How to incentivise utilities to adopt low carbon technologies

Transcription

1 How to incentivise utilities to adopt low carbon technologies Dora Guzeleva Head of Network Policy, Ofgem Metering Billing / CRM 9-11 October 2012 Amsterdam

2 Contents 1. Innovation in Next Price Control RIIO-ED1 2. The Challenge 3. Innovation in Current Price Control (DPCR5) - Low Carbon Networks Fund 4. The Move to Smart Grids

3 Taking innovation forward: RIIO framework = + + Revenue Incentives Innovation Outputs Technical and commercial innovation encouraged through: Core price control incentives Option to give third parties a greater role in delivery Innovation stimulus package RIIO A new method of setting revenue earnings for network companies paid for by charges levied on network users over 8 year period Networks will need to be smarter, integrate intermittent sources and encourage customers to manage their demand. The shape of the low carbon future is not clear, therefore companies will need to innovate.

4 RIIO-Electricity Distribution 1 (RIIO-ED1) Key Challenge Need to ensure low carbon technologies (LCTs) and generation can connect in appropriate time at appropriate cost, without causing network problems Driving factors Feed-in tariffs Heat incentive Local planning rules Technological developments Facilitating factors Greater use of smart grid technology & Demand Side Response (DSR) to maximise flexibility at minimum cost ED targets uncertainty around the characteristics, rate and location of take-up of these technologies standard asset life ED2 RIIO framework encourages longer-term view and efficient management of uncertainty RIIO-ED1 needs to drive Distribution Network Operator (DNO) mindset change

5

6 Low carbon challenge The challenge is different for different customers: situation problem DNO behaviour required Existing customers (mainly domestic) connecting LCTs Existing connection can accommodate, but usage may cause problems upstream (depending on aggregate local demand, clustering) Network reliability maintained at efficient cost New customers connecting Distributed Generation or other LCTs no visibility for DNOs DNOs quote for connection (includes reinforcement one voltage level up); issues - reinforcement cost and time Connection in appropriate time and cost, providing customer with alrenatives

7 Proposed ED1 outputs/incentives Outputs are delivered at the most efficient cost Reliability: Reliability incentive, guaranteed standards, measure of customer satisfaction Connections: Time to connect incentive, guaranteed standards, measure of customer satisfaction Efficiency incentive Innovation Stimulus Outputs incentivise DNOs to respond to developments or face penalties The efficiency incentive (sharing factor) will make them consider the most efficient response

8 Incentivising right behaviour: new customers* 1. Quality of customer service (QoS) Retain broad measure of customer satisfaction with improvements more money; separation of large and small customers 1.QoS 2. Timeliness New Average Time to Connect output and incentive to encourage DNOs to move beyond min. standards 2.Time 3. Cost 3. Cost Efficiency incentive drives DNOs to reduce reinforcement costs Encourage DNOs to provide more information upfront which allows customers to make cost effective decisions * Where connection is not in a competitive segment as competition will drive desired behaviours

9 Innovation Companies must engage with all stakeholders (with consumers at the heart) about long term plans Strong incentives to innovate as companies keep a large proportion of savings made in delivering outputs required by consumers Low Carbon Networks Fund - Direct innovation funding to companies through ½ billion Fund

10 Increasing value Increasing oversight Increasing number of projects The Low Carbon Networks (LCN) Fund The LCN Fund comprises of up to 500m over the five year Distribution Price Control Review 5 (DPCR5) period Innovation Funding Incentive: Allowance focused on R&D LCN Fund First Tier: Allowance for trialling new technologies and commercial arrangements to better prepare for low carbon economy. 20m p.a. 80m over 5 years Second Tier: DNOs compete for central fund. Allows trialling new technologies and commercial arrangements to better prepare for low carbon economy. Up to 64m p.a. PLUS up to 100m discretionary reward LCN Fund will develop key learning to inform radical shift in network use

11 The Low Carbon Networks Fund (Current price control DPCR5) Designed to kick start innovation in network companies To ensure sufficient innovation in delivering low carbon benefits where projects might not be commercial So far: 2010 Competition - 11 bids worth over 150m, 4 successful projects worth 63.6m 2011 Competition - further 6 bids worth nearly 60m, all six projects successful 2012 Competition - 7 bids passed Initial Screening worth over 80m Learning (positive and negative) disseminated to all

12 Customer-led Network Revolution (Northern Powergrid) Trialling of smart meters and customer-side interactions with new network technologies (such as storage). Low Carbon Hub (WPD) Investigating how new network technologies can increase the capacity of generation (mainly wind) that can be connected to a rural distribution network. Exploring new commercial arrangements Winning LCN Fund Projects Low Carbon London a learning journey (UKPN) Innovation to facilitate low carbon technologies into urban and suburban networks. Leverages London s low carbon initiatives. Total Funding value = 63.6m LV network templates for a low carbon future (WPD) Assessing the impact of low carbon technologies connected to low voltage network to create generic network models to assist DNOs in efficiently planning and operating networks. LESSONS LEARNED SO FAR ARE SHARED ACROSS THE INDUSTRY Learning starting to emerge 2012 key year for 1 st year projects trials

13 Network Innovations Smart Grids Novel use of equipment, dynamic line ratings, new commercial connection terms for Distributed Generation, better voltage control Greater automation, dynamic ratings, interruptible loads, better voltage control, better planning tools High quality data gathering, improved monitoring, better demand prediction, storage M 132kV 33kV 11kV LV Smart metering, new tariffs, demand side management, heat and electricity storage, interface with Electric Vehicles and Heat Pumps

14 Smart Grids Forum Based on the initial assumptions made, smart strategies show material benefits for all scenarios Net benefits by scenario, under default assumptions All net benefits are relative to undertaking the conventional strategy from Source: Frontier Economics

15 LCNF&NIC (DSR, Time of Use Tariffs, Energy Efficiency Smart Meters LCTs (PVs, HPs, EVs) Role of the DNO is changing (System Operator?) Commercial/Market Arrangements Evolving Smart Grids development during ED1 (from Incremental to Top-Down?)

16 Thank you

17