Government and regulators must focus on building a smart power system without delay, according to the National Infrastructure Commission (NIC).
A report by the unit, headed by Lord Adonis, urges Decc, Ofgem and National Grid to align smartgrid building blocks of demand-side response and battery storage together with local grid control. That would lead to lower investment in new power stations and potential bill savings of £8bn per annum by 2030, according to the report. Better interconnection with Europe must also be a priority, said the NIC.
Investors “queuing up” for storage
The Commission said while businesses were “queuing up” to invest in subsidy-free energy storage, market regulation was behind the times. It said those market barriers must be addressed by Decc and Ofgem by Spring 2017. It also urged the regulator to expedite work that will allow distribution network operators (DNOs) to own and operate storage assets. The government, likely having seen these recommendations, said last week that those rules would be reviewed.
The rise of the DSO
The report said there was no immediate priority to create an independent system operator, giving National Grid the green light to carry on its work as both transmission grid owner and operator as well as delivery agent of much of national energy policy.
However, the Commission called for local grid operators to be given the same kind of dynamic demand management duties as the national system operator – and collaborate much more closely. That effectively paves the way for DNOs to become DSOs – or distribution system operators – which will create an entirely new function for traditional wires businesses.
A move to the DSO model would potentially address conflicting signals at national and local levels, so that, if the national system operator turns off one generator for example, the local system operator does not simply end up bringing on another source of power due to lack of visibility and communication between the two systems.
Some DNOs have already begun this transition. Western Power Distribution, for example, is dividing its operations to manage the two distinct roles DNOs will find themselves playing.
Growth of demand flexibility, or demand-side response, must also be expedited, said the report.
Ofgem must start an immediate review of demand-side response regulations and commercial arrangements, said the NIC, to make participation in the market easier. It also wants clarification on the role of aggregators. This review must take no more than a year, said the Commission. Meanwhile, Decc should make it easier for demand response providers to take part in the capacity market.
Government, regulator and National Grid should also raise awareness of demand-side opportunities to businesses, said the report, with more commercial pilots established and evaluated.
It suggested government could be the first to establish these by implementing demand-response across its estate.
Read the full report here.