fleet (especially coal and nuclear assets), marginal surplus capacity is being eroded and supply failures are becoming more prevalent. In fully privatised markets investors prefer small to medium scale generation plant which can be brought on line relatively quickly, for significantly less capital costs than large centralised plant, and which have payback periods measured in years instead of decades.

Generation capacity shortages are an immediate concern for any government because of the vital and unique role electricity supply plays in any nation’s welfare and economy. Where rapid privatisation and competition has reduced total supply capacity, demand side energy efficiency is a low-cost option for safeguarding supply when private sector motivation to invest in new capacity is deficient.

In countries with ageing generation assets, private generation companies often lack the resources required to bring new plant online and keep pace with demand. In such instances, demand reductions offer a partial, short-term solution, allowing for the extended maintenance of system integrity and the deferment of costly capacity investment.

Increased system reliability

In modern electricity markets the competitive privatised generation sector has produced a number of both positive and negative effects. Where competition has been installed electricity prices have usually been driven down. This trend has reduced profit margins for generators, and many have resorted to mothballing their unprofitable ‘spinning reserve’ . This situation increases the risks of shortages especially at peak demand periods.

As has already been alluded to, system reliability can be adversely affected by a number of factors and these vary across the EU area. Demand reduction is perhaps the only single measure that can offer a potential solution (at least in the short term) to all factors adversely affecting supply reliability. Furthermore it can do so without the need for excessive capital costs, which are frequently the critical factor in the feasibility of new energy projects.

Resource conservation and reduced fuel requirements

Resource conservation is a key goal of any nation, and this is especially true of those nations that are heavily dependent upon imported fuels. As EU-sourced fuel reserves decline, the proportion of imported fuels is set to rise. Not only is the importation of primary fuels comparatively expensive, but it is also not without risk. Imported supplies must first be sourced, and then transported to home markets, and this lengthy process can be interrupted by political, economic and militant action. With increasing worldwide geopolitical risks, these concerns will become more acute.

Whilst energy efficiency can be promoted in both the supply side and the demand side, there is significantly greater scope for resource conservation on the demand side (and, therefore, carbon savings), which can also be achieved at a significantly lower unit cost. Resource conservation is seen as a complimentary measure to the diversification of national fuel mixes in terms of safeguarding primary energy reserves against the risks associated with supply interruptions.

Reduced price variability

Heavy dependence upon a restricted number of fuel sources increases market susceptibility to fuel shocks. This is especially true for countries with real-time electricity trading and countries where the privatisation process has run down stored reserves or brought about a dependence on imported fuel. It should be remembered that it is not absolute fuel shortages that are a concern (at least in the short to medium term), but economic sources of fuel that are the priority for policy makers. Where economic fuel sources are perceived to be threatened, markets react rapidly and the resultant price spikes create unfavourable conditions for market participants. This in turn can drive market players away to more stable markets, and with them direct investment. Reducing demand by increasing energy efficiency in homes acts as a buffer against price variability and makes the market more attractive to investors. Because of the considerable proportion of total energy consumed by the residential sector, the scope for price volatility minimisation is likely to be significant.