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IET Respond to Ofgem/BEIS – “Smart, flexible energy system” call for evidence

An overview of the IETs additional comments provided to Ofgem and BEIS on their Call for Evidence

The IET responded to the BEIS/Ofgem call for evidence on the “Smart, flexible energy system” via the Energy Policy Panel (EPP) on the 12th Jan 2017.

(NB: This article was written before Ofgem announced the consultation on the “Future arrangements for the electricity system operator: its role and structure”).

The call was welcomed by the EPP because it addresses a number of important issues relating to the challenge of making the electricity supply system operate more flexibly and more efficiently.  

The IET response to the questions posed is being considered by government and the regulator however the EPP felt that additional comments were required to the response which were also sent and are summarised below.

Whole System

The IET welcomes the recognition from Government that the flexibility challenge requires ‘whole system’ thinking, this is something that the IET has provided evidence on in a series of reports, the most recent of which is the Future Power System Architecture report of July 2016.

The IET however, have a concern that a ‘whole system’, co-ordinated approach is not actually being applied with national thinking. The call lacks reference to the potential interactions between the many (good) initiatives that are described, and it can be read as a series of incremental options to be selected as desired. It is our view that a much more radical restructuring of the way parties in the electricity supply chain interact will be needed, including how they are regulated.

The IET feel that the challenge of enabling significant innovation and change over a sustained period of time with a wide agenda that spans the whole system, is not fully recognised in the call. The challenge of enabling the changes is a material task in its own right, and will require a strategic approach alongside the specific interventions.

The IET read this call in the context set by several other Government and Ofgem activities. These include Ofgem’s consultation on industry code governance, Ofgem’s ‘Innovation Link’ initiative and the Department for Transport’s (DfT) recent ultra- low emission vehicles consultation. The IET’s strong impression is that these activities, and the thinking behind them, show little evidence of the joined-up approach that will be necessary for a successful outcome.

A simple demonstration of this point is that this call makes no reference to the industry code governance consultation even though a whole section of the call focuses on roles and responsibilities. This is concerning. The ‘Innovation Link’ initiative is designed to help new entrants with new propositions to overcome regulatory barriers.

These new entrants could cause disruptive change, particularly those operating beyond the meter, but this does not appear to be given consideration in the call. The IET also see a different approach from the DfT, where it appears that they recognise the disruptive power of battery electric vehicles and accept that they will need to take a regulatory lead to address this. In contrast, while recognizing the need for regulation, BEIS and Ofgem seem much more reticent and less inclined to lead.

Future Power System Architecture (FPSA)

The FPSA joint IET/Energy Systems Catapult report was commissioned by Government. It highlights the growing complexity of the electricity sector and identifies the new and enhanced functionality that will be required in the near future to facilitate the low carbon transformation. Importantly, this functionality crosses existing boundaries of stakeholder responsibility and therefore requires new levels of cooperation to deliver whole system solutions.

The FPSA report is referenced briefly in the call but the IET are concerned that its recommendations have not been taken on board. The IET see a need for an integrating influence to ensure that the required functionality is delivered in a timely way. This is why we believe there to be a need for much closer linkage between actions to deliver flexibility and the drivers for change in industry mechanisms such as standards and codes.

The IET suggest that delivering the functionality recommended by the FPSA report offers a very good test case for the plans that will be published in the spring, particularly in relation to roles and responsibilities. The IET would expect these plans to propose changes to existing roles and responsibilities so that there is the appropriate leadership and co-operation necessary to deliver the FPSA functionality in a timely way.

Beyond the meter 

The call addresses important issues relating to the consumer in the section, “A System for the Consumer”.

The IET believe that actions by consumers are likely to be one of the most disruptive drivers for change over the next decade. We have already seen how the take-up of solar PV confounded all the forecasts of just a few years ago, albeit mostly due to solar PV farms. The same could happen with EVs and this could have a much more dramatic impact on the power system than solar PV. The launch of the Innovation Link shows that Ofgem recognises the likelihood of disruptive change but this is not as apparent in the call. Its tone is that incremental change will be sufficient. The evidence from the FPSA work is contrary. 

The IET also note that there are few references to community energy schemes. This is just one of many non-traditional business models that might flourish in the future, encouraged by the Innovation Link. The FPSA analysis revealed that Community Energy is likely to be one of the most disruptive developments for the sector.

The companion PA report on Aggregators references the important concern that demand side action could interfere with the energy balancing position of suppliers, with not only imbalance cost consequences, but also undermining one of the core design principles of the wholesale and balancing market arrangements. The PA report (p5 and para 3.7.1) references this and notes the challenges but it is omitted from the Ofgem/BEIS main document. In the IET’s view this is an important matter to address and bring to the fore.

The IET believe that there is likely to be a case for making changes to legal and regulatory designs to recognise and ensure the integrity of important functions that cross the metering boundary and potentially have impact for the power system as a whole, both technically and commercially. This may require compliance of those parts of the system beyond the meter; it will certainly require close understanding of stakeholder wishes and behaviours and concerted facilitative action by the established parties who operate on the 'system' side of the meter.

Implementation  

It would be helpful if the implementation challenges gained their own profile and wider exposure to all parties. The ability to respond to ongoing change (for example through ensuring scalability of solutions, interoperability of data, and harmonised technical and commercial systems) would be enabled by the introduction of far more agile change processes in the sector. This is an important topic in its own right. In particular, the IET would welcome the spring 2017 plan stating clearly who will ensure that the actions of stakeholders across the system, including consumers, are integrated in a coherent way and in line with a transparent strategic plan for managing on-going transformative change.