Britain’s networks set for a shakeup

Formation of an Independent System Operator (ISO) and transition of DNOs to DSOs are proposed for UK energy.
Published: Mon 04 Jul 2016

British MPs have proposed some far reaching changes to the nation's networks that should facilitate faster evolution to meet the challenges of the transforming energy sector.

Among the proposals are the creation of an Independent System Operator (ISO) at transmission level and at distribution level a transition of the Distribution Network Operators (DNOs) to fully-functional Distribution System Operators (DSOs) which balance and control their local grids.

Low carbon network infrastructure

The inquiry by the House of Commons Energy and Climate Change Committee identifies that there are “three interwoven challenges” for low carbon network infrastructure in Britain. Firstly, new energy sources – in electricity, gas, and heat – need connections to, and consequent reinforcement of, the grid. Secondly, some of these sources are variable in output, such as wind and solar electricity: system operators must therefore employ new tools to balance supply and demand. Thirdly, networks’ efforts to overcome these obstacles must not be impeded by outdated and inflexible regulation and governance.

Significant infrastructural development is needed, but incurs considerable expense of both time and money. Deployment of new technologies is crucial to achieving these goals while controlling cost.

New energy sources

New energy sources considered include distributed generation, green gases and the electrification of heat and district heating.

The report notes that the recent rise of new connection requests is astounding, and the UK’s installed solar capacity is approaching levels previously expected by 2030. However, there is a need for better integration of connection and planning-consent processes. Moreover, both connection costs and the network charges incurred by consumers vary considerably by location.

The potential for green gases particularly biomethane and hydrogen, the electrification of heat and district heating arises with the decarbonisation of heat, into which a major investigation is currently under way under the Energy Systems Catapult. [Engerati-Decarbonising homes – the UK challenge]

Flexible networks

Three potential solutions are considered to manage the network impacts of low carbon electricity generation: electricity storage to shift energy from times of peak supply to those of peak demand; increased demand side response to mould electricity demand to the more-variable new shape of electricity supply; and interconnection with other European countries to allow imports when needed and exports of any surplus generated.

Both storage and demand side response need government strategy and/or regulation to enable them to meet their potential. Indeed, according to the Committee, the current regulatory conditions for storage are hindering its development and storage technologies should be deployed at scale as soon as possible

Regarding interconnectors, the Committee notes that Britain is likely to remain a net importer of electricity and thus supports significant interconnector expansion. This supports our Brexit analysis that while Britain might not feel bound by the EU interconnection target, the development of interconnections will continue. [Engerati-Brexit and Britain’s energy]

Network management

The Committee states that the challenges can only be met within an appropriate governance, regulatory and operational framework. Network companies have generous allowances for early-stage testing of the technological solutions they need, but the UK struggles to bring these innovations into commercial reality. More and more electricity generation occurs at the regional distribution, rather than national transmission level, but DNOs remain somewhat blind to their energy flows and passive in managing them.

The inquiry finds that the evidence favours DSOs being run by the same companies as the corresponding DNOs, at least in the short-term transition to DSOs. However, as DSOs are an extension of DNOs’ monopoly power, this should be appropriately regulated. Further, if the conjunction proves to have a negative impact on consumers as the DSOs’ functions develop, then the distribution networks’ operation should be separated from their ownership.

Regarding the formation of an ISO, the Committee is of the view that the potential for conflicts of interest for National Grid seem intractable and growing. Among these are ‘asset padding’ or encouraging physical infrastructure development and then profiting from it, and as owner of interconnectors advantaging these over storage or demand response as a balancing tool.

The government should set out its intentions regarding an ISO as soon as possible, and consult on a plan for implementation.

The Energy Networks Association (ENA) has welcomed the recommendations, saying the Committee is absolutely right to recognise the value of DNOs moving to DSOs. “This natural evolution will maximise the value of new technology and equipment, alongside the potential for more flexible balancing at a regional level that can help lower costs for consumers,” said chief executive David Smith.

Further reading

Energy and Climate Change Committee: Low carbon network infrastructure

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