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Programme launch: Clean Energy Cities

Stephen Lorimer   •   31 May 2022


Earlier this month, Centre for Net Zero travelled to Paris for ChangeNOW, the world’s largest gathering of innovators and start-ups seeking to address the climate crisis. 

Our team is interested in how the future energy system will look, feel and deliver for places and their communities –  and how we can make it a reality. We’re particularly focused on place-based energy transitions, which is why we were delighted to launch our new research programme, ‘Clean Energy Cities’, at the summit and share some early results with the mayors of Paris, Amsterdam, Budapest, Salvador and many more. 

Why are cities key to the energy transition?

António Guterres, Secretary-General of the United Nations, said that “cities are where the climate battle will largely be won or lost”. At Centre for Net Zero, we believe that cities should see themselves at the centre of a just, green energy transition. They can, in the words of the IEA, unlock resilient, smart, sustainable urban energy systems for a truly green recovery to the pandemic. 

This is why we’re building an energy flexibility classification from representative cities from around the world to understand both the scale of the challenge and how cities can achieve just energy transitions. In an era of renewable energy, flexibility will be critical if cities are to successfully deliver affordable, clean energy to their residents and businesses 24 hours a day, 365 days a year.

What is the scale of the challenge in urban areas?

Two-thirds of worldwide industrial energy demand comes from heating and over a third of all oil consumption worldwide is used for transport. Meanwhile, climate change is increasing demand for cooling: installations are due to rise by 40% from 2021 to 2030. As we transition to renewables, electricity will take on these uses – and we found that in an ‘unmanaged transition’ scenario, this can push electricity demand in a peak hour to triple a typical hour of use in a city today.

The old system of piping in all the electricity from generators into cities isn’t fit for purpose; local wind and solar generation is cheap, and oil and gas generation is expensive. This is why electricity system operators are predicting that flexible energy resources will be needed at the order of four times that of today to manage the energy transition. 

When flexible energy resources are in short supply, some jurisdictions are responding with variable wholesale pricing. In the graphic to the left of Texas, we see Houston’s wholesale rate reaching $317/MWh (deep red, right, few resources) while the rate near Corpus Christi (deep purple, right, many wind resources) is negative $883/MWh.

Without cities taking the lead, residents and businesses will pay more for this kind of unconstrained energy transition via their energy bills. Wholesale markets will penalise cities that don’t incentivise local generation and storage. Prices in these cities will likely surge, increasing fuel poverty for many of their residents. 

How will local energy transition pathways differ?

We’re gathering data from representative cities around the world to understand how the scale of the challenge will soon be affecting them, and what their energy transition pathways could look like. 

Part of the challenge is demographic – how many residents and businesses there are and how much land it uses. Another part of the challenge is decarbonisation – how much generation, heating, cooling, and transport power will soon be supplied by renewable electricity. 

Cities that reap the rewards of cheap renewable electricity in the future will need flexibility to operate effectively. A city’s urban structure and setting can make it easier to use local generation and storage – something we’ve labelled ‘urban flexibility’. Another part of the solution is ‘consumer flexibilityhow aware people are of energy flexibility, innovation in the wholesale and retail electricity markets, and their level of digital skills. 

What did we present at ChangeNOW?

To bring the concept of the city as both the problem and the solution to life, we presented five types of cities to mayors at the summit:

  • Paris: the 15-minute city. Typical of a large Western city, the proximity of different uses makes this ideal type of place to take advantage of urban flexibility
  • Singapore: the free market city. Typical of a large isolated city in the Global South, the demographics of this place are favourable for consumers to take the lead in flexibility
  • Buenos Aires: the city of potential. Typical of a connected city in the BRICS in the Global South, this type of place is able to use the large potential for local generation to its advantage
  • Stockholm: the distributed city. Typical of a spread-out city with nearby natural resources, this place has local generation at its disposal for use by consumer flexibility
  • Nantes: the available city. Typical of a dense city with nearby natural resources, this type of place has local generation at its disposal for use in urban flexibility

What is the role of ‘price elasticity’ and flexibility?

If we accept that future peak electricity demand is unsustainable, what is the answer? How can we incentivise people to use energy at different times?

Our relationship with Octopus Energy means we know that consumer awareness, digital skills and smart tariffs can motivate people to save money and the planet. Studies undertaken with users with smart thermostats show that people are willing to shift their energy to earlier, cheaper hours, and Octopus Energy’s work with National Grid shows that people have turned heating demand down by around 40% if asked in a one-off event

Energy economists promote the use of ‘price elasticity’ – or raising prices for consumers in peak hours to reduce use. Centre for Net Zero’s work with academic partners on price elasticity tells us that the most motivated consumers can reduce their demand by up to 60% in a peak hour with a dynamic price ‘spike’ to reflect the increased wholesale rate at that hour. Current net zero policies for heating and transport in ‘15 minute cities’ suggest that we’ll need to similarly shift up to 60% of energy demand from peak to off-peak hours by 2030. 

What is the impact of ‘urban flexibility’?

We believe that place matters in cities with decarbonised and electrified heat and transport. The proximity of residential and non-domestic uses in cities can enable a cheap and fair future electricity system, thanks to their different energy demand profiles over a day. The roofs of buildings and available land near cities can generate local solar and wind energy needed to reduce demand across the day – and batteries charging at night can reduce peak demand further.

In ‘15-minute cities’ like Paris, we believe the coupling of electricity demand, generation, and storage can account for about half of future shifting. Using local climate targets for 2030, this could require shifting 10-20% of heating and cooling peak demand and 30-40% of EV charging demand to other hours of the day. 

In ‘cities of potential’ like Buenos Aires, this is more uncertain, meaning ∫5-20% and 15-40% of peak demand shifting by 2030

What about ‘consumer flexibility’?

Consumers today that use real-time pricing, like Octopus Energy’s Agile tariff, are tech-savvy, eco-conscious and interested in saving on their bills. As real-time pricing is more widely adopted, we expect to see these characteristics become more commonplace within populations. 

In a ‘15 minute city’ such as Paris, where awareness and digital skills are relatively high and pricing innovation is implemented, 5-10% of heating and cooling peak demand could be shifted to other hours of the day and 15-20% of EV charging demand could similarly be shifted. 

In a ‘city of potential’ like Buenos Aires, where the levels of digital skills and pricing innovation are similar, future consumer flexibility is more uncertain, but it can account for the shifting of another 5-15% of heating/cooling and 5-20% of EV charging peak demand. 

So what is the result?

Remember that an unmanaged energy transition could triple a typical peak hour of today in 2030? In our two examples, 25-30% of heating and cooling demand and 55-60% of EV charging demand in a peak hour can shift to other hours of the day. This will slow electricity growth for a peak hour in Paris from 2020 to 2030 from around a tripling to a doubling, and for a peak hour from 2020 to 2030 in Buenos Aires from more than a tripling to between a doubling and a tripling. 

By leveraging a combination of urban and consumer flexibility, there is a significant opportunity to shift demand from peak times to other parts of the day and realise faster, fairer, and more affordable local energy transitions. 

What’s next?

We’d like to take this opportunity to thank C40 Cities and the World Resources Institute for their support with this project so far. We’ll be releasing the full results of this programme later in the summer – so watch this space!