Utility Week

20 | OCTOBER 2022 | UTILITY WEEK Electricity Analysis and chair of the Open Networks stakeholder group, is sceptical about the need for separa- tion of DSO functions. "Is it yet clear that we really need to separate out the DSO in a very strong way from the DNO?" she asks. She continues: "Clearly for the ESO it's been absolutely right to create an independ- ent system operator but whenever you put those hard lines in it doubles the costs and makes everything more complicated, so one shouldn't be rushing to separate out the DSO unless you really feel there is a problem with con- icts of interests. "UKPN has clearly decided that for them that's the right step but other DNOs have argued very strongly in their business plans that there are bene„ ts of remaining integrated. "I think there's a case for another layer but that's about the local authorities and the local bodies joining up with the gas distribu- tion networks and the DNOs." Frerk says this could be done without "going the whole hog" and fully separating DSOs and DNOs. Con icts of interest Although not the only motivation, one of the key drivers behind Ofgem's proposals was a concern over con- icts of interests between network ownership and system operation roles. Frerk acknowledges that this is a valid concern but says: "I think they might be overstating it and it's about understand- ing what the downsides are and how far you push it. "You can tackle these things with vary- ing degrees of solutions but it needs to be proportionate to the scale of the problem. Equally, making sure from the beginning that you've got something that could be split oŠ when you get there makes sense because there are quite a lot of costs of unpick- ing National Grid when all the systems are intertwined." She questions whether Ofgem has cur- rently got the bandwidth to start undertaking such a task at the distribution level as well: "Ofgem's got so much on its plate. Is it really going to take on a big battle with the DNOs over this? I don't know. "I would have thought it is going to want to see how things develop so it's got the evi- dence to justify it if it wants to do something, so I wouldn't have thought that's going to happen at a quick speed. They kick oŠ all these balls that they haven't got the resources to run with if you look at how much they are trying to do at the moment." Frerk believes the regulator's concerns over con- icts of interest can be adequately addressed through rules. For example, requiring DNOs to put all of their projects to tender and assess - exible solutions using the common evaluation methodology devel- oped as part of the Open Networks project. Plus, she adds: "At the end of the day, we do still need to do some reinforcement. It's not that - exibility is going to solve abso- lutely everything." Like Poulter, her biggest concern right now is enabling greater coordination with government, in particular local authorities, which may lack the resources and capabili- ties to develop comprehensive local energy plans and get fully involved with network planning. Although Ofgem could help directly by granting DNOs the funding to help local authorities, Frerk thinks some of this issue is outside of its remit. She says the regulator therefore needs to be talking to the relevant government departments. However, she says there is "no evidence that Ofgem has been talking to the other parts of government about what needs to happen". "The problem is that you need joined-up government, not that you need a fragmented DNO," she concludes. "Joined-up govern- ment is always hard to achieve but that has to be key to getting net zero delivered at a local level." Duncan Sinclair, a partner at the consul- tancy Baringa, likewise believes the case for the full separation is not yet clear, although it could make sense to hive oŠ speci„ c DSO functions: "A lot of the clamour for full own- ership separation of DSOs seems to originate from nervousness about DNOs' roles in oper- ating markets. "If independent ownership is deemed important, a nearer term objective could be to separate out the market operation func- tion, rather than the full DSO." He says the same could also be said for coordination with national and local govern- ment and other network companies: "That doesn't necessarily require a full blown regional system operator subsuming the DSO role, but a well-resourced new body clearly tasked with delivering eŠ ective local area energy plans in collaboration with the DSOs and other key stakeholders." Sinclair says some of the options pre- sented by Ofgem are "quite radical" and would be "challenging to implement in the near term, not least given all the other reforms going on." For example: "One of the challenges fac- ing Ofgem would be how to remunerate and incentivise a fully independent DSO. It seems that we would need evidence from several years of operating successfully under func- tional separation „ rst before that step could be considered. "Working out who is ultimately respon- sible for keeping the lights on between an independent DSO and the DNO is another knotty problem." Even if Ofgem ultimately rejects these more radical options, Sinclair suspects one of the regulator's motivations may have been to "move the centre of gravity of the debate and challenge the thinking of the DNOs, who are less ambitious in this space." None of the models it has put forward represent the sta- tus quo. Tom Grimwood, news editor continued from previous page "Ofgem's got so much on its plate. Is it really going to take on a big battle with the DNOs over this? I don't know." Maxine Frerk, director at Grid Edge Policy, and associate at Sustainability First "What really matters to us is that the DNOs make much better use of fl exibility … and that the right incentives are in place to encourage DNOs to consider fl exibility fi rst before traditional reinforcement." Rachel Fletcher, director of regulation and economics at Octopus Energy "What really matters to us is that the DNOs make much better use of fl exibility … and that the right incentives are in place to encourage DNOs to consider fl exibility fi rst before traditional reinforcement." Rachel Fletcher Octopus Energy "Ofgem's got so much on its plate. Is it really going to take on a big battle with the DNOs over this? I don't know." , director at Grid Edge Policy, and associate at Sustainability First

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