Utility Week

UTILITY WEEK | SEPTEMBER 2021 | 17 Policy & Regulation I n previous electricity distribution price controls, Ofgem placed the reliability focus on distribution network operators (DNOs) driving down their average power- interruption frequency and duration. Consequently, DNOs made great strides between 2001 and 2020 reducing their average customer interruptions and customer minutes lost by 51 per cent and 61 per cent respectively. The risk with these broad system measures is that they drive DNOs to focus on mak- ing good performance better instead of addressing the needs of their worst-served customers at the grid edge. To date, DNOs have made relatively little use of the RIIO-ED1 arrangements for their worst-served customers, spending just £2 million on improvements during the 2019- 20 financial year. DNOs have spent much more on resilience. Ofgem's latest RIIO-ED1 annual report notes they spent £733 million over the first five years of RIIO-ED1, targeting areas such as flooding, physical security, black-start, and tree-cutting. Resilience requirements also are evolving. The combined impacts of climate change, the energy system transition, and changes in customers' expec- tations are all adding more demands on the electricity distribution networks. In essence, the "Net Zero challenge" for DNOs is real, and bold measures are required to both support worst-served customers and to meet the resilience chal- lenges ahead. Ofgem clearly responded to this in its RIIO- ED2 documentation, where both reliability and resilience saw much greater prominence, Further, the dra" DNO busi- ness plans published on 1 July 2021, suggest major positive changes are coming. The DNO plans show investments in improving per- formance for worst-served cus- tomers will now play a much more central role in terms of reliability plans. The DNOs are collectively forecasting investment of approximately £100 million on improving performance for some 39,000 worst-served customers. The DNOs have responded in diverse ways on resilience. Plans include using more dis- tribution automation for faster restoration of power, putting a greater focus on new technolo- gies to improve resilience for vulnerable customers, and building additional resilience to bad weather. Taken together, the meas- ures show an increasingly broad focus on both reliability and resilience. In turn, this suggests new solutions are needed to continue to drive performance improvements. Targeted investment at the grid edge can drive improve- ments for worst-served customers in terms of both reliability and resilience, and it can also reduce short interrup- tions. This would help address several key priorities simulta- neously and prepare networks for changing demands. EXPERT VIEW CHRIS WATTS, DIRECTOR - REGULATORY AFFAIRS, S&C ELECTRIC COMPANY A wider lens on reliability and resilience in RIIO-ED2 DNO business plans show they mean to improve resilience and reliability for worst-served customers. saying this allows the regulator to remain agile and to adapt to changing trends. An SPS also has the benefit of taking up less parliamentary time than a full revision of duties, she adds. Dr Jeff Hardy, senior research fellow at the Grantham Institute – climate change and the environment at Imperial College London, agrees that there is no time to waste but has two key requirements for government direc- tion: "I could see value in an SPS if it causes government to work out what its net-zero strategy is and therefore the role of the regu- lator in delivering that. And if it helps Ofgem untangle the myriad of duties it has on it, which o"en makes it difficult to make very clear decisions or very complex decisions. "If an SPS could sort out the most impor- tant things Ofgem should be taking into account when making decisions and having less emphasis on the other myriad responsi- bilities and a clear articulated strategy from government, then it's useful. "If not, then just change Ofgem's duties so they're really clear." 'Least cost' can be problematic Putting aside the vehicle for the message and returning to the devil within the detail, how should Ofgem's primary duties to be worded? Nolan says he has previously used a vari- ation of "achieving net zero at lowest cost" put appreciates that this could be problem- atic further down the line, with the interpre- tation open to legal challenge. Hardy points out that "lowest or least cost" also risks "taking a load of options off the table". He points out, for example, that community energy is unlikely to be consid- ered the lowest-cost option but is a clear preference for some consumer segments. He would prefer a definition of "reason- able or acceptable" cost because it "allows people in different places to pursue energy that suits their needs, preferences and values". Frerk warns that, when it emerges, the SPS is "unlikely to contain any surprises". She adds: "Government has always been wary of telling Ofgem to make trade-offs but that's exactly what would be most helpful." However, there is a precedent for govern- ment giving a very clear steer on where pri- orities should lie if a conflict emerges. In the 2019 SPS to telecoms regulator Ofcom, the Department for Digital, Culture, Media and Sport wrote: "The government's view is that promoting investment should be prioritised over interventions to further reduce retail prices in the near term." James Wallin, editor "I'd expect the SPS to leave it largely – though not entirely – to Ofgem to figure out how to optimise across its objectives." RACHEL FLETCHER, OCTOPUS ENERGY "I would prefer an amendment of the statutory duties… where parliament has given the steer rather than a particular ministerial department." DERMOT NOLAN, FINGLETON

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