Utility Week

12 | 16TH - 22ND FEBRUARY 2018 | UTILITY WEEK Policy & Regulation "Innovation is no longer a 'nice to have' – it must be part of the day job and we need to see a stronger culture of innovation across all networks" Comment Jonathan Brearley R obots that can repair gas mains. Drones that can be used to monitor electricity pylons, and tech- nology that reduces the voltage on an electricity network at the flick of switch. These are just some of the projects that energy networks and other businesses have developed over the past few years. Under Ofgem's RIIO (revenue=incentives+innovation +outputs) network regulation, network companies have made a lot of progress in their ability to use innovation. It wasn't always the case. Following privatisation in the 1990s the focus was on cutting costs, and rightly so, with the cost of the networks on bills falling by 17 per cent over the past 20 years. However, as any business would tell you, cost cutting leads to less focus on research and development which benefits consumers. Things have been chang- ing, though. Since 2010 for electricity distributors, and 2013 for other companies, Ofgem has widened the availability of innovation funding available through the price controls that we set for network companies and they have responded well. Inde- pendent consultants estimated that the net benefits to consumers of distribution network opera- tors' (DNO) innovation projects in the 2010-15 price control is around £1 billion, rising to £8 billion if the learnings are adopted across all of Britain's network companies. The com- panies need to go further though. The energy system is going through unprec- edented changes with rapid growth in renewable energy, falling costs for electricity storage and new approaches to providing demand-side response. At the same time, the role of network companies is changing, especially in electricity distribution. Gone are the days when the DNO's job was simply taking electricity from the high- voltage grid and transporting it passively to customers. As the system becomes smarter and more flexible, are taking on the wider system operator role where they actively manage flows on their networks. All these developments point towards innovation being critical to how network companies do their job in future. Put simply, innovation is no longer a "nice to have" – it must be part of the day job and we need to see a stronger culture of innovation developing across all network companies. This spring we will consult on the framework we will use to set tougher price controls for network companies from 2021. Our price controls will set strong incen- tives for innovation, but in return I want to see further collaboration between network companies on solving systemic problems so that smart solutions can be rolled out across all networks. Group working is also important so that we avoid duplication on projects. For example, when we announced the winners of last year's Network Innova- tion Competition, we told three DNOs to work together on the projects they submitted to remove duplication and co-ordinate learnings that will support markets for providing electricity flexibility services. I also want to see more evidence that network companies are work- ing with third parties such as technology providers on innovation projects. New uses for data, energy services such as demand- side response, electricity storage and the roll out of electric vehicles throw up great challenges and oppor- tunities that across the sector we must make the most of for consumers. Networks have made good progress over the past dec- ade, but we need a step change so they become highly innovative businesses that are not as reliant on specific funding programmes as they are currently. The need for the companies to use innovation will only increase in the next decade. Developing, testing and deploying new approaches quickly is the best way for them to stay on top of the major changes we are seeing in the energy system and deliver the best possible service – and value – to consumers. Jonathan Brearley, senior partner, networks, Ofgem

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