Re-thinking the energy system
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Andrew Burgess
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The village of East Hanney is a 20 minute drive from the site of the former coal-fired power station in Didcot, Oxfordshire. When it comes to Britain’s rapidly changing energy system, the journey represents how far we have come from its starting point – and where we are heading.
East Hanney is home to a huge 45MW solar farm - one of the largest in Britain – which is spread across 240 acres of the Oxfordshire countryside. The solar farm was connected to the grid in 2014, a year after Didcot A was shut down after over 40 years of service. Big fossil fuelled plants like Didcot A are being replaced up and down the country by renewable generators at a quicker rate than most people expected. Around 26GW of small scale generation – much of it solar farms like at East Hanney - is now connected to local networks, as much as some estimated that we would have by 2030. New technologies such as smart meters, battery storage and electric vehicles will also help to transform the energy system.
Given the scale of the changes we need to look again at the systems and regulations which we oversee to make sure that energy continues to be provided securely, when homes and businesses need it, and at the lowest possible cost. We also want new services and technology to bring benefits to customers.
Last week we set out a plan together with Government to re-write parts of the electricity system rulebook which pre-date all these new developments by as much as 20 years. This will make sure that out of date rules don’t hold back development of a smarter, more flexible system.
There are big benefits of doing this. The savings to consumers from having a smarter system are estimated to be between £17-40bn up to 2050, according to research by Imperial College and the Carbon Trust. These benefits come from the cumulative effect of changing the way we do things.
There needs to be much better coordination between monopoly network companies which run the high and lower voltage electricity networks. They should be working together on creative solutions to managing the changing energy system. An example of that is for network companies to look at solutions which don’t always involve building new capacity. There also needs to be more clarity about the different markets businesses can compete in.
Some of the big changes we announced last week will help electricity storage developers. Renewable generators depend on the sun and wind to generate power. If the electricity isn’t needed when it is generated, it is wasted. Storage resolves this by taking excess generation off the grid during the day and sending it back onto the network at peak times to help meet demand. In doing this, storage can save money by acting as a substitute for building more power plants.
However, current rules are ambiguous about the way storage is treated as sometimes it acts as a generator, and at others a demand customer. This anomaly can lead to storage paying more than it should for taking electricity on, and off the system. This puts storage at a disadvantage compared with generators and other system users. Ofgem and Government have decided that storage will be defined as a distinct form of generation in regulation and legislation. This will help to ensure that Ofgem and industry can make the rule changes needed for storage, for example, ensuring the network charges paid by storage are consistent across GB. This, and a range of other charging proposals we have made, will improve the situation for storage.
We also want to licence storage as a specific type of generator. The licence will allow storage facilities to stop paying levies that fund Government environmental programmes which are charged to end consumers. This will make a big difference as the payment of these levies can increase costs for storage by around 20 per cent.
Connection and ownership of storage are also issues we have been looking at. More than 550MW of storage, often next to renewable energy generators, has contracted to come online by 2020. National Grid thinks this could grow rapidly to almost 6 GW by 2020. Therefore it is crucial that local electricity distribution network owners (DNOs) speed up connections for storage and work together to locate the best sites. We are keeping a check on their progress.
We also want to see different companies providing services such as storage. Today we are confirming our view that network operators should not be looking to develop any new storage facilities of their own. Instead they should be buying storage output from other providers. DNOs won’t have to sell off their existing storage, but they must make sure it is operated in a way that does not distort the energy market.
To have a flexible system, we must also be smarter on how and when we use energy. Encouraging more demand side response (DSR) where homes as well as businesses use smart meters can reduce energy use in exchange for payments is important.
Some consumers don’t have time to look for these opportunities. DSR aggregators, which act as intermediaries between consumers and the rest of the energy market, can do the leg work for them. The number of aggregators in the market is growing, and we want to help them play a bigger role. This includes making sure that aggregators which are independent of energy suppliers can still use the balancing market, where they can trade unused energy from the customers they represent.
Harnessing the huge potential for renewables and new technologies to make a more flexible system is one of the most exciting opportunities our energy sector has ever had. More than 250 organisations have replied to the call for evidence that Ofgem and the Government issued last November.
We want the bulk of the changes announced today in place by 2019. It is important that policymakers and regulators keep pace with the rapid changes we are seeing so that consumers can enjoy the full benefits of a smarter more flexible energy system.
This article was first published in Business Green on 27 July 2017.