In July 2017, the Department for Business, Energy and Industrial Strategy (BEIS) published its long-awaited Smart Systems and Flexibility Plan, detailing how it would enable a smart, flexible energy system. It outlined 29 actions for the government, Ofgem and industry, designed to reduce the costs of the energy system and help keep energy bills low for consumers.
This was always going to be a step in the right direction, and was broadly welcomed by the industry, but as recently noted by Toby Ferenczi, director of strategy at Ovo, it did not provide enough detailed answers: “The technologies highlighted in the plan will simply not be propagated under the current incentivisation mechanism. If we are to have a better chance of a renewable future, decarbonising heat and transport, keeping energy costs low, and the grid stable, we need to find a solution.”
Here, we look at the plan’s three sections, what progress has been made, and whether he was right.
Removing barriers to smart tech
Battery storage was the main beneficiary of the proposed regulatory changes. But the main challenge for storage remains regulation and markets for the new services created by its development.
• The Electricity Act (1989) was to be amended, to include a definition of storage as a distinct subset of generation “when Parliamentary time allows”. This has yet to happen.
• Consultation on a modified generation licence for storage was planned for 2017. This has yet to be published.
• It wanted to clarify the guidance on contracts for difference (CfDs), the Renewables Obligation (RO) and feed-in-tariffs (FITs) to make clearer when storage can co-locate alongside renewable generation without putting subsidies at risk. In December, Ofgem published draft guidance for participants of the RO and FIT schemes who are considering co-locating electricity storage facilities with their accredited RO generating station or FIT installation. It then developed this guidance to provide clarity to participants about the treatment of storage facilities within the framework of the schemes in anticipation of increased uptake of co-located storage. Ofgem’s publication of draft guidance for retaining subsidies for renewable generation sites with co-located storage formalised the policy direction for the industry, but CfDs were notably absent, bar one mention. A single reference is made to dual scheme facilities in part accredited under the RO and in part supported under a CfD. Generators are simply advised to “consider the requirements of both schemes”.
• Similarly, it promised clarification that distribution network operators (DNOs) should not be able to own or operate storage and to introduce new reporting requirements for DNOs who already own storage. Ofgem has since published a consultation on this, (in October 2017), so although the clarification has yet to be made, there is progress. Ofgem said at the time its proposals would enable new licensing for storage to be implemented with a shorter timeframe. The results of the consultation are yet to be published.
Enabling smart consumption
• The plan wanted to promote demand-side response (DSR) to both industry and consumers. It said it wanted to achieve 30-50 per cent of balancing capability from the demand side by 2020. At the current pace of change, this looks realistic, as the meters that record half-hourly consumption and support time-of-use tariffs are now in place, and the government and Ofgem are keen to support this.
The domestic and small business side has some ground to cover, but smart meters will undoubtedly unlock the DSR market here.
• The plan also said the government and Ofgem would work with industry to set common standards for smart appliances for consumers that will allow them to benefit from DSR, which has come to pass. There was also mention of the powers to set standards for electric vehicle charge points in the Automated and Electric Vehicles Bill, to allow smart charging and vehicle-to-grid technologies, and again these wheels are in motion.
Making markets work flexibly
• The plan said providers of flexible solutions should be able to realise the true value of their flexibility.
For price flexibility, the Targeted Charges Review and code modifications that followed aim to make sure network tariffs appropriately signal the costs or benefits of using the network at different times and locations.
For contracted flexibility, National Grid’s System Needs and Product Strategy has looked at simplifying the number of balancing services available, to make it easier to stack revenue streams.
• It also said independent aggregators should be able to participate in the balancing mechanism, and in autumn 2017 Ofgem issued a letter to guide industry thinking. Subsequently, BSC modification P344, which proposes creating a new BSC party that would allow aggregators to access the balancing mechanism, is in development.
• The plan said it wanted DNOs to take a more active role and evolve into DSOs (distribution system operators) “so that they can pursue flexible solutions like storage and DSR as an alternative to traditional network reinforcement”. Ofgem has said this can be done within the existing RIIO framework and has put the onus on the industry itself, via the Energy Networks Association’s Open Networks project, to take this forward.