May 19 2017

Can the energy industry transition to a circular economy?

The Circular Economy is a term that is much used right now but not necessarily well understood. We currently live in a linear world. We take resources from the planet, make products and packaging, and then dispose of those resources. A circular economy envisages a world where all resources are kept circulating at their highest value for as long as possible. This is more than just ‘recycling on steroids’, as one of my colleagues jokingly called it this morning. If we think of all resources, not just materials, but heat, electricity, water, labour and even intellectual capital, then the move towards a circular economy means a rethinking of how our economic system works.

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The other interesting characteristic of a circular economy is that it aims to be more than just renewable; it aims to be regenerative or restorative. It’s harder to imagine industrial or technical systems that can make this happen. The inspiration is nature, the ultimate circular economy. This is why you will hear more people talk about the transition to the circular economy. It’s going to be a work in progress for a very long time, if not forever, as we keep radically changing and disrupting, and tweaking, the current system. While so many of the linkages in the current system are not well understood, the transition will be complex, take many wrong turns, and take time.

For those of us who work in the utilities sector, this kind of thinking is easier to understand. The systems that our businesses operate in are dependent on understanding resource flows and trying to find the most efficient way of moving those resources from place to place while investigating renewable alternatives to the finite parts.

It is worth remembering that the global demand for energy consumption will increase by 30% by 2040. At the same time, nearly 2 billion people still do not have access to reliable energy. A World Economic Forum article, published this week in the run-up to Davos states that:

“We’re in the midst of the Fourth Industrial Revolution, which….“builds on the digital revolution and combines multiple technologies that are leading to unprecedented paradigm shifts in the economy, business, society, and individually.” Therein lies an incredible opportunity for industry, customers, and the broader society as we transform the electricity system.”

For the energy sector, much of the excitement around the circular economy comes at the grid edge, whether this means hardware, software or new business innovations. Grid edge hardware is already well-developed, from distributed renewable energy generation, through to smart metering and building controls. The area with the most promise is probably around energy storage. The investment by companies like Tesla in its Gigafactory for electric car batteries and development of Powerwall energy storage, or Nissan through Nissan Futures, shows the importance of storage to companies with the ability to change the market.

Innovative software and the new business models come hand-in-hand with the grid edge hardware. The subsidies that pushed the renewable generation market brought with them a host of new types of ownership of these generation assets, particularly the rise of community ownership. Demand management is growing, enabled by the new technologies that allow real-time monitoring, especially for householders from their mobile phones. It is easy to imagine now a future where householders can choose how much energy they wish to use based on the price of energy at any given time, with those prices fluctuating in response to the market. Small-scale initiatives such as the Sunshine Tariff from the Wadebridge Renewable Energy Network are already demonstrating the demand for these types of services and also demonstrate how well different parts of the system can link up, with the renewables being supplied from PV owned by the community, on a site owned by South West Water.

At a higher level, in the Netherlands, there is now Europe’s first ‘self-healing’ underground power distribution network which re-connects 2/3rds of customers within 1 minute of an outage: only possible because of the developments in technology.

The examples above appear to show that the transition to the circular economy has started in the energy sector. It is possible to see the progress that can be made along some of the paths described above in terms of hardware and software. What is less predictable are the new business models that may appear, taking advantage of the changes in technology. And this is linked to the even less predictable changes in consumer habits, and products that we buy or lease, and the impacts that these, in turn, have on our energy networks. Will we all be using driverless electric cars in the future and will these be mobile energy storage devices as well as transport modes, as Nissan Futures imagines? What other devices that use energy might also become energy stores or even generators? For me, the exciting part of the transition to the circular economy is not knowing the answers. Let’s wait and see what the world’s innovators come up with.

This article first appeared in the Energy and Utilities Alliance magazine ‘Output’ In February 2017.

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