Utility Week

UTILITY Week 9th December 2017

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UTILITY WEEK | 9TH - 15TH DECEMBER 2016 | 11 Policy & Regulation This week Innovation budget to be cut by £20 million Ofgem to cut funding for electricity distribution companies to trial smart grid technology to £70m Ofgem has announced plans to cut the funding pot avail- able to electricity distribution companies to trial smart grid technology from £90 million to £70 million – to ensure projects are better value for money. The announcement comes off the back of an independent review of the Low Carbon Networks Fund (LCNF), the predecessor to the current Network Innovation Competition, which found that dis- tribution network operators (DNOs) have "improved their innovation… but there is great potential to go further". Although the regulator said the move is to ensure the "money is spent in the most cost-efficient manner", the entire original funding pot of £90 million has tradition- ally not been used by DNOs. Last week, the results of the latest round of funding revealed that only £46.8 million of the £90 million avail- able had been applied for, and £33 million awarded. Ofgem has also announced plans to investigate, in partnership with the government, whether to change legislation to allow third parties to bid directly for fund- ing. The regulator said it is "keen" to see DNOs working in partnership with third parties, because these can bring "fresh ideas and new approaches". The estimated net benefit of the LCNF if the com- panies trialling the technology implement it has been calculated at £1 billion – three times the cost of the schemes. This could rise to between £4.8 billion and £8.1 billion if the innovation is adopted by all DNOs. LD See market view, p20, and analysis, p21 ELECTRICITY BEIS warned against profit-sharing mechanism for CfDs The Department for Business, Energy and Industrial Strategy (BEIS) has been warned not to implement a profit-sharing mech- anism to militate against the impact of higher-than-expected load factors on the contracts for difference (CfD) scheme. Forcing developers to share windfalls "would not achieve the desired result and could also scare off investors", a former head of Levy Control Framework (LCF) strategy at the Department of Energy and Climate Change told Utility Week. "Trying to design a profit- sharing mechanism and imple- ment it in a way that's fair to both investors and consumers is quite complex," said Alon Carmel, senior consultant at Nera Economic Consulting. "If you make it too rigid, then it just becomes an unfair penalty on the builders of that wind." Carmel made the comments aer BEIS published a report on the "lessons learned" from the LCF budget overspend. WATER Ofwat concerned about data quality Ofwat has concerns about how Yorkshire Water and Southern Water assure their data. In its annual assessment of water companies' information quality, Ofwat said the two com- panies "did not provide suffi- cient confidence and assurance" about their ability to deliver, monitor and report performance. This led to a "reduction in trust and confidence", it said. The regulator has demoted the two companies to the "pre- scribed" category of its company monitoring framework. Meanwhile, South East Water, Severn Trent Water and United Utilities all moved up to the "self-assurance" category. These companies met expectations in most, if not all, of Ofwat's assessments. ELECTRICITY 'Embedded benefits' decision in 1H 2017 Ofgem expects to decide on changes to the "embedded ben- efits" experienced by distribu- tion-connected generators in the first half of 2017. In an open letter to stakehold- ers, the regulator said it will take "early action" to tackle Triad avoidance payments as they are becoming "unsustainable" and increasingly distortionary. "We remain concerned that this distortion is having an impact on the capacity and wholesale markets, driving up costs to consumers," wrote Frances Warburton, Ofgem partner for energy systems. Ofgem: 'there is great potential to go further' Political Agenda Mathew Beech "Nick Hurd is aiming to fill the smart meter hero boots" Despite the howls from opposi- tion MPs and from the industry that getting smart meters into every home by 2020 is becoming an ever more expensive and improbable goal, the govern- ment is sticking its head in the sand and sticking to the course. In a Westminster Hall debate on Tuesday, Liberal Democrat MP for Orkney and Shetland, Alistair Carmichael, said now, "when there is not much political heat on the subject", would be the ideal time to ernment taking "its foot off the gas" and lead to further delays, thereby pushing consumer benefits further into the future. He did show a slight chink in his armour though, saying that BEIS will listen to evidence and if, in two or three years' time, there is a need to push back the deadline, then he will. It just about leaves the door open to a post-2020 completion for the smart meter rollout, and for Carmichael to tell the government: "I told you so." consider pushing back the deadline. He added this would give the industry more time to get its house in order before it starts fitting the technology into those of the public. To top this off, Carmichael said the smart meter programme needs a "hero" to champion it and ensure it obtains the outcomes everyone wants to see. Aiming to fill the smart meter hero boots is energy and climate change minister Nick Hurd. And like all superheroes on a mission, he will not waiver. He responded that the 2020 target remains, because changing it now could be seen as the gov-

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