Introduction. Relevant IBM experience. Summary of our Response

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1 Introduction Relevant IBM experience IBM United Kingdom Ltd is pleased to respond to the Open Networks Future Worlds Consultation issued by the ENA on 31 July Our response has been produced by our UK Energy, Environment & Utilities team and draws upon our experience from: Delivering leading edge, innovative solutions to our clients that demonstrate the realworld benefits of cloud-based Information Architecture, Analytics, IoT and blockchain solutions in the rapidly evolving energy landscape. Actively researching the Energy and Utilities industry and developing a point of view on how it is likely to change over the coming decade ( Operating outsourced analytical and business services for clients worldwide. Summary of our Response The diagram below illustrates the IBM point of view on the transformation of energy. We envisage the emergence of new business models that will transform the traditional value chain by integrating energy into more flexible and digitally enabled ecosystems and business platforms. Our view is that the energy ecosystem will morph into five markets (the hexagons) that deliver a range of services (the rectangular boxes) as changes in technology drive a fundamental restructuring of the industry. We further envisage these markets to be facilitated by a small number of market platforms. These platforms will be key to enabling new entrants, facilitating adoption of new services, accelerating the decarbonisation of transport and heat and delivering dynamic system flexibility.

2 There is evidence that this is beginning to happen, and we would argue that it is a trend that is accelerating rapidly. The challenge will be to facilitate this transformation to maintain and deliver essential services, and to enable innovation whilst simplifying processes and systems. Our experience in other industries suggests that there is less time to react to this transformation than the current approach assumes. The market model also shows that the transformation is not limited to the energy value chain alone. It is important that in considering future scenarios that we consider the impact of transformation at and beyond industry boundaries. The table below describes how the five hexagon model fits in with the Future Worlds.

3 A: DSO Coordinates B: Coordinated DSO - ESO C: Price driven D: ESO Coordinates E: Flexibility coordinators Grid Services ESO obtains flexibility services for distribution attached DER to deliver grid services via ESO Both DSO and ESO interact with the Energy Exchange market. DSO and TSO understand cost of all services they provide at any time. DSO obtains flexibility services to deliver grid services via ESO DSO and ESO obtain flexibility services required to deliver grid services from Flexibility Coordinators Energy Exchange DSO has direct interaction with Energy Exchange market to procure flexibility Both DSO and ESO interact via the Energy Exchange market to procure flexibility DSO and TSO deliver priced grid services that are included in energy cost and traded on market ESO has direct interaction with Energy Exchange market to procure flexibility, DSO obtains service via ESO Flexibility services between DSO / ESO and FC Information Services For all Worlds: DSO and ESO need to understand current and future supply and demand Required for ESO to flow requirements to DSO DSO and ESO require Information Services to coordinate flexibility actions Critical to provide real time exchange of information to enable all participants to optimise supply / demand decisions DSO requests flexibility services from ESO DSO and ESO request flexibility services from FC Business and City Experience For all Worlds: Could be direct or via aggregator directly to DSO (distribution connected) and the ESO (Transmission connected) directly to DSO and ESO (distribution connected) and only the ESO (Transmission connected) Optimise supply / demand based on information and interact with energy exchange to ESO directly to FC Home Experience For all Worlds: Flexibility service provision could be direct or via aggregator directly to DSO directly to DSO and TSO Optimise supply / demand based on information and interact with energy exchange to ESO directly to FC

4 We believe that the role of platforms will be critical in the enablement of these markets. We have seen this with examples such as Amazon, Netflix, Uber and others. Indeed, the development of multiple sub-platforms will also take place as local solutions are created to provide specific services at a local level. Some of these sub-platforms will subsequently undergo a broader consolidation as local services expand and become relevant at a national level, making it necessary (potentially) to work to avoid a Sony Betamax versus VHS situation. It should however also be noted that new technology, such as blockchain or Distributed Ledger Technology (DLT) may allow the energy industry to leapfrog centralised platforms and move directly to distributed platforms. We also believe that the boundaries of energy market optimisation will expand beyond electricity into gas, water and transport (through electric vehicles) - we are already seeing this happen in a number of innovation projects globally. Although multi-vector optimisation is mentioned in the SGAM methodology, we think it should be given more prominence in future thinking.

5 Response to Questions Section 2: The Future Worlds We have set out five potential Future Worlds. Do you believe these provide a reasonable spread of potential futures? Are there other areas of potential Future Worlds you would like us to consider to inform our thinking? Do you have any key concerns with any of the Future Worlds we have set out? We agree: The five future worlds that you have set out provide a good spread of future scenarios. We however believe that World C, Price Driven Flexibility, should be explored in more detail. From the current description it seems as if this World is a variant of World B where some of the demand and supply is influenced by price rather than control signals. It is not clear why this variation could not apply to Worlds A, D and, to some extent, E as well. There is a further World that could be usefully added in our view - a highly automated, largely self-orchestrating system where consumers decide how to act (either consciously or autonomously) based on the pricing information they subscribe to. The DSO s role would be more passive in this World, with the bulk of operations being bottom-up. It s a scenario that may be less likely than the other Worlds in the medium term, but nevertheless should be considered in developing a rounded strategy. Section 3: The Smart Grid Architecture Model Is there anything missing from the SGAM methodology that have been implemented? How can SGAM modelling be used in further work to extract maximum value? What are the limitations of using the SGAM modelling for informing the Impact Assessment? The SGAM methodology itself is a good approach to modelling the Future Worlds but is unlikely to identify completely new and novel approaches. The SGAM model is unlikely to highlight socio-economic impact of different Future Worlds. The SGAM model focusses on the delivery of electricity. We believe that there is a high likelihood that customers will want to buy services (a warm home, hot shower, cooked meal) rather than electricity. It is not clear how this will be modelled in the current SGAM though it could be extended to cover service rather than power delivery or heat, hydrogen or any other specific vector. Section 4: The principle of neutral market facilitation How do you believe neutral market facilitation for SOs can be achieved? What are the possible conflicts of interest that SOs need to be aware of when facilitating the market?

6 What additional requirements would be appropriate to ensure the neutrality of SOs in facilitating the market? Key to neutral market facilitation is transparency. We believe that, while Future Worlds C and E provide the cleanest mechanism to achieve neutrality, all scenarios will benefit from market platforms that provide a level playing field for participants and make all exchanges visible. We also think that it is important to look beyond the boundaries of the energy industry, avoiding the temptation to simply look inwards at ourselves. All platform owner and operators will have access to potentially valuable data. The value of this data can be further enhanced by enriching it with other data and processing it (e.g. performing analysis thereof) to create valuable information. Data visibility and governance are core principles that will underpin the transformation. Integrating a richer mix of structured and unstructured data, combining it with artificial intelligence and analytics and processing it at speed, as well as making the outcomes visible to enable essential decisions in the dynamic optimisation of the network is a new, but essential capability for the future. This has the potential to provide significant benefits to the eco-system as a whole, if it is traded freely, potentially on the same platform. We have seen in other industries that information about service exchanges can become more valuable than the underlying service itself. Creating such an information platform has to be done taking the following into consideration: Fairness who owns the data? Do the data owners benefit from its use? Is access to the data fair? Incentives balancing incentives for providing, enriching and enhancing data and making data available to as many actors for as low a cost as possible. Transparency to facilitate dynamic, functioning and competitive market platforms. Section 5: Stakeholder insights Which SGAM actor(s) best describes your future role(s)? Do you have any thoughts on the insights gained on this role(s) in each of the Worlds? Do you have any comments on the insights drawn on any of the other roles described? If you do not feel represented by any of the actors, how do you believe we should capture your role? We see our role as an IT and IoT technology, solutions and platform provider. We also believe that you should model Platform Owners and Operators as actors. As outlined in our response to Section 4 and our introduction, we expect the energy market to consolidate around five markets that will be implemented on a small number of platforms. These platforms may have national (or potentially wider) scope and can thus not be all grouped under Local Market Operator. Furthermore, the Market Operator may be a separate entity from the Platform Operator. The model should consider the flow of information and associated value in parallel to the flow of electricity. The description of Data Communication Company implies that the DCC will take on additional responsibilities. We believe that it would be better to define a neutral actor, one that represents other communication providers. These will become increasingly important as more instrumentation is installed on the networks. We see IoT, OT and IT becoming much

7 closer than they are today and this convergence will rely on a range of communication technologies. The DCC may end up performing some of this role, but this should not be a foregone conclusion. Section 6: Assessing the Worlds Do you agree with the proposed approach and timescales for delivering the assessment? Are there any improvements you would suggest? Do you agree with the proposed assessment criteria and allocation into cases? What further development would you suggest to the criteria (e.g. any additional criteria) or structure and content of the Impact Assessment? Is there any data you could provide or suggest we collect to support the assessment? Do you believe that there are any tensions between different criteria and if so how should priority be built into the assessment? Are there any functions/roles that need to be considered as a priority area for assessment? We are considering forming a sub-group to assist with the collation of data for the Impact Assessment; do you think this would be worthwhile and if so would you volunteer to be part of the sub-group? We agree with the proposed criteria and suggest that these be augmented by the following: Maximises the value of data. Evaluate what data is collected in each Future World and how can that data be used and enhanced to provide value, both to the efficient operation of the T&D system but also other aspects of the energy, wider utilities and other markets. Socio-economic impact that each of the Worlds could have. For example, in World C, it is likely that not all consumers will be able to participate to the same degree in all flexible pricing solutions. This may not only prevent them from benefiting from such arrangement, the base price may increase as those that do pay less for energy and grid services. We suggest that the impact and potential mitigation strategies should be explored for each of the Future Worlds. Section 7: Key enablers for the future This is the list of key enablers that we have identified: Regulatory changes Organisational changes Communications infrastructure IT systems Network visibility and control Market engagement Contract requirements Funding. Are there more key enablers that we should be considering? Do you agree with our short-term investment priorities relating to the key enablers of: communications,

8 IT, and network visibility & control? Given our short-term priorities, what actions do you consider need to be taken now to address them? Considering the different DSO model Worlds that Workstream 3 has considered, do you think the key enablers differ materially between the Future Worlds? As highlighted in earlier comments: IT, OT and IoT systems will play a crucial role in enabling all of the Future Worlds. We would however add Information Platforms as an enabler in its own right. These may well consist of IT system components but extend far beyond that and have the potential to create value not only in the T&D but also related domains. This added value should be taking into account when evaluating different platform options in the Future Worlds. Security must be addressed upfront and woven into the fabric of the design. Section 8: Proposed next steps Do you agree with the proposed next steps? The Open Networks Project is prioritising areas of least regrets to deliver the benefits of a smart grid as soon as possible. Is there a specific activity within the functions that we have prioritised that you would like us to focus on for short-term delivery? Is there any additional work that we need to undertake? We agree with the focus on least regrets investment. This should however be set alongside two further criteria: Lead time for implementing functions longer lead time functions that have low regret should be tackled first Latest start time All functions should have a latest start time to start investing in them, this assumes that there is an agreed timescale for transition.