Compounding the issues surrounding grid balancing, there are policies in place to promote distributed, small-scale renewable energy capacity. For example in the UK government subsidies are for consumers to erect wind turbines and rooftop solar panels for self-consumption. These consumers can then sell back their electricity to the grid. Changing the existing grid model from one where mainly centralised power sources supply electricity to one where a combination of centralised and distributed sources supply electricity. Making it difficult for utilities to control power flow in the system to meet consumer demand. Studies in Belgium suggest that the integration of more than 7% of distributed wind capacity in the power mix can cause problems in the distribution network, although NRG EXPERT generally accepts that systems can up to 20% without affecting balancing.
Furthermore, the electric grid system is a major source of carbon emissions. Worldwide power generation and transmission cause 25.9% of global carbon emissions. Therefore any reduction in energy losses or consumption in the system could count towards carbon reduction targets. To reduce consumption, from the utility’s point of view, it makes more sense to reduce electricity consumption by reducing peak demand. Power plants that meet this peak demand are idle for the majority of the time, and many of these power assets in the US and in other developed countries are near the end of their life. Therefore, reducing peak demand reduces the need for utilities to build new capacity that is only used for a few hours of the day. It also potentially increases profits for utilities because at peak demand times wholesale electricity prices are considerably higher than electricity prices for consumers, diminishing profit margins for the utility. If peak demand is reduced, the utility has to buy less peak electricity, especially important as utilities have shrinking reserve margins and commodity prices are extremely volatile. In the PJM East region in the US, during the summer time wholesale electricity prices soared at peak times.