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NETWORK / 9 / DECEMBER 2019 / JANUARY 2020 As VoLL figures provide a useful guide for energy suppliers and DNOs to deter- mine the investments they need to make to deliver security of electricity supply, this increase will have a significant impact on their investment decisions. Delivering differentiation Building on its research, Electricity North West is working with Frazer-Nash Consul- tancy and Impact Research on a follow up 18 month study. This National Grid ESO Network Innovation Allowance project, called VoLL 2, will produce a new segmenta- tion model, utilising the values established for different customer groups by Electricity North West in its previous study. This previous work on VoLL highlighted that electricity network investment is cur- rently driven by estimates that fail to recog- nise differentiations in customer need. The existing single VoLL approach assumes that the impacts of a loss of power are the same for all customers, and that they all attach the same value to their supply reliability. This, of course, isn't the case. The current approach also assumes that VoLL remains fixed, which also isn't the case. The research demonstrates how VoLL is increasing over time and this should be reflected in invest - ment decision making for long-lived assets. The company identified that using a uniform VoLL can significantly undervalue the needs of certain customer segments – such as the fuel poor, those in vulnerable circumstances and those dependent on low carbon technologies, particularly early adopters of electric vehicles – while over- representing the needs of other groups. The current model doesn't take into account the effect that scale and duration can have on VoLL in different scenarios: for example, a short major outage that af - fects a whole town, versus a lengthy, more localised interruption, or high impact, low probability events that affect large regions. By providing differentiation of VoLL by customer type, the new segmentation model will enable DNOs to target their investments more efficiently, based on a richer, more representative understanding of their cus - tomers' needs. Through delivering a more nuanced understanding of VoLL, the model will inform smarter decision-making – for example, the value of proactive investment that aims to prevent or minimise the sever- ity of unplanned interruptions. Research insights Electricity North West has explored the practicalities and regulatory implications of a variable VoLL model, ahead of the next price control. The model's development is being informed by key stakeholders, includ- ing dialogue with Ofgem, the Department of Business, Energy and Industrial Strategy (BEIS), other DNOs, specialist experts and relevant industry think tanks. The statistical analysis and model development will consider how the range of variables that influence VoLL can be com - bined, and at what level of detail, to guide an investment decision – and how this understanding can be used to inform more accurate decision making tools. The study will also include further empirical customer research to deliver insights into the changes in VoLL on a community, relative to the scale (both in terms of area and number of customers affected) and duration of an outage. It will also explore attitudes to cost socialisation and fairness. With its partners, Electricity North West will explore a number of issues that may impact on the model's utilisation: from the stability and variability of the factors that influence VoLL; to how investment mod - els should account for large scale one-off events. It will also pose key questions to groups of customers with shared experi- ences to gain insights on the perceptions of fairness and equity of a variable VoLL in informing investments. For example, it will explore how the model could account for relatively low VoLL values, where customers' own proactive steps have created greater resilience, or where there are higher levels of tolerance due to repeated exposure to supply inter- ruptions. It will consider if all customer segments can accurately signal their true VoLL, and potential unintended societal consequences if they can't recognise the wider impacts. Working with Impact Research, a market research consultancy specialising in energy and utilities, the study will also test at - titudes around social value and whether investment decisions should be informed by those perceived to have the greatest need. Taking a model approach A key deliverable of the research is to gain an understanding of the distribution and scale of the financial benefits to customers that the segmentation model could deliver, including how it might impact affordabil - ity and quality of outcomes for different groups. For DNOs, the model will offer a clearer understanding of how VoLL is likely to change over time, putting investment de - cisions on long-lived assets into context. It could also inform decisions that accelerate the uptake of low carbon technologies. A functional variable VoLL model is attractive because it does not involve a sig - nificant change in the way that DNOs assess the benefits of lost load mitigation. Rather, it allows them to refine their models to pro- duce a more precise method for prioritising investment strategies, which focus on the impact of decisions. Frazer-Nash is now developing a model that is scalable, transferable and able to inform the future decisions of DNOs across Britain. This new VoLL tool will allow Elec - tricity North West and other network opera- tors to put current and future customers at the centre of their investment decisions. By providing an effective tool that all DNOs can use without the need for new data flows, they will be empowered to take smarter investment decisions that reflect the needs of their customers; and to improve their strategies to mitigate the impact of lost load. FUTURE OF FLEXIBILITY