The planned transformation of local electricity network companies into distribution system operators (DSOs) is “not sufficient” to deal with the growing threat of climate change, an academic has warned.
University of Exeter energy policy professor Catherine Mitchell also called for a major overhaul of the RIIO price control regime for energy networks.
Mitchell was speaking during a seminar on the transition to a DSO model for distribution network operators (DNOs) at Utility Week Live in Birmingham last week, in which she questioned the entire premise of the discussion.
She said the plans set out by DNOs are not ambitious enough given the speed at which the power grid needs to be decarbonised: “We have to move on from a DSO… It’s simply not sufficient for the environment.
“You can fudge it for a few years, but you really can’t make all these changes if you carry on.”
She said the DSO model is still based around a linear value chain and large centralised generation. DNOs must make a more radical change by adopting a “distribution service provider” (DSP) model, she argued.
Mitchell explained the DSP model would see network operators go further than just procuring flexibility services to deal with constraints.
They would also become facilitators and coordinators of local energy markets, which would be used to balance the energy system at the grid supply point level where cost-efficient. Remaining imbalances would then be bought and sold in national markets. Actors trading locally would benefit from reduced transmission charges.
The power grid would be optimised from the bottom up rather than the top down. This, she said, would reveal the “true value” of distributed energy resources to the overall system.
To accelerate the transformation of the energy system, Mitchell said the RIIO regulatory framework also needs to be reformed. She said returns for building and maintaining assets should be reduced over time and be largely replaced by payments for meeting set policy goals and facilitating local energy market transactions.
According to Mitchell, this would allow the price controls to become more responsive to unforeseen technological developments and push network operators to become proactive in driving forward the decarbonisation of the energy system.
The RIIO framework has been criticised for allowing network operators to earn “excessive profits”.
Mitchell said under her proposals the Return on Regulated Equity (RoRE) could be even higher for those networks which were successful in meeting their targets, although nominal returns would likely be lower. She said revenues would be diverted towards third parties, who would play an even greater role in the operation of the energy system.