Swans swim on a lake close to Drax Power Station, operated by Drax Group Plc, in Selby, U.K., on Tuesday, March 11, 2014. Drax Group Plc, the operator of the U.K.'s biggest coal-fired power station, reported a 23 percent slump in full-year profit as carbon prices rose and it prepared to convert two more units to burn cleaner fuel. Photographer: Chris Ratcliffe/Bloomberg
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Improving Britain’s energy storage and managing electricity demand could save consumers up to £8bn a year by 2030, according to a report by Lord Adonis commissioned by the Treasury.

It could also enable Britain to meet its 2050 carbon emissions targets and secure the country’s energy supply for generations, the report says.

The findings come on Friday in the first report by the National Infrastructure Commission, which was set up by George Osborne, the chancellor, last year.

Lord Adonis, the former Labour peer who chairs the new quango, was given the task of writing three reports — on energy storage, Crossrail 2 and transport connections across the north — before this month’s budget.

The government is increasingly anxious about the potential for energy shortages with electricity supply at its tightest for a decade.

National Grid issued a warning in November after four power stations broke down, sending wholesale prices soaring. That led the grid to pay companies to reduce their power usage for the first time in history.

Concerns over how the network is run have even led to Whitehall officials drawing up plans to strip National Grid of its power to run Britain’s electricity supplies, it emerged on Thursday. The plans could see the operator run as a not-for-profit organisation, or even brought into government control, according to people close to the situation.

The news, which was first reported in The Times, weighed on National Grid’s share price, which fell more than 1.5 per cent on Thursday.

National Grid said: “There is little evidence that an independent system operator model would deliver value to justify the significant consumer costs and risks to security of supply.”

But the energy department said: “There is a strong case for greater independence for the system operator to promote more competition in our electricity system.”

The margins between peak supply and demand are expected to become even smaller as old coal-fired power stations are shut down ahead of 2025 and all but one existing nuclear power stations go out of service by 2030.

Much of this has been replaced with renewable energy in the form of wind farms and solar power, but this tends to produce more intermittent power.

Lord Adonis admitted this rapid change presents an “enormous challenge” to the government but said it also represented an opportunity to benefit from three “exciting” innovations: interconnection, storage and demand flexibility.

“We do not call for new subsidies or significant public spending but rather a level playing field through fairer regulation and a better managed network to allow these exciting new technologies to compete,” he said.

The report, “Smart Power”, urges more connections to cheap, green power supplies for example from Norway and Iceland. “Government should redouble its efforts to open new connections,” it says.

It recommends changing regulations to create a “level playing field” between energy generation and storage.

1%

Demand flexibility in the UK as a percentage of peak electricity demand. In some US states, it is 15%

At present, for example, only 1 per cent of the money from the government’s new capacity market — which pays for additional energy at short notice — goes to “load-shifting demand response” systems.

The report says there is increasing potential for energy storage in people’s homes using systems provided by companies such as Tesla and Moixa.

The energy department is supporting a demonstration project deploying household-scale storage in 250 sites to evaluate the role it could play in reducing peak demand.

But it admits that this type of technology — even if rolled out widely — is unlikely to reach a big enough scale.

The third recommendation is to encourage greater flexibility in demand for energy in several ways: piloting projects on the government estate, a public information campaign and improving regulation.

National Grid is already encouraging companies to sign up to a scheme where they are paid to turn power down or off — or switch to back-up systems — when demand is high.

Lord Adonis hopes that when smart meters are installed in all British homes it will help people save money by shifting demand to off-peak times.

At the moment demand flexibility in the UK is still less than 1 per cent of peak demand, according to the NIC report.

That is in contrast to the US, where some regional markets are able to meet up to 15 per cent of peak demand through flexible use — for example in the Pennsylvania, Massachusetts and New Jersey electricity market.

The group has based its claim of £8bn of savings on work commissioned from Imperial College and Cambridge university’s energy policy research group.

Additional reporting by Kiran Stacey

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