London, 17 July 2018 – A group of leading industry representatives have called on the Government to incentivise the energy network companies to unlock flexibility services and deliver better utilisation of the electricity grid.
In an open letter to the Minister for Energy and Growth Claire Perry MP, the group including OVO Energy and Solar Trade Association calls for BEIS to work with Ofgem to ensure network companies are incentivised to prioritise procuring flexibility services over and above traditional reinforcement measures.
The group call their approach to managing the electricity grid “Flexibility First” and have urged Ofgem to make their proposals central to the RIIO-2 price control mechanism currently under consultation.
“The incentive structures that these electricity network companies operate under are not aligned to achieving a smart and flexible energy system, a core part of the Government’s Clean Growth Strategy” the letter states.
“If we are to have any chance of a renewable future, decarbonising heat and transport, keeping energy costs low, and the grid stable, we need to find a solution. That solution is a Flexibility First approach.”
Key principles outlined in the letter also include a shift by network companies to look at whole system outcomes that deliver the lowest cost system for consumers whilst meeting carbon reduction targets and rewarding network companies for making better use of their existing infrastructure by optimising their utilisation factor.
The Government’s Clean Growth Strategy and in-depth research by Imperial College London identifies a £40 billion saving in energy cost up to 2050 by increasing flexibility.
Toby Ferenczi, Director of Strategy, OVO: “OVO has long advocated the value of flexibility services in the energy system of the future. By implementing a flexibility first approach, Ofgem and the Government can play a major role in helping the transition to a smart, flexible energy system that will not only enable deep decarbonisation of our society, but also represents significantly better value overall for consumers.”
Leonie Greene, Solar Trade Association, Director of Advocacy & New Markets: “It’s great to see householders and businesses embracing new technologies like solar, battery storage, smart heating and electric vehicles which will help to slash emissions and clean up our air, but the networks around them need to move faster to capture the big system benefits of these individual efforts. Incentivising networks to focus on buying the flexibility services these new smart homes and offices can offer is an essential first step for developing a cheaper and much more efficient power system.”
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OVO is the UK’s largest independent energy technology company and supplier. Across the group, OVO serves more than 1.1 million customers with intelligent energy services and other home services. Founded in 2009 by Stephen Fitzpatrick, OVO redesigned the energy experience to be fairer, greener and simpler for all. Today OVO is no longer simply an energy retail business: it is group of innovative, dynamic companies, all striving to harness technological advances with great consumer propositions to deliver affordable, clean energy to everyone.
About the Flexibility First approach:
The Flexibility First approach centres on six key principles:
- Flexibility services procured first: Network companies should be obligated to tackle network constraints by procuring flexibility services as a first measure, rather than by building expensive new network infrastructure.
- Targeting ‘whole-system’ outcomes: Rather than focussing on benefits to themselves, network companies should be incentivised to help us achieve our carbon reduction targets at the lowest possible costs for consumers.
- Rewarding grid utilisation: Network companies should be rewarded for making better use of the existing network, rather than building new infrastructure. One mechanism to achieve this is to make the ratio between maximum capacity and the average load on a network (‘load factor’) a primary metric for adjusting network company revenues.
- Facilitating renewable energy adoption: The cost and availability of new connections for renewable generators should become important output categories for network companies, given their central role in supporting renewable energy adoption.
- Promoting entrepreneurialism: Network companies should be able to make genuine financial gains and losses based on their performance on whole-system outcomes. This will encourage companies to implement innovations into business as usual, rather than simply conduct pilot projects with no follow-on. We recommend that any returns above a base return of 2-3% should be based on achieving whole-system outcomes.
- Continue to separate network operators from users: Ofgem has rightly established that network operators may not own and operate energy storage. Similarly, Ofgem should clarify that network operators may not directly control other distributed energy resources such as electric vehicles and instead use price signals to manage and encourage flexible resources.
Signatories to the open letter:
- OVO Energy
- Glen Dimplex Heating & Ventilation
- Solar Trade Association
- Renewable Energy Association
- Chameleon Technology
- Lux Nova Partners
- Green Energy Options
- Dynamic ePower
- Kiwi Power
- Tempus Energy
- Upside Energy
- Caplor Energy
- NES Roofing & Energy
- Grid Beyond
- The Association for Decentralised Energy
Research commissioned by BEIS, and conducted by Imperial College London and The Carbon Trust considered 12 scenarios for electricity demand and technology costs. The findings revealed that a flexible grid would be between £17bn and £40bn cheaper between now and 2050 compared to a system that adds no flexibility beyond the interconnectors and pumped hydro storage available today. An analysis of electricity system flexibility for Great Britain. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/568982/An_analysis_of_electricity_flexibility_for_Great_Britain.pdf .