Utility Week

UTILITY WEEK | 8TH - 14TH JUNE 2018 | 9 Policy & Regulation part of the framework introduced a much more innovative and changeable nature to many of the network companies. "Overall, there's a lot this regime has delivered and a lot we can build on." If you had le the event at this point, you might have been le with the impres- sion that work is progressing well in the shi towards a smarter, more flexible energy sys- tem. Some tweaks are needed here and there but, by and large, things are going according to plan. Not so, said John Scott, former Ofgem technical director and now director of con- sultancy Chiltern Power. Speaking during a session on network innovation, he said the evidence of progress is "weak, disappointing in fact". "Please tell me why £300 million has been spent on energy innovation but Ofgem still has as a major theme about network companies not converting innovation to business-as-usual deployment," he asked the audience. "Why is that aer so long?" Elaborating on his frustrations, Scott pondered why the work of the Energy Net- works Association had focused so much on distribution and transmission and had paid so little attention to developments at the grid edge. He questioned why the process for changing governance codes is "still operating in silos", and why the government's consultation on smart appliance standards is taking place in a "bubble". "Why don't I read anything in the RIIO2 consultation about engage- ment beyond the meter?" he added. "Why isn't Ofgem at least posing questions about what their role is across the meter? "What is Ofgem's role within those con- nected home standards, for example? Is Ofgem going to encourage the network companies to invest good-quality resource in standards development so that beyond- the-meter standards are fully integrated and seamless with the network companies… Where is that going to happen?" He continued: "We need much less short- termism… And we need less incremental development… within licensed silos." Without changes, Scott said, the energy system transformation will "stall", the power grid will be put at risk of "crashing", and network costs will be higher than necessary. He worried that the billions of pounds of potential benefits highlighted in the smart systems and flexibility plan could be allowed to "slip through our fingers". His concerns were shared by Catherine Mitchell, an energy policy professor at the University of Exeter, who said current plans to transform distribution network operators (DNOs) into distribution system operators (DSOs) are "not sufficient". At a subsequent seminar on the transi- tion, also attended by Scott, Mitchell said DNOs should instead become "distribution service providers" to minimise costs and enable the UK to meet its emissions targets. Under this model, network operators would use local energy markets to balance the energy system at the grid supply point level, before buying and selling remaining imbalances in national markets. The energy system would be optimised from the bottom up rather than the top down, uncovering the "true value" of distributed energy resources. Mitchell also called for accompanying changes to the price-control regime. She said returns for building and maintaining assets should be reduced over time and replaced to a large extent by payments for meeting pub- lic policy goals and facilitating local energy market transactions. This, she argued, would allow the price controls to become more responsive to unforeseen technological developments and force network operators to become proactive in driving forward the decarbonisation of the energy system. At the moment, she said, net- works are still reacting to outside develop- ments, limiting the pace of progress. When asked by Utility Week why the changes they sought had not materialised, Mitchell attributed the problem to the UK's political system: "Ultimately in Britain there is a failure of consensus-based, transparent decision-making… For some reason we find it very difficult to take these very long-term decisions in a sensible way." She said the Department of Business, Energy and Industrial Strategy talked a good game in its smart systems and flexibility plan and clean growth strategy, but lacked a logi- cal strategy to achieve its aims. Ofgem fit for purpose? Mitchell said Ofgem should be "stripped back" to a purely economic regulator. She said its current duties are "not fit for pur- pose" and many of them should be trans- ferred to a fully independent integrated system operator. She also pinned some of the blame on networks themselves, who she said had promised much but delivered little. Scott said there is "something funda- mentally wrong" with the current processes for reform, which were designed for a "silo- based world". "If you remember at privatisation, unbun- dling was the smart idea," he explained, "but all that did was put generators, trans- mission, distribution and, somewhere, cus- tomers all in very tight legally defined silos." He said the government and Ofgem are "enormously influenced by the messages they get from the present big companies. If the network companies… put a serious mes- sage into government, then that would really get attention." Scott, by now showing clear exaspera- tion, said networks must "shake the cage" or the great ideas they c0me up with will be le to "sit on a shelf ". Randolph Brazier, head of innovation and development at the Networks Association, responded that it is not the responsibility of networks to determine policy and govern- ance structures. He said when they argued for changes they received "pushback" from people who accused them of "designing the market" for their own benefit and "stitch- ing it all up". "We're walking a tightrope there in some respects," he added. Paul Bircham, network strategy and technical ser- vices director at Electricity North West, said: "We have two things that are waved in our faces every time we open our mouths on this. One is the Competition Act and the other is our licence, which says we have a duty to facilitate and not distort competition, in both electricity supply and in generation." "We're stuck in a point of saying what you'd like us to do is breach our licence and try to disrupt the market. It isn't our job to disrupt the market. It is our job to serve cus- tomers and provide the obligations that we have to them. "We need a different form of governance to allow us to have these conversations." If the picture is as bleak as Scott and Mitchell claim, these conversations will have to happen soon. Whether networks are in the driving seat or along for the ride as pas- sengers, change is coming. The longer we are stuck with the dumb, inflexible energy system of the past, the harder it will be for the UK to meet its emissions targets and the more it will cost consumers. "All unbundling did was put generators, transmission, distribution and customers in very tight legally defined silos." JOHN SCOTT, FORMER TECHNICAL DIRECTOR, OFGEM; DIRECTOR, CHILTERN POWER

• Cover