08 March 2017

At a big picture level the direction of travel towards decentralised, flexible energy is clear. This transformation is driven by disruptive innovation, not government action.
However, for those trying to make business models stack up at the moment, BEIS and Ofgem’s ‘smart systems’ action plan due in a few months will be a critical document. We have been reading the runes as to what to expect.
You can hear first hand from Gemma Huett, head of flexibility markets at BEIS, at Smart Energy Marketplace on 28 March.
1)      Storage

Creating a clear regulatory framework for energy storage is a basic requirement for this plan. We can expect action on:

  • A legislative definition of storage. Primary legislation is the clearest route, but with Brexit there won’t be much time for energy bills and so Ministers might prefer the easier option of an Ofgem modified generation licence. As we flagged up the recent CfD announcements contained a new definition of storage.
  • Planning guidance for storage sites.
  • Ensuring storage doesn’t pay ‘final consumption levies’ network costs when it charges and when it discharges (whilst avoiding creating loopholes in the charging regime).
  • Trying to be clear how storage interacts with FiT and RO etc – without rewriting lots of different bits of legislation.

For more information on storage see our paper “Storage: Towards a Commercial Model” or come to the storage sessions at Smart Energy Marketplace.
2)      Flexibility Markets

Another obvious pillar of the plan will be ensuring there are clear markets to value flexibility. Areas of focus are likely to include:

  • Simplifying the 25 odd different value streams for flexibility. The System Operator has talked about whether these could be reduced to two markets: response and reserve services.
  • Ensuring flexibility markets enable value to be stacked appropriately, for example between Capacity Market and frequency response.
  • There is likely to be lots of focus on the SO and DSO interface. Essentially the aim will be the needs of the overall system can be addressed at the most appropriate point, whether that is the transmission or distribution system, and that there is a market for third parties to address those needs – rather than relying on new build solutions.
  • The area that we expect to be less developed is the DSO interface with local flexibility sources. Regen is working with a number of businesses, communities and local authorities interested in local energy markets and how they can provide value to the system. There are a range of views as to how BEIS and Ofgem can enable these approaches from ‘just get on with it’ to ‘more trials needed’.

There is useful information on this area on National Grid’s Power Responsive website and, of course, lots of discussion and debate at Smart Energy Marketplace.
3)      Smart Homes

Enabling domestic customers to benefit from smarter use of  power, whilst ensuring consumer protection, is likely to be the another key area.

  • Smart meters are, of course, already being rolled out (albeit slowly). Elective half hourly metering is also coming in so customers can opt into schemes such as time of use tariffs.
  • Product standards for smart energy devices have been signaled as another important area. As awareness of of cyber security develops, consumer protection could be the biggest challenge of all.

There is some insight into the potential at a domestic level from the results of the Sunshine Tariff Trial we published recently which tested out demand side response at a domestic level, through the local community, as a way of addressing constraints on the network.
Regen described storage in our recent paper on commercial models as an ‘unsolved Rubik Cube’. If BEIS and Ofgem can address some of the uncertainties in the market that will be an important step forward it providing clarity. However, Ofgem’s recent embedded benefits ‘minded to’ decision is a reminder there will always be regulatory risk in the energy market. In that decision Ofgem state that prudent investors know charging for use of the grid can change - a clear ‘buyer beware’ signal. Ofgem have announced they are planning a fuller Targeted Charging Review. It will be important to engage early and positively in this thinking.

Author: Merlin Hyman

Contact: [email protected]