Northern Powergrid, the company responsible for the network that keeps the lights on for 8 million customers across the North East, Yorkshire and northern Lincolnshire, has outlined its views on achieving smart, flexible energy systems which meet the needs of customers now and in the future.
Jim Cardwell, Northern Powergrid’s Head of Trading and Innovation, said: “A key part of the Government’s energy policy is that the country needs a more flexible and smarter energy system in order to manage the rise in local generation and the switch to more electricity being used for transport and heating. The scale of change taking place is already radical in some parts of our system and there is more to come in the future.
“A lot remains to be defined (access to data, regulations, roles and responsibilities for future distribution system operation, changes to network charges, innovation funding, etc.) in order for all parties to deliver a secure and reliable change to the energy system that is beneficial for customers. That is why Ofgem and the Department of Business Energy and Industrial Strategy (BEIS) issued a call for evidence and we welcomed the opportunity to respond to the consultation.”
Northern Powergrid outlined the following key points in its response:
- Energy systems across the world are experiencing change on many fronts, uncertainty about how new technologies will be deployed and political uncertainty. Berkshire Hathaway Energy, of which Northern Powergrid (NPg) is part, is seeing similar challenges everywhere it operates.
- The changes in the UK are particularly acute: the future shape of the UK energy system is not clear.
- The broad structure of roles and responsibilities in the UK system works well; indeed, Northern Powergrid see regulators in other jurisdictions moving towards the UK model.
- The challenge is to manage the system to allow for innovation and flexibility of outcomes without introducing unnecessary risks and undermining investment in the sector.
- Government and regulatory policy needs to recognise this and facilitate innovation, diversity and experimentation while also maintaining the coherence and stability of the system overall. This is an obvious pillar of any Industrial Strategy.
- In terms of policy development for BEIS and Ofgem, Northern Powergrid believes that particular weight should be given to innovations in the system that create flexibility, or those that provide option value – prioritising decisions (to either act or defer) that have low- or no-regrets associated with them.
- Northern Powergrid believes that more customer engagement and regulatory innovation will be needed to unlock the potential of smart appliances and demand side response – applications are more advanced in some US states, in part, because there are fewer barriers to this.
- The strategic priorities for the development of distribution charges need much clearer focus.
- Ofgem should address the barriers and distortions that competition in distribution has introduced to ensure the appropriate socialisation of certain costs.
- Network charging needs to be reformed to eliminate the scope that exists now for ‘free riders’ between customer groups and the perverse incentives that undermine fair cost recovery.
- Northern Powergrid sees a future in which DNOs charge more active customers through bilateral contracts or market platforms, with traditional charging structures remaining for passive customers.
- The transition to more active Distribution System Operators (DSOs) merits careful consideration. At a high level Northern Powergrid believes that the owner of a network is best placed to operate it, but there are clearly certain functions which sit between different players in the market.
- Both third party and network companies should be allowed to deploy and operate distributed energy resources (like storage) - these types of asset could be vital tools in managing networks and network companies should be given some space to innovate.
- The de-minimis thresholds in the distribution licences could be calibrated to permit DNOs to take controlled but valuable steps towards becoming DSOs, ‘priming the pump’ for more widespread competitive market-based mechanisms to emerge over the medium- and long-term.
- There needs to be a re-think of the funding routes available to support a ‘whole energy system’ approach for innovation projects that target the delivery of customer benefits from greater overall efficiency, widening the focus from the current ‘network only’ innovation.
- Northern Powergrid is committed to bringing its broad experience of running energy companies internationally to help the Government and regulators get the balance right and support economic growth.
This will be a major part of Northern Powergrid’s energy policy development work with both Ofgem and BEIS this year and it links directly to two key internal priorities for the region’s electricity distributor - developing a sector-leading innovation portfolio and considering the transition to a distribution system operator.
Anyone with questions about Northern Powergrid’s response or who would like to share their view at this time of significant change for the industry can get in touch.
Read Northern Powergrid's full consultation response here. The call for evidence document is also available in full here.
