Demand patterns for energy consumption are changing rapidly. Two-way power flow is changing the game, driven by renewables such as solar and wind generation, as well as distributed energy resources such as energy storage, electric vehicles and community grids.
These changes will fundamentally and structurally change the energy sector. As a result, UK regulators, policymakers and network owners are facing big questions about how they will confront this change, whilst protecting customers. The recent publication of Dieter Helm’s Cost of Energy Review has drawn some of these questions into sharp focus. Whilst not all agree on Helm’s more controversial proposals, his thinking has forced an important debate.
What is clear is that the revolution will require widespread innovation, and contemporary transmission system operations principles will need to be applied across the whole distribution system. This will create new opportunities, enable consumers to monitor and manage consumption closer than ever, and allow for the market to deliver new and enhanced services to customers.
However, balancing access, power reliability, risk and costs is an increasingly complex challenge facing utilities. The UK has gone some way to meeting the challenge, but we are not where we need to be yet. To better serve these network flexibility challenges, the market must transform to a new model: distribution system operators, or DSO.
Across North America, we have been delivering innovative energy storage solutions and microgrids, as well as advising utilities on grid modernisation and financing options. Likewise, we recognise that any new model adoption must put customer needs and interests first. Now with a presence in the UK, we can translate those US experiences into helping the UK to develop its DSO model.
The DSO model is an attempt to realign the market to maximize available resources, and foster competition and technology adoption, all the while continuing to solve micro-level, day-to-day challenges throughout the network. This cannot be done in a vacuum and various stakeholders must play roles in the transition.
“Regulators will face a delicate balancing act in order to incentivise investment while at the same time protecting consumers and competition.”
The DSOs will need to take an active management role and serve as un-biased third-party arbiters of electricity throughout the network. They must accommodate for flexible supply and demand by being active in the planning and forecasting of the system’s future needs, and be aligned closely to delivering customer requirements through a deep understanding of network constraints and real-time asset interconnections. This way, current and future network challenges can be resolved at the distribution level in real time, using network performance data to drive both efficient operation and future investment strategies.
Distribution network operators (DNOs) in the UK undoubtedly have an important role to play in the transition to the DSO model. As network owners and operators, they are uniquely familiar with their systems and where resources can be deployed to accommodate for the intermittency caused by renewable and distributed generation. They are responsible for monitoring and managing their systems and developing investment strategies for future growth. They also benefit from economies of scale that may be needed for sufficient adoption and cost distribution, while protecting the country’s most vulnerable.
A key consideration must be making it easier for a DSO to serve as a neutral third party, to protect a level playing field for power aggregators and meet demand fairly.
A year ago, DNOs began conducting stakeholder consultations to gain public input on the DSO model and how DNOs might adapt. Some recurring themes have emerged, including the question of how the most vulnerable customers will be protected. To be certain, if the transition to a DSO model is to be successful, continued public consultations will be necessary and customer needs must remain at the centre of development. Moreover, stable regulation to support the evolving industry is necessary to promote investor confidence throughout the value chain.
In addition, the DSO revolution means that planners must consider different metrics to incentivise the market to address system uncertainties and closely monitor and actualise projections. RIIO2 price controls will need to regulate and provide guidance for the pending uncertainty, including the role of storage, electric vehicles, the DSO, and pathways to decarbonisation.
What is clear is that utilities and anyone serving in the DSO role must leverage new technologies, including broad communication and sensor platforms paired with distributed generation to solve traditional challenges. Regulators will face a delicate balancing act in order to incentivise investment while at the same time protecting consumers and competition.
If we can get this right, we will create a platform which will bring significant benefits, but our own experiences have highlighted that it is critical to engage with the broad community to address and solve the challenges affecting us all.
At Burns & McDonnell we are very excited about the possibilities of this revolution taking place in the UK energy sector and how we, working collaboratively, can help the UK throughout this journey.