Next steps in making electricity markets more flexible
Blog
Andrew Burgess
Publication date
Industry sector
Supply and Retail Market
Since I last wrote about making the electricity system more flexible, we’ve made a lot of progress. Our joint call for evidence with government, published today, shows where we have got to and asks for input.
The way energy is being generated and consumed is taking huge steps forward. The scale of change is unprecedented, and similar to what we’ve seen in telecoms in recent years.
This means new services and business models. It also means changes to the roles and responsibilities of some industry parties, and the arrangements which underpin the existing system. A more flexible system could reduce costs for consumers by between £17-40 billion by 2050 according to research by Imperial College and the Carbon Trust.
One way of doing this is cutting the costs of meeting peak demand and managing the grid. In turn this reduces the need to build large power stations and electricity cables.
Underpinning the electricity system are the two vast and complex systems of wires – the distribution and transmission networks. Traditionally these have been distinct networks but the distinction is blurring due to new technology, different forms of generation, and different types of customers.
Distribution Network Operators (DNOs) are becoming Distribution System Operators. They are using new technologies, providers and solutions to actively manage flows, instead of simply sending power from generator to customer. This includes new technology that has been trialled in the network innovation competitions we run.
All network companies, and the system operator, need to share information and talk to each other in a much more coordinated way. This could mean one party dealing with a problem which more directly affects another – for example, a transmission company alleviating a problem on the distribution network. We’ve already worked with other European regulators on some of these issues and in the call for evidence we explain how the relationships could develop in future.
New businesses and technology will give customers more choice when finding solutions to their needs - on managing energy use, for instance.
Two examples are electricity storage and aggregators. Aggregators act as an intermediary between energy markets and consumers that are interested in reducing, or increasing energy use at times to help balance the electricity system, in exchange for payments. We want to see both compete on a level playing field with other forms of flexibility.
We are proposing some immediate actions to improve and clarify connection arrangements for storage. This will help speed up connections and ensure DNOs prioritise linking storage to the grid where it helps to connect other customers in the area.
We are examining other issues affecting storage, such as the network charges it faces and how storage is designated in legislation and regulation. We are looking at how markets might develop and how the electricity system and the network companies need to change to help with this. In the longer term, this could mean making more fundamental changes to the structure of our system and markets.
We need to check whether charges to use the electricity network are appropriate as changes are underway in how people consume, produce and store electricity. These charges are normally paid by energy suppliers and passed on to customers.
It’s important that they are designed to send the right signals about where and what to invest in, when to avoid periods of system stress, and how to ensure that everyone makes a fair contribution to paying for the network.
Large industrial companies already provide a lot of demand-side response (DSR) where they are paid for helping National Grid to balance the system. But DSR could grow further if more businesses understood how it works.
Under its Power Responsive campaign, National Grid is raising awareness of the opportunities. We want to understand whether there is anything holding businesses back from providing DSR.
We recently published the results of a survey of business customers’ views of DSR, which show some similar views to energy consumers in general, such as lack of confidence in the products available.
Aggregators could play a bigger role, but some barriers may need to be removed. There also needs to be a proportionate form of consumer protection.
The call for evidence explains the barriers and gives an update on our views. Industry is helping here, such as through the Association for Decentralised Energy’s code of practice for aggregators. We are watching this with interest.
The electricity sector is already going through rapid changes and we need to have the building blocks in place to make it more flexible.
So I encourage anyone with an interest in the future system to respond to the call for evidence and work with us to deliver the changes. Our aim is also to create the right environment for consumers to benefit fully from this, and ensure they are protected.