Andrew's view: How can we make the electricity system more flexible?
The way Britain generates and uses electricity is rapidly changing. Generation is becoming more distributed and variable, and smart meters are giving consumers new ways to manage energy use.
We would have to invest less in network capacity or power stations if we had a more flexible electricity system. More flexibility can encourage customers to use electricity outside peak times. This reduces demand at these times. More flexibility can also help increase consumption when it’s needed. Overall the market will be more efficient and innovative, and greater flexibility will help to engage and empower energy consumers.
To get there, we need a regulatory system that supports flexibility. We’re focusing on five priority areas, as part of a wider project with DECC.
Distribution Network Operators to manage power flows
Traditionally, DNOs have transported power from the national grid to customers. In future, they will need to manage power flows as Distribution System Operators. This is important, as there will be more renewable generators and electricity storage facilities within their networks. We will set out our expectations of DNOs and develop thinking on their future role.
Encouraging industrial customers to provide more demand-side response
Industrial and commercial demand accounts for more than half of electricity demand at peak times. Large users could benefit financially from being more flexible in when they use electricity. For example, making large refrigeration systems work harder when demand is low, so they can be turned down for short periods when demand is high.
We will work with them to show what opportunities arise from voluntarily offering demand-side response. And we will talk to industrial customers to understand their concerns and needs.
Aggregators coordinating businesses’ demand-side response
Some businesses have neither the time nor expertise to negotiate demand-side response contracts. So third party intermediaries (aggregators) are doing it for them. They coordinate demand-side response offers from individual businesses, bridging the gap between consumers and energy companies.
There is no current regulatory definition of aggregators, setting out their role and interactions with other industry parties. We will work with aggregators and the industry to agree expectations for what they’ll do, and how these interactions work.
Storing electricity could go a long way towards making the most of excess renewable electricity on sunny or windy days. Stored electricity could be released when demand is higher or when the network is less constrained. At times, storage can act like consumption (taking electricity off the network), and at other times like generation (putting electricity onto the network). We need to agree how regulation, charges and industry rules should change to reflect this, and how we go about change.
Distribution Network Charging
The priority work areas and flexibility generally may result in changes to the charges for using the electricity distribution network. Although this is a longer-term piece of work, we have started thinking about it already, so that we have a clear idea of the extent to which changes are needed, the advantages and disadvantages of different approaches and why.
We need to move quickly to develop policies in the first four areas. The position paper we published last September sets out our thinking. If you are interested in this work, we want to talk to you to make sure we have the right building blocks in place for a more flexible system. There will be plenty of opportunities for you to discuss these with us, especially when we publish our joint Call for Evidence consultation with DECC in spring. If you are interested in finding out more, contact the team.
Andrew Burgess, Associate Partner, Energy Systems, Ofgem.
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