2024 Outlook: Energy Flexibility in Commercial Buildings

2023 was the second hottest year on record in the UK, making the focus on decarbonisation ever more urgent.  

We’re more confident than ever that commercial real estate has a big role to play in the decarbonisation agenda, and that 2024 will be a turning point for this sector due to:

1. Financial support and product innovation continues to accelerate
2. Grid infrastructure investments being prioritised
3. Renewables booming
4. Energy regulations moving in the right direction
5. Businesses increasing their environmental accountability

Financial support and innovation for decarbonisation products 

Both in the UK and the US, funding routes are accelerating the shift towards all electric commercial buildings. 

Currently, commercial buildings only account for a small proportion of global heat pump sales with installations of heat pumps largely concentrated in new builds and family homes, but the IEA expects heat pump deployment to increase exponentially over the next five years. This is largely driven by aggressive policy changes, engineer and installer education improvements, and a growing commitment from firms under increasing pressure to meet net zero targets.

To support this shift in the UK, commitment to innovation in the decarbonisation space continues to grow with:

• The Industrial Energy Transformation Fund (IETF) opened in January this year. £185 million of the funding will go toward helping businesses, heavy industries and public sector organisations decarbonise.
• The Heat Pump Investment Accelerator Competition continues, granting £30 million this year in order to incentivise the manufacturing of heat pumps and their components in the UK.

Infrastructure investments are being taken more seriously

To meet our climate targets, grids need to operate in new ways and leverage the benefits of distributed resources, such as rooftop solar, batteries and all sources of flexibility. This includes unlocking the potential of demand response and energy storage. 

The increased role of flexible energy offers commercial real estate the opportunity to participate in these ancillary energy markets, leveraging their energy use to support the grid with flexible demand.

For years, pressure on grid improvements have been mounting, and just in November 2023, the UK Government announced major plans to speed up connections and rapidly increase capacity on the electricity grid, along with a £960 million investment in green industries.

This investment, combined with policy changes such as the Connections Action Plan, published jointly with Ofgem, will overhaul the way projects access the electricity grid, releasing over 100 GW of capacity from the grid connections queue. 

Renewables continue to boom

If 2023 is anything to go by, 2024 will continue to see strong performance in renewable energy generation for the UK.  

Milestones hit in 2023:

• In May, 2023, the UK had one trillion kWh of electricity generated from renewables. One trillion kilowatt hours (kWh) of electricity is enough to power UK homes for 12 years, based on average annual consumption.
• Data from National Grid analytics reveals that it has taken 50 years to reach this milestone, and, based on current projections, it will take just over five years to reach the next trillionth kWh.
• Renewable electricity generation in the UK surpassed 90TWh in 2023, a 10% increase from 2019, providing enough power for all of the UK’s 28 million homes the entire year.

Energy regulations progress decarbonisation and push for a step-change for flexibility

Regulations continue to move in the right direction for commercial buildings and energy flexibility. Announced just in December 2023, the EU’s ‘Energy Performance of Buildings’ law mandates zero emissions from fossil fuels for all new buildings by 2030, and for all buildings by 2050. This policy is forcing a fast track to emerge for this critical sector.

In an earlier blog, we spoke about how the recent energy regulation changes for aggregators are also driving a step change for energy flexibility. From November 2024, virtual lead parties (VLPs) will be able to sell their flexibility, not only to the National Grid ESO through the balancing mechanism (BM), but also to other consumers through the wholesale markets. Allowing VLPs to access the wholesale electricity markets will remove a barrier to consumers who want to offer flexibility. 

Corporates are taking more direct climate action and it’s supported by the energy regulators

The private sector is taking stronger routes to prove their green credentials. 2023 saw an increase in businesses investing directly in renewables and taking greater accountability for net zero. As just one example, the RE100 grew >16% in 2023, and total members' electricity consumption combined now consumes more electricity each year than France.

The RE100 is an initiative committed to purchasing only renewables.  The RE100 has over 400 members now including big names like Canary Wharf Group, Adobe and Airbnb.

This year, the UK’s regulator, Ofgem, is also amping up their support for businesses in the energy transition. Ofgem aims to enhance commercial consumer protection by introducing stricter regulations on contract terms and conditions offered by energy suppliers. This will ensure that commercial businesses are not subjected to unfair practices or unexpected charges within their contracts. These regulatory changes aim to promote fair competition and transparency in the energy market.