Financing smart local energy systems: A conceptual framework and research agenda

Fabián Fuentes González; Janette Webb; Maria Sharmina; Matthew Hannon; Timothy Braunholtz-Speight

doi:10.1016/j.erss.2024.103915

Financing smart local energy systems: A conceptual framework and research agenda

Fabián Fuentes González^*, Janette Webb, Maria Sharmina, Matthew Hannon, Timothy Braunholtz-Speight

^*Corresponding author for this work

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Abstract

Smart local energy systems (SLES) are expected to contribute to meeting net zero carbon emission targets, as well as enabling energy decentralisation, democratisation and digitalisation. There are, however, unresolved questions about finance. We extend the existing corporate governance and risk management model CLASS to a new CCLLASS model. The model is used to explore pathways to SLES investment through securitising future cash flows. Case study evidence is used to explore governance and risk management practices suited to building investor confidence in securitisation. Several governance and risk management measures already in place support implementation and operation of securitisation, and should strengthen investor confidence. There is however scope for improvement in several elements, including final market architecture and explicit characterisation of benefits to localities. Further research is needed to test feasibility of a SLES future cash flow securitisation mechanism, including quantitative asset aggregation and systematic comparison of securitisation and other financial instruments.

Original language	English
Article number	103915
Journal	Energy Research and Social Science
Volume	119
Early online date	29 Dec 2024
DOIs	https://doi.org/10.1016/j.erss.2024.103915
Publication status	Published - 1 Jan 2025

Funding

The above definition is also useful as a means to identify examples of SLES tested in different locations. For instance, the UK Industrial Strategy Challenge programme provided investment in the Prospering from the Energy Revolution (PFER) Challenge [ 31\u201334 ], enabling development and evaluation of several SLES demonstrators [ 35 ] and designs [ 36 ]. Another example is the Smart Islands Energy System (SMILE) project, funded by the European Union's Horizon 2020 research and innovation programme, with the aim of demonstrating distinctive smart energy projects in three different locations, i.e. Orkney in Scotland, Madeira in Portugal, and Sams\u00F8 in Denmark, and promoting the market introduction of related technologies [ 37 ]. Table 1 depicts the main features of these programmes, two examples of SLES supported by such initiatives, and their correspondence with our definition of SLES. This work is part of the EnergyREV research consortium. EnergyREV was established in 2018 (December) under the UK's Industrial Strategy Challenge Fund, Prospering from the Energy Revolution programme. It brings together a team of over 50 people across 22 UK universities to help drive forward research and innovation in Smart Local Energy Systems. This research was funded by UK Research and Innovation, grant number EP/S031863/1. A CC BY or equivalent licence is applied to the AAM arising from this submission, in accordance with the grant's open access conditions.

Keywords

Smart local energy systems
Asset securitization
Corporate governance

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.erss.2024.103915

Fuentes González-etal-ERSS-2025-Financing-smart-local-energy-systemsAccepted author manuscript, 2.04 MBLicence: CC BY 4.0

Energy Revolution Research Consortium - Core - EnergyREV (ISCF)
McArthur, S. (Principal Investigator), Ford, R. (Co-investigator) & Hannon, M. (Co-investigator)
EPSRC (Engineering and Physical Sciences Research Council)
1/12/18 → 31/03/23
Project: Research

Cite this

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abstract = "Smart local energy systems (SLES) are expected to contribute to meeting net zero carbon emission targets, as well as enabling energy decentralisation, democratisation and digitalisation. There are, however, unresolved questions about finance. We extend the existing corporate governance and risk management model CLASS to a new CCLLASS model. The model is used to explore pathways to SLES investment through securitising future cash flows. Case study evidence is used to explore governance and risk management practices suited to building investor confidence in securitisation. Several governance and risk management measures already in place support implementation and operation of securitisation, and should strengthen investor confidence. There is however scope for improvement in several elements, including final market architecture and explicit characterisation of benefits to localities. Further research is needed to test feasibility of a SLES future cash flow securitisation mechanism, including quantitative asset aggregation and systematic comparison of securitisation and other financial instruments.",

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AU - Hannon, Matthew

AU - Braunholtz-Speight, Timothy

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Financing smart local energy systems: A conceptual framework and research agenda

Abstract

Funding

Keywords

UN SDGs

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Projects

Energy Revolution Research Consortium - Core - EnergyREV (ISCF)

Cite this