Scottish and Southern Electricity Networks (SSEN) has unveiled the prototype of a new cost comparison tool for networks to help them decide between procuring flexibility services to manage a constraint or undertaking reinforcements.
The methodology, developed by Frontier Economics and outlined in a new report, provides a way of assessing the value of the optionality that flexibility can provide in the face of uncertainty.
“There is an opportunity cost of investing in a network reinforcement now rather than using a flexible resource to help defer the investment to a later period when it can be known with greater certainty whether the investment is needed,” the paper explained.
“The combination of uncertainty and irreversibility creates the so-called ‘option value’ of using flexibility as an alternative to enhance the network today and can be estimated using option theory. In general, the greater the uncertainty, the greater the value of optionality and the greater the incentive to keep these options open.”
“Acting as a neutral market facilitator is critical to SSEN successfully operating as a distribution system operator (DSO),” said Andrew Roper, DSO Director for SSEN.
“Customers and industry need to be confident of a level playing field and by going to a third party to devise this methodology we are ensuring that neutrality will be embedded in our decision-making process.
“This tool will help SSEN to make better decisions over long time horizons, factoring in the costs and benefits of different approaches and considering what will be most beneficial for the communities we serve.”
The methodology incorporates various direct and indirect costs – from capital and operational expenditure to the increased risk of blackouts or higher losses – to present networks with an expected cost for each potential action.
The report emphasised that it is still a prototype and as such has been intentionally simplified to exclude other benefits. For example, it does not compare the expected impact on carbon emissions.
Given the high level of uncertainty over the inputs fed into the model, coupled with the fact that the outputs are highly sensitive to these inputs, SSEN said “the prototype should at best be considered as a tool that can support the decision maker, and not an automated decision in maker its own right.”
Frontier Economics director Dan Roberts said: “By imposing a structure on the decision-making process, the framework allows the decision-maker to think about the key factors which influence the best solution for the network.
“The tool can help identify the best solution given a set of assumptions about the future and can also help to establish how sensitive this conclusion is to changes in those assumptions. It will hopefully serve as a key part of SSEN’s decision making process.”