Utility Week

10 | 7TH - 13TH FEBRUARY 2020 | UTILITY WEEK Utility of the Future: Business models and skills Future networks The Utility of the Future is also the theme of Utility Week Live taking place at the NEC in Birmingham on 19-20 May. Visit www.utilityweeklive.co.uk for more information. continued from previous page anism]. If there's a DNO tender, I don't want to acquire customers, because I couldn't make the cost of the acqui- sition work against the size of the opportunity." Speaking hypothetically, he says "If the whole market is 50 to 100MW, and there's maybe ƒ ve to ten companies chasing it, even if I'm lucky I only get 20 per cent. The economics are not quite there yet." Operating at the residential level is Kaluza, which has just announced it is providing WPD's live market with additional capacity from a portfolio of 20 domestic batteries installed in Lincolnshire homes. But Maher- McWilliams feels that many of the auctions so far have been structured to favour industrial customers and large aggregators, not the "grid edge" residential devices. "The focus should be on maximising participation, but current procurement focuses on long-term commit- ments over a number of months. For us to meet those expectations, we have to build substantial headroom into the bidding process – the amount of ' exibility avail- able from heating systems, for example, varies with weather and is much more predictable over shorter time scales," he says. He notes that WPD's ability to forecast and assess requirements in its Flexible Power market on a weekly basis is the best available o" er. "The market hasn't been designed with ' exibility in mind. We are actively engag- ing with the DNOs; they recognise this is a step we need, but we want to see it happening as quickly as possible." Over at ENW, Bircham o" ers a di" erent take, saying that – in his experience – ' ex providers haven't o" ered a price point that undercuts traditional investment in cables and transformers. "We've gone to market, but we haven't signed any contracts that involve new connec- tions. The o" ers have been too expensive, and alternative steps are more e— cient. "We explicitly checked in with Ofgem over this, ask- ing 'what's your view, should we pay a premium price in order to stimulate the market?' And their view was very clear, it would be wrong in principle to pay an ine— cient price compared to alternative actions." Bircham agrees, though, that increased standardisa- tion will be necessary to drive expansion in the ' exibil- ity market, by helping providers to structure o" ers. "The Open Networks Project has been helpful in facilitating this, and moving to a standardised product set. This year, there will be a set of deƒ nitions of products that DSOs need to buy from the market. So wherever you go, you can understand what the product deƒ nition is." In the dark At the moment, the DNOs are in the early stages of writ- ing business plans to be submitted to Ofgem ahead of the RIIO2 price control period. But, as Northern Powergrid has pointed out, they are business planning without a "baseline" understanding of what a DSO actually is, and how Ofgem will incentivise ' exibility and decarbonisa- tion. DNOs' role is shiœ ing from "ƒ t-and-forget" to active network management, and their assets are not so much new physical infrastructure as soœ ware systems or abil- ity to share network data and price signals, but it's not known how the price controls framework will re' ectžthat. Meanwhile, decarbonisation is now an urgent goal, and the DSOs are widely envisaged as a key enabler in decarbonising the energy system. Nevertheless, today's regulatory environment dictates they act in a technology- agnostic way, treating high carbon-intensive diesel gen- eration the same way as biomass and solar or wind. At the REA, Gordon says: "In the past, the rules by which the DNOs operated created a straight blocker to renewables, and that needs to change. There could be very high connection costs in some parts of the country, which was partly a product of the RIIO-ED1 framework, so we need new ways of looking at it." Flexibility needed now Cardwell also wants to know how Ofgem will view other factors. "What societal and environmental factors can be factored into our decision-making process? There's also a social and environmental value to electrical losses; are we allowed to factor that in [to investment planning]? At the moment, we don't distinguish between di" erent forms of generation." So far, Ofgem has incentivised the procurement of ' exibility on the grounds that it is more cost-e" ective than adding network capacity. While the expectation is that this will continue in RIIO-ED2, no details have yet been published. As Scott says: "We would expect the DSOs to make a reasonable return from ' exibility. It clearly has a cost, and as it grows DSOs will need to invest to deliver their digitalisation strategies. At present we don't know how they will be remunerated for their services and what rewards and penalties might apply." He points out that there is an inherent contradiction between traditional cables-and-transformers companies and the ' eet-footed, digitally enabled entities evoked by all the PowerPoint slides. "[Flexibility] is what Ofgem wants to hear, but the way these companies currently earn their money is by installing cables and substations. These are commercial entities with investors to satisfy. These investors aren't looking for fantastic entrepreneurialism – they typically want steady returns and the current regulatory model serves themžwell." Scott says it's high time to clarify the ground rules. "Absolutely we need more clarity from Ofgem – but we've had a couple of years where they appear to have passed the microphone over to the Open Networks Project. We're now in 2020, soon we'll we heading into 2030. Will we get there only to ƒ nd it's a 'DNO-plus' world when we ought to be in a DSO world?" At WPD, however, Turvey is in forgiving mood. "Clar- ity is lovely when you're dealing with Ofgem, but there are a lot of uncertainties and Ofgem is in the same situ- ation as others, it's very hard to see what will happen in the next ƒ ve years. More clarity would always be good, but I'm not sure you ever get enough in those processes." While the DNOs themselves feel conƒ dent that the transition is happening at a good pace, the DSO imple- mentation plan from the ENA and the Open Networks Project will also give outside observers a chance to judge whether speed really has picked up enough. Elaine Knutt is a Utility Week correspondent "We've got a clear sense of direction overall, so the steps we need to take are pretty clear." PAUL BIRCHAM, COMMUNICATIONS DIRECTOR, ENW

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