What’s going on?

Matthew Lockwood, IGov Team, 7 September 2017

In July this year, at the IGov2 Advisory Group meeting, a widely made point was that there are multiple initiatives to do with the emerging future energy system in Britain at the moment. The landscape is very busy, crowded and potentially confusing. As part of trying to better define for ourselves where IGov2 fits in, we said we would try to provide an outline mapping of what is going on. Once we started we realised that this is of course trickier than it sounds – it’s potentially an endless task, and of course, especially at the moment, a mapping exercise like this is out-of-date almost as soon as it appears. And we are bound to miss things out – so indeed if anyone reads this and feels they are not included but should be, let us know and we’ll update accordingly!

It is worth noting that much of the activity takes the form of stakeholder processes and reports, rather than actual change in policy or regulation, although there are some things happening in this space, including Ofgem’s Targeted Charging Review and the beginning of the debate on the next round of network regulation (RIIO2). And we are of course still waiting for the Clean Growth Plan, which is supposed to provide an overarching framework for decarbonisation. Where regulatory change is happening, it is does not always look particularly joined up, as my colleague Catherine Mitchell has recently argued.

In the debate on the future energy system, a commonly discussed issue is whether there needs to be more coordination, especially during the rapid transformation that is widely expected. So another interesting question here is whether all these initiatives and reports are themselves coordinated (and how far that matters). Last year’s BEIS/Ofgem Call for Evidence on a Smart, Flexible Energy System noted the ‘wide range of related current and future work, trials and models’ on roles and responsibilities in the future energy system, but also argued that ‘it is important that progress is co-ordinated and not duplicated…’. In our view, simply because of the sheer amount of activity going on, there is a real danger that this is not the case. In this context, this post is partly intended to help join some of the dots.

With these thoughts in mind, here are some of the recent and current developments (in a blog post titled in homage to Marvin Gaye’s classic 1971 hit):

1. Industry fora and initiatives

Since 2011, the Smart Grid Forum has been one of the main hubs for analytical work on smart networks. This involved work on scenarios, cost-benefit analysis and commercial and regulatory barriers. Much of its work has been a bit inaccessible to date, but BEIS and Ofgem have now produced a more public facing Smart Grid Forum Portal. The Smart Grid Forum is now being merged with the Electricity Networks Strategy Group to form a Smart Systems Forum.

Set up in October 2015, Power Responsive is a stakeholder-led programme, facilitated by National Grid, with assistance from Sustainability First, to stimulate increased knowledge about and participation in DSR and storage. It holds events, produces guides and ‘state of the market’ type reports. The initiative is part of Grid’s Future Energy workstream which also includes the FES publications (see below).

The Energy Networks Association’s Open Networks Project, launched in January 2017. This was originally labelled as being about the T&D interface, but has now been renamed in a wider way. This is a stakeholder group effort including all the distribution network operators (DNOs) and National Grid, along with government, Ofgem and academic partners. In 2017 the four objectives are:

1. improved coordination of transmission and distribution planning, connections and shared T&D services;
2. improving the experience of network customers;
3. a more detailed view of the required transition from DNO to distribution system operator (DSO); and
4. considering the charging requirements for future networks.

Initial outputs from these workstreams can be found here. The Open Networks Project is part of the ENA’s wider programme on Future Networks, which also includes workstreams on EVs, Flexible Connections, Network Innovation and Smart Grids.

Closely related to the ENA’s project, a couple of DNOs have produced draft strategies on transforming themselves into DSOs. UK Power Networks has launched a consultation on its FutureSmart initiative, while WPD has a similar consultation out on its draft DSO Strategy. WPD also conducted a consultation on the future of electricity storage, including potential future growth and operating behaviour. The company is also trialling a new DSR platform, Flexible Power.

The Future Power Systems Architecture (FPSA) projects have produced a number of reports on changes needed to the electricity system (see below), but FPSA is now evolving into a stakeholder process under the heading of ‘Enabling Frameworks’. The idea seems to be that these frameworks will involve convening the key stakeholders for particular elements of the system where reform is needed, and work with these stakeholders to identify and implement solutions. Government has invested in the FPSA programme and is likely to continue to do so.

Sustainability First’s NEW-PIN initiative (launched July 2015) brings together industry actors, consumer representatives, regulators and government to try to think about what the long-term public interest in energy and water looks like, and how to balance short-term pressures with the development of innovation, resilience and long term affordability. It works through workshops, capacity building and publications aimed at influencing thinking in regulation and government. NEW-PIN outputs can be found here.

Regen holds a large number of stakeholder events relating to energy system transformation. Recent events have focused amongst other things on: storage (here and here), community energy (see here, here, here and here), smart energy (here and here). It has a close relationship with the local DNO, Western Power Distribution, and holds a quarterly WPD DG Owner/Operator Forum.

Forum for the Future has set up the Living Grid project, involving SmartestEnergy and Open Energi, which has a focus on trying to get energy consumers, especially organisations, to become more active in the system.

Also worth mentioning here, while not strictly speaking an industry forum, is Ofgem’s Regulatory Sandbox, which allows industry actors to explore new practices and business models outside of the usual regulatory constraints. It includes a trial of blockchain technology led by EDF.

2. Scenarios, analysis and reports

Future of the electricity system

The big one here is the 2016 BEIS/Ofgem joint call for evidence on a Smart, Flexible Energy System and the subsequent 2017 response. This is nominally about the whole energy system but in practice focuses mainly on electricity. The call for evidence was fairly comprehensive, covering the need for flexibility, policy and regulatory barriers (focusing mainly on storage), price signals for flexibility including smart distribution charging, consumer engagement with the demand side, including the role of EV charging, cyber security and the role of different parties in both system and network operation. The response document appears mainly to reference existing policy and regulatory developments, such as the reforms to the System Operator, the RIIO2 process and Ofgem’s Targeted Charging Review on network charging.

The last two years have also seen a plethora of other reports coming out on a transformed future electricity system. In February 2016, Energy UK released a report on Pathways for the GB Electricity Sector to 2030, which covered a whole systems approach, system stability, energy efficiency, demand side response, decentralised generation, market design and governance arrangements. Also last year, the National Infrastructure Commission released its own assessment in Smart Power, which focused especially on the role of electricity networks. Think-tank Policy Exchange offered its own take on the future of the electricity system in Power 2.0: Building a smarter, greener, cheaper electricity system. This focused especially on the benefits of flexibility, and proposed reforms for regulation and market design.

Some of the most detailed, technical work on emerging changes to the electricity system has been done under the aegis of the Future Power Systems Architecture project, funded by DECC and developed by the Institution of Engineering and Technology and the Energy Systems Catapult. The main output form the first phase was a 2013 report looking in some detail at the future required functionality of the electricity system with decentralised generation, demand side flexibility and smart infrastructure. The second phase (FPSA2) has sought to open up the process to a wider group of stakeholders, and explore potential barriers, including regulatory and commercial, to realising the changes needed. A number of outputs, including a main synthesis report published this summer, are available here.

A particularly influential recent piece of work has been a report by Pöyry and Imperial College for the Committee on Climate Change on flexibility services in electricity to 2030. This analysis modelled the need for flexibility in the system under various scenarios and also put a figure on the potential value of these against a baseline. It is this work that has produced the figure of savings of £8bn a year from a smart flexible system by 2030, cited by the National Infrastructure Commission and many others.

Future of utilities and markets

Green Alliance produced Smart Investment: Valuing flexibility in the UK electricity market in October last year, with recommendations for reforms to the Capacity Market. The Energy Research Partnership is currently running a Utility 2050 project on where innovation and investment will come from in the 2050 UK electricity system, and in particular whether the traditional vertically integrated large scale utility model will be appropriate under scenarios with low carbon and flexible generation. It builds on existing ERP projects including  Managing flexibility whilst decarbonising the GB electricity system (August 2015) and Horizon Scanning (on-going). In its Wise Minds: The energy transition and large utilities report (August 2017), Forum for the Future has assembled insights from former senior figures in incumbent energy companies and government who are now active in the new energy economy on the implications of the changing system for large utilities.

Consumers

Last year Ofgem produced a think piece on Future domestic energy consumption, emphasising the potential rise of more active consumers and also the emergence of more third-party intermediaries. Ofgem also has a Smarter Markets programme looking at how the retail market will need reforming with advent of smart meters, includes potential reforms on switching, settlement arrangements, demand side flexibility, and consumer empowerment and protection. Meanwhile Green Alliance’s People Power: How consumer choice is changing the UK energy system (April 2017) also argued that the future energy system will be driven by active consumers, and that policy and regulation needs to embrace this coming model.

Also worth mentioning under this heading are some recent reports touching on costs to consumers. Last year KPMG produced a report on the long-term future of the gas network which out the potential costs of decarbonising heat ranging from £100 billion to over £300 billion. In a sense this presents the costs of investing in the next generation of infrastructure that will be needed for a future energy system. As networks are monopolies, it is key that they are effectively regulated if there is to be confidence that they are not extracting excessive profits from consumers, especially during a period of transformation involving major investments. However, two recent reports on returns to networks, one from Citizens Advice and one from the Energy and Climate Intelligence Unit, have cast serious doubts on the effectiveness of regulation and raised fears that consumers are being gouged (the latter report has provoked debate with the network industry – see here and here)

Future of heat

In addition to the KPMG report (see previous section), Smart Systems and Heat is an Energy Technology Institute programme, being delivered through the Energy Systems Catapult, to develop new heat technologies and software for a range of different types of buildings. The project runs over 2017 with a planned programme of large-scale demonstration projects to follow. There are 14 projects within SSH, ranging from studies of consumer behaviour to modelling of electric heat.

Whole system

Last year, the Energy Technologies Institute ran a project on Enabling efficient networks for low carbon futures looking across key issues in electricity, gas and in some cases heat networks. The project involved analysis from four authors from academia, industry and regulation, synthesised in the main report.

Another important reference document on the future of the whole energy system is National Grid’s Future Energy Scenarios report (with associated conferences, workshops and webinars). These have increasingly become open to the input of stakeholders outside Grid. The 2017 FES report explores the potential impacts of emerging technologies (including EVs, storage, smart meters) on the energy system under various scenarios.

Horizon scanning:

The Energy Research Partnership is currently running a Horizon scanning exercise seeking especially to take on new trends and developments in global and UK energy landscapes. Ofgem’s work on Insights for Future Regulation is a 2030 horizon scanning exercise, with external input from different groups. So far it has produced discussion papers on Future domestic energy consumption (2016), Local energy in a transforming system (2017)

Local market trials:

A number of municipal governments, including Nottingham and Bristol, have set up supply companies in recent years, some also contracting for local electricity generation. But there are also some trials of local market platforms coming through.

Using EU funding, Centrica are setting up a local energy market trial in Cornwall creating a virtual marketplace between renewable generators, commercial energy users as well as 100 households with demand side response playing a key role. The project was announced in December 2016 and has completed recruitment of participants as of August 2017.

On the other side of the country, Pixie Energy’s East Anglian Energy Market Innovation Project is seeking to build a local energy market around decentralised low-carbon technologies and demand side initiatives, working particularly with local authorities. It brings together a number of county councils with Cornwall Energy consultants (based on Norwich) and local DNO UK Power Networks.

Posted by: Iain Soutar

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