It’s the wrong kind of disruption
Editorial board member and independent consultant John Scott foresees self-inflicted problems for the energy sector.
15th July 2018 by Networks
Utility Week Live set my head spinning. Numerous stands and speakers set out their roadmaps to a greener future, championing innovation and new business opportunities. Very impressive – yet why was it so unconvincing?
As I read the signs, they indicate what we really have ahead is a self-inflicted shambles, which will frustrate customers, add costs to bills, bankrupt entrepreneurs, and cause energy policy failure.
The elements of change are encouraging: decentralisation of renewable generation and storage, flexibility of demand, community energy, new energy services and home automation. Bring it on. Indeed, be encouraged by the excellent Low Carbon Network Fund demonstrations and the fresh thinking from parties now knocking on the sector’s door.
But where is the coherent thinking for the massive change in data systems and automation needed by smarter systems, what arrangements are we making to interface with the myriad of new parties outside today’s change governance and regulatory oversight. In the absence of co-ordinated development there is potential for serious disruption such as described in the panel on the adjacent page. As indicated, there are numerous potential solutions to avoid nightmare outcomes, but where solutions involve multiple parties, whose job is it and who is accountable? The challenges span policy and commercial boundaries and today no party has accountability for ensuring joined-up outcomes. The system operator has visibility of the transmission system, but that’s little comfort now the challenges are coming from beyond the meter.
Looking broadly, how do we facilitate essential coordination as technical and commercial complexities ramp-up and we move from silo-based to whole-system challenges? Technology and business models working seamlessly across multiple parties doesn’t happen by magic. Coordination is essential to ensure a friction-free experience for customers and it concerns me greatly that I don’t hear these issues being debated and I don’t see them prominently on policy makers’ agendas. For example, I see nothing of this in Ofgem’s RIIO2, the ENA’s network innovation strategy, BEIS smart appliance proposals, or in networks moving innovation to business as usual.
At the core is the new character of future system functionality, which presents a discontinuity for network companies and regulators. Functionality is now moving across the boundaries drawn up at privatisation. New arrangements are needed, as the silos of ownership no longer align with critical system functions. The implications are serious at all levels with a fundamental problem being the vacuum in whole-system coordination and accountability.
Returning to central planning is not the solution. It would struggle to deliver the blend we need of multiple players, open-system methodologies, and enabling coordination roles. Open systems, well established in other sectors, encourage entry of market players and avoid lock-in to proprietary systems and data. These are key to an effective market – but are never the product of a market itself. Markets have to be created and their operating rules agreed. Raw market power results in ‘Might is Right’ outcomes, which may be monolithically uniform, but are not true open systems and put a brake on innovation.
So, we’re facing the ‘wrong kind of disruption’. The unintended misalignments in today’s regulatory arrangements will create disruption that has serious long-term consequences. The deeper conundrum is that the parties themselves may hesitate to propose change. For example, the network companies have a duty to deliver returns to their owners, but those returns are earned under the regulatory models, risk profiles, and boundaries of today’s licences, codes and standards. It is policy-makers who must signal their wish for new thinking to companies and their investors. It’s a further complication that policy makers must include themselves in the re-thinking. For example, how will Ofgem honour its principal objective to “protect the interests of consumers”, if its oversight of networks stops at the meter, the very boundary where disruptive network changes now start?
Ofgem has many sound initiatives, including innovation incentives, assistance for entrepreneurs, and governance reform. It’s becoming increasingly urgent that these are brought into alignment with the nature of emerging challenges. Governance reform applied to the present model will have limited returns, or even be counter-productive. Why not channel this effort into fresh thinking for more holistic and responsive change mechanisms. The evidence from the Future Power System Architecture project should be a helpful accelerator for practical change. The Energy Systems Catapult and The IET have jointly led this work, bringing impartiality and expert knowledge, and drawing on other sectors where agile governance and complexity are managed well.
There are serious power system challenges ahead but no shortage of solutions, just many stumbling blocks. Policy makers, this is happening on your watch: the sector needs your lead to engage in rethinking the rule set, implementing streamlined governance, and establishing oversight accountability for whole-system issues. Every day takes us further down the wrong path, making it harder and more costly to establish coordinated, open systems and markets. It will be a sorry legacy if RIIO2 locks the sector into today’s misalignments, just when we need an operating model fit for tomorrow. If my analysis is flawed, please tell me.
Disruption – one simple example
- Consider, just two per cent of the car fleet being electric, a credible scenario for the early 2020s, and their owners having a 7kW smart-charger at home.
- This charger monitors market prices.
- The market moves from a high to a low-price period.
- Wherever they are in the country, the chargers will turn on simultaneously, creating a step in demand of some 4GW.
- This is about four-times the system operator’s safe limit today.
- Do nothing, take a chance that it won’t happen and risk a widespread black out, or;
- The system operator buys significantly more fast response, which is an expensive service, and does this increasingly as the EV fleet expands, or;
- Develop technology/market solutions such as randomised delays in the smart charger logic, price banding, or frequency-sensitive charging controls. These need not be costly options but they require coordination and ongoing monitoring across EV and charging point manufacturers, network companies, the system operator, and the standards for App developers.
ABOUT THE AUTHOR:
John Scott is an independent consultant. He has a background in distribution and transmission networks and his career includes director of engineering for National Grid and technical director at Ofgem. He contributes to the Future Power System Architecture project, but has authored this article in his own right.
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