Power grid imbalances cause inefficiencies leading to higher prices, writes Phil Pearson

Economic theory can be described as the attribution of value based on changes in the supply and demand of a product or service. These principles permeate nearly all aspects of our lives, from monetary policy and consumer goods to the electrical grid. 

Phil Pearson headshot

Phil Pearson is a director of energy, infrastructure and renewables at Savills

Within the electrical grid, supply (power generators) and demand (consumers and their activities), must seamlessly coordinate, as electricity typically needs to be consumed as it’s generated. 

An imbalance results in either excess power, diminishing its value, or insufficient power, leading to price increases. It’s all about balance, delivering the right amount of power in the right place and time, all at a fair price for both generators and consumers. 

Yet, achieving this balance is increasingly challenging due to our shifting energy generation mix, transitioning from fossil fuels to renewables.

Renewable sources only produce energy when the natural resource is available, such as light, wind, and rain; all of which are beyond our control.

Additionally, changing consumer habits, such as increased use of electric heating and transportation, and higher data consumption, are driving up demand at an unprecedented pace.

These shifts have led to inefficiencies in the electrical grid, making it challenging to supply energy where and when required. As a result, network companies are limiting the amount of generation and demand that can connect to the grid in a certain area.

The impact of this cannot be overlooked, and it means that some projects currently waiting to connect to the grid will remain in the queue until late 2030.

These challenges are applicable to institutional investors and asset owners alike. For institutional investors seeking to invest capital in UK real estate, the absence of cost-effective and accessible power infrastructure is already limiting development.

However, this issue extends beyond the borders of the UK, impacting key European markets in the northern and western regions. At the asset level, the challenge manifests itself differently depending on the nature of the property and occupier it serves.

A landlord’s inability to provide sufficient power to decarbonise the asset poses a significant issue, as it directly impacts the availability of produce available to end-users and subsequently, the assets managers income stream.

To tackle these issues, we need to either enhance the efficiency of the system or expand its capacity.

If we start with efficiency of the grid, this requires consumers reevaluating their power usage habits. Currently, we enjoy unrestricted access to power whenever needed.

However, imagine a scenario where our power consumption is regulated during specific times of the day, either due to reduced demand or aided by technological solutions like energy storage to bridge the gaps. Such measures would significantly enhance the efficiency of our electrical grid.

As an example, our night time consumption in the UK can be as little as one-fifth of what we use at peak times, so there is plenty of grid capacity available at certain times of the day. We currently exacerbate this problem by designing a buildings’ grid connections based on the perceived power requirement, rather than using data to inform decision making.

If we look at a typical office building, operational data shows that they typically have over 100% more power than they actually need. This additional power is capacity which should be given back to the network companies, so it can then be allocated to another building or development.

If we want to build more grid capacity, we must transition from a reactive model, where capacity expansion is only possible through formal requests, to a proactive approach deeply integrated with the planning process.

Imagine a situation where as residential areas are being planned, we simultaneously develop the necessary grid infrastructure. By doing so, we ensure that power supply is instantly available as soon as the homes are completed.

The consequences of our current method are starkly evident in local planning processes, where often there’s no consideration for the available power resources to support the implementation of the plan.

In summary, by adapting our behaviour and utilising data to better understand power usage, employing technology to assist us in adapting our energy usage when behavioural change is not possible, and aligning network development closer with planning, we will be able to successfully deliver our future development and retrofit projects, thereby supporting our net zero ambitions.