Despite having a former transport secretary for a chair and a chief executive whose prior career is dominated by notable work for the Department for Transport, the National Infrastructure Commission (NIC) is not “a transport commission in disguise”, promises Philip Graham as he meets with Utility Week in a nondescript, windowless back office of the Treasury where NIC has its temporary headquarters.
To prove this, among the first outputs of the NIC, which was launched in late 2015 to bring much-needed long-termism to national infrastructure planning, was Smart Power. The report was widely welcomed by industry and explored many of the most challenging and exciting elements of the energy system revolution we all know is afoot. “It was probably the most important piece of work we could have done,” observes Graham – namely because having low-carbon, flexible yet secure power supplies is fairly fundamental to all other infrastructure futures that the commission will look at.
Smart Power, published in March, pushed out an ambitious £8 billion a year figure for the amount of consumer savings that the creation of a more flexible and responsive power system could realise by 2030. It also set out a three-pronged strategy for realising this flexible future – increase interconnection, deploy energy storage and enable demand-side markets.
The report set out some challenging targets and details around these three elements and it has already elicited results in terms of shaping policy and regulation. Government has accepted its call for an increase in planned interconnection projects, raising its target for added capacity from 5GW to 9GW. Meanwhile, the Department of Energy and Climate Change (Decc) and Ofgem have embarked on a consultation to find ways of removing the barriers Smart Power identified to freer deployment of electricity storage.
Smart Power also contributed to the growing debate around the future of National Grid as the system operator, expressing support for the movement towards greater independence for the system operator, but stopping short of advocating any radical action in the short term to strip National Grid of this function.
Graham clearly enjoyed the “intense” and “streamlined” process of pulling Smart Power together. He shows an intuitive understanding of the size of opportunity for whittling down the costs associated with our energy future. The £8 billion a year savings figure put forward by the report is based on a calculation run by Imperial College London of the amount that will need to be invested in generating capacity in order to meet demand out to 2030. Based on this “we began to think, okay, that’s what it is going to cost to deal with continuation of this very peaky system – what about if I introduce some greater flexibility by having greater demand-side flexibility that starts to shave off some of those peaks… how much does it reduce the generating requirement? If you can shave that peak further through storage measures, how does that start to bring the cost down? If you can deal with intermittency through storage, how does that bring the cost down?”
Add in the costs of building storage, establishing demand-side technologies and constructing an array of electricity interconnectors, and still the consumer bill “pales into insignificance compared to the cost of providing generating capacity for the current demand profile”, says Graham.
It’s not just the grand vision that interests him though, but the detail too. Forming part of a rapidly growing fan base, Graham is an energy storage enthusiast, brightening as he talks about the time the NIC team spent exploring an array of different storage technologies from compressed air and liquid air storage to flow batteries, flywheels and supercapacitors (see p20 for developments in the storage market).
Conducting this research was “exciting and interesting” he admits, although he promises that the NIC is not in the business of “picking winners” – merely establishing a feel for the breadth of technologies that will need to be taken into consideration as market structures are adapted to allow a bigger role for storage.
Among the changes the storage industry has called for most vocally to date is to overturn the current licence conditions for storage, which see it classified as both an end user and a generator of electricity and hit twice, therefore, by system charges.
It’s a commonly talked about barrier to storage deployment that Smart Power highlighted too, yet recent statements made by Ofgem in front of the Energy and Climate Change Committee (ECCC) made it clear that those hoping the regulator’s raft of reforms will include a new licence condition for storage are likely to be disappointed. Andy Burgess, Ofgem’s associate partner, energy systems, told the ECCC that this is “not the immediate solution”. Furthermore, Burgess flatly turned down the idea that the effective application of storage technologies, and the realisation of system flexibility, could be rapidly scaled up by allowing distribution network operators (DNOs) to own and operate the technology – something they are currently barred from doing.
What are Graham’s thoughts on these developments? Despite the fact that they seem at odds with Smart Power’s inclinations, he’s unfazed and neutral. “Whether, when it comes to the crunch, the right answer… is a change to the way storage is classified or whether there are other ways you can achieve the same end goal – we are not in a position to say,” he comments, diplomatically. “What is clear is any single regulatory change on its own will not solve the problem.”
And what about the ability of DNOs to engage and become more commercially driven – again, something the NIC seemed to advocate? Here Graham is more assertive: “We came up with a pretty strong recommendation that moving distribution networks into a position where they are more actively operated is absolutely crucial as you move to a more distributed generating system, as you move to smarter uses of power.”
The changes and complications inherent in that transition “might well lead to DNOs thinking more commercially and operating some of the kinds of markets that the transmission operator does at the moment”, he says.
Pushed on just how much commercial opportunity regulated utilities should be given in order to allow and incentivise investment in transformative technologies, Graham pauses for significant thought, and concludes – again diplomatically – that it is an area with potential.
He apologises for not being more decisive (or controversial), but expands: “The objective here is not to have commercial distribution network operators. The objective is to have effective management of those networks and you’d have to look at the advantages that came from introducing those commercial incentives and opportunities, balanced against the other impacts it might have on that objective.”
A step on from the potential for DNO commercialisation takes us to Smart Power’s thoughts on networks’ relationship with third parties. Network engagement with external partners is a topic that has garnered rising interest in recent months, especially in relation to innovation schemes. The NIC’s perspective on this is that establishing new and improved ways for networks to share risk with third parties might facilitate the realisation of decentralised and diverse energy systems – the planning requirements for which are uncertain and complex.
“It’s not job in the long run to be planning and working out and making decisions about where developments ought to be located or what scale they should be at,” states Graham. “The system doesn’t really allow for it at the moment, but if the infrastructure owner could work with the developer or the local authority which is responsible for the special plan that the infrastructure is designed to support, then between them there ought to be better information to manage risks and to understand what a viable but not unnecessarily expensive long-term plan is – and to deliver that.”
This fairer division of risks sounds like a positive step, but is it enough for networks which, despite the flurry of activity driven by innovation funding in recent years, are still generally considered slow moving and risk averse? Does Graham think networks are innovative enough to realise the transition the energy system needs?
It’s clearly not the first time he’s been asked such a question. “My impression was that they are very interested in this. They like talking about it and they are very keen on being involved in it. And certainly the larger players – National Grid – are taking it forward.
“I think the difficulty is – and this comes back to why getting the market structure and the regulatory system right is so important – that they are really good at it and really interested and keen to talk about it, on a pilot basis. Or on a small-scale basis where a bunch of grants have been given out for them to try new things.
“They still haven’t got – for the most part – the structures in place to take the results of those pilots and roll them out on a large scale.”
In short, despite willingness, networks have not been able to hit the point where they can look at an innovation project finding and decide: “Okay, that worked there. Now how can we roll it out, significantly more widely.”
A big ramp-up in deployment for smart solutions is increasingly urgently needed to support climate change commitments and service changing consumer wants. But the power system cannot come up with a way of doing this on its own. Going forward, there will be far more interdependency between the evolution of transport and communications infrastructure – as well as big questions to be answered about the relationship between electricity and other parts of the energy system and co-ordinating these will be tough. Happily, the NIC is poised to produce insights into this spaghetti-plate of infrastructure challenges.
An interview with Philip Graham also recently appeared in Utility Week’s sister title, Network. You can read this here.