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12 | 9TH - 15TH JUNE 2017 | UTILITY WEEK Policy & Regulation A s renewable generation takes over from traditional power sources, the grid has to cope with inflexible, inter- mittent generation, as well as the challenges of distributed generation. Once a one-way power delivery channel, the electricity grid must evolve to compensate for the flexibility lost from generation, and cope with two-way power flow and local balancing. In 2016, Utility Week and CGI partnered on a major piece of market research on flex- ibility. This established three main routes to achieving it: demand-side flexibility (DSF), storage and interconnection. This follow-up study explores DSF in greater depth. DSF is defined as demand-side response (DSR) plus associated measures such as demand-side storage (DSS). We asked stakeholder groups in the energy sector for their views on the potential of DSF, their experience of DSF projects to date, the barriers they have encountered, the attitudes of their customers, and their future outlook with regard to DSF. The research revealed a market in its infancy. Much is expected of DSF as one of the main planks of a more flexible power sys- tem, but little has been delivered. All agree on the benefits that may arise from DSF, but they have yet to materialise, with regulatory and economic barriers placing a significant constraint on activity. Although there has been some early par- ticipation in DSF projects, the benefits they have yielded have been largely economic returns for customers and, to a lesser extent, for businesses. These are useful proofs of concept, but the potential benefits judged greatest by our respondents – those of cut- ting peak energy demand and helping to balance the grid as the energy mix changes – have been less apparent to date. For the energy sector, a number of things must happen before the potential benefits of DSF can become a reality. Our respondents expected a major uptick in consumer interest around 2024, which is widely expected to be a tipping point in the move towards a more flexible power system. In the meantime, despite the undisputed A flexible future with DSF We present here selected extracts from exclusive research carried out by Utility Week and CGI into demand-side flexibility, a key enabler to a flexible energy system. BARRIERS TO DSF Respondents were asked to identify the barriers to success in their DSF projects. While a notable minority (18 per cent) said there had not been any barriers to date, the majority had experienced economic, regula- tory and, to a lesser extent, technical barriers. Economic barriers were the clear leader at 52 per cent, with regulatory barriers close behind at 48 per cent, and technical barriers apparently less common at 24 per cent. Respondents were then asked to rate the degree to which they had experienced particular economic barriers, and particular regulatory barriers. ECONOMIC BARRIERS TO DSF The lack of incentives was cited as the most common economic barrier. 58 per cent of respondents highlighted the lack of price incentives for market participants; and 46 per cent identified the lack of fiscal incentives. Just 23 per cent cited the cost of technology as a core economic barrier, and 27 per cent distribution charges. Lack of fiscal incentives Cost of technology Lack of smart tariffs Current structure of distribution charges Lack of price incentives for market participants Other 58% 19% 27% 38% 23% 46% REGULATORY BARRIERS TO DSF More than half of respondents identified the lack or low level of fiscal incentives, at 58 per cent. The second most commonly experienced barrier was to trading flexibility in the wholesale market at 42 per cent, with barriers to participating in the capacity market (38 per cent) and the balancing market (33 per cent), coming close behind. Lack/low level of fiscal incentives Barriers to participating in the capacity market Barriers to participating in the balancing market Barriers to trading flexibility in the wholesale market Other 58% 38% 33% 42% 21% potential benefits of DSF, it remains an unproven and immature market that needs considerable development before reaching mass penetration. Customers are likely to remain largely unaware of its potential role, and market participants that understand its future significance are le to jockey for position and seek to influence decision mak- ers as its future structure is decided and enshrined in legislation and regulation.