10 November 2016

Government has today published its long awaited call for evidence on creating a smart, flexible energy system, which is available here

We have picked through the 100 pages for some of the highlights for our members, and given some thought to some of the key areas we will be focusing on and in our response.

Overall
There have been signals from government that smart energy is a key area of policy focus, with Ofgem’s work on flexibility and the National Infrastructure Commission’s report on Smart Power.

This call for evidence takes this to the next stage by starting the detailed work on tackling policy and regulatory barriers. Generally it doesn’t reach conclusions, but sets out options and calls for further evidence.

It is interesting to see how the government views its role as a sort of neutral enabler “we want to create a system that allows disruptive innovation…New business models could challenge incumbents… Where these could bring overall benefits to consumers, we should allow them to do so”.

Removing policy and regulatory barriers
One of the key discussions is on whether storage is being double charged for use of the network and ‘final consumption levies’. There is a statement that ‘our view is that storage should pay network charges for both import and export, as it uses the network for both’. However, the door is left open on other charges with Ofgem tasked to do further work.

There is also pressure on Distribution Network Operators (DNOs) to provide ‘clarity on the connection process for storage’ and an interesting discussion on how they could be proactive in encouraging storage to connect where it would provide benefits for other connecting customers.

Other key points include:

  • Defining the legal status of storage ‘for the time being’ as: 'a storage facility is a form of electricity generation station’.
  • A range of options for a new definition of storage in secondary or primary legislation.

One of the questions running through the document is how a provider of flexibility can access the value they are creating. There is seen to be a key role for aggregators to ‘combine and sell flexible load adjustments and on-site generation flows from multiple consumer sites’. The document has an extensive discussion of how aggregators access to balancing services can be improved.   

Providing price signals for flexibility
Our work on storage and demand side response has shown us that the way the network is charged and providing access to half hourly settlement for all demand customers is key to developing flexibility business models.

BEIS introduces the concept of ‘system value pricing’ where flexibility solutions compete based on their value to the whole system. There is a discussion of the relative merits of more sophisticated pricing of use of the network according to where and when demand or generation takes place and/or parties such as the System Operators and DNOs procuring flexibility.

The clear implications of the discussion is that a proper review of network charging is needed – as set out in our recent paper on “Network Charging for Flexible Future” and in recent comments from National Grid CEO John Pettigrew. We would welcome a clearer commitment to this review than is in the document.

Instead of that much needed review Ofgem has clearly backed itself into a corner with its short term review of ‘embedded benefits’ which sends precisely the wrong signals to encourage flexibility and distributed generation.

Given the slow progress and complexity of changing charging arrangements it seems likely that National Grid and DNOs creating platforms where flexibility providers can bid for contracts for specific services is likely to be the short term way of approximating ‘system value pricing’.

There is a clear statement that deemed export under the Feed-in Tariff will end once smart meters are in place enabling “time of export” tariffs.
 
A system for the consumer
This section discusses:

  • The role smart appliances and how key challenges such as data privacy can be tackled
  • How electric vehicles can be incentivised to charge and discharge in ways that provide benefits rather than challenges to the system
  • How customers can engage in demand side response. It would be fair to say this is at a fairly early stage in terms of analysis and suggestions.

 
The roles of different parties in system and network operation
DNOs have been changing rapidly in response to the huge increase in distributed generation. There have been various signals from Ofgem  but the call for evidence provides the clearest statement from BEIS and Ofgem to DNOs that they need to evolve to cope with the changing system. The document confirms DNOs should change to “Distribution System Operators” (DSO).

There are several references to “market platforms” where DSOs and the System Operator “collect bids and offers for flexibility actions from distribution-connected providers”. The diagram below illustrates how these could work:
  

Innovation
BEIS is allocating £50m to innovation in smart technologies and processes over the next five years. It is proposing focusing this on:

  • Commercial and residential automated Demand Side Response (DSR) trials
  • Flexibility trading/optimisation platforms
  • Storage costs
  • Vehicle to grid demonstrations

Regen priorities
We will be engaging with BEIS, Ofgem as well as DNOs on the call for evidence at the session at Renewable Futures and beyond. In particular we are focused on:

  • Identifying the key barriers and enabling actions that need to be addressed to accelerate storage technology development and market growth. See our report on Energy storage – towards a commercial model for more information
  • Enabling local balancing through market platforms and local supply models, building on knowledge gained from trials such as the Sunshine Tariff, and our work on innovative local energy business models.
  • Building on the ideas set out in our paper on “network charging for a flexible future”. The network charging methodology clearly has an important role to play in a ‘Smart and Flexible Energy System’. Our view is that in this area BEIS and Ofgem are essentially propping up incumbent business models.

We encourage members to feed in their views to me on tbourne@regensw.co.uk and to attend our session with the BEIS at Renewable Futures on 29 November.

The session will focus on local approaches to smart power on which BEIS are keen to develop their understanding and thinking on further. In particular the role of local organisations as trusted intermediaries in the uptake of smart energy solutions and opportunities for balancing supply and demand at a local level. We hope to see you there.

Author: Tamar Bourne

Contact: tbourne@regensw.co.uk