Innovation and governance

for future energy systems -

what role will distribution

companies play

Catherine Mitchell

Catherine.mitchell@exeter.ac.uk

SYS DTU Lunchtime Seminar

26 October 2017

2

Definitions

Innovation -Not just technology, but new practices, business

models, social preferences, that lead to change on the

ground

Governancethe policies, institutions,

regulation, market & networks rules & incentives

and the process/politics behind them (including the way people are involved)

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IGov project – which pays for my

salary• An Research Council UK Established Career Fellowship

– Phase 1 Innovation and Governance for a Sustainable

Economy 2012-2016

– Phase 2 Innovation and Governance for Future Energy

Systems 2016-2019

• Basic idea was that the GB governance system was not

fit-for-purpose; we should explore if there was evidence

for that statement (YES); and, if so, provide

recommendations for a fit-for-purpose governance

system

• Ultimately, research council grants have to benefit the UK

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General challenges of transforming energy

systems – happening all around the world

New technologies – S, D, storage

Prices dropping

IT and digitalisation , apps / platforms

Decentralising

Increasing proportion of variable power

New ways of operating system

Energy economics changing; new services can be offered;

OLD system of simply adding capacity to infrastructure to match generation capacity is too expensive

Need to increase flexibility of the ES, including the demand side

Wholesale market does not provide sufficient granularity of values at local level

Increasing on-site generation and storage raises issues for funding networks

Electricity use either levelling off, or should level off

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Current GB Governance System

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GB has specific problems (in addition to the generic,

global issues that energy system are undergoing)

Problems to do with

current institutionsProblems to do

with operation

Lack of transparency in policy making

Perceived risk of short term ‘political’ policy

change

Problems to do with

transparency &

legitimacy

Lacking

A way to incorporate CCC budgets across

institutions

A means to coordinate value of DER & local

markets

A place for discussion and consensus building

Ofgem ill-suited to rapid system change,

regulation lagging change

Self-regulation leads to inertia

BEIS policy decision de facto delegated to other bodies and not directed

to desired outcomes

End users still mainly passive consumers, within sectors, and

customer propositions still do not reflect what

customers want

Uncoordinated decision making

Poor access to data

Uncoordinated & directionless system change

SO focuses on T rather than integrated T & D and across

vectors

Value/payments in system reflect conventional system

Conventional means of infrastructure development and market design no longer

suitable with RE and flexibility requirements

Discrepancy in knowledge and ability

to communicate it between actors, and to

check it by Government / Ofgem /

decision-makers

RIIO Incentives reflect BAU

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Fit-for-Purpose GB Energy Governance Framework

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Taking this in easy steps, we

translated the framework above into…

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Overview Findings of IGov1 – 4 central dimensions

required for energy system transformation

Transfo

rmatio

n

Flexible, coordinated

operation & design

ReformingRegulation

Customer Focused

Transparent & legitimate

policymaking / institutions

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Overview Findings of IGov

Customer Focused

• Customer wishes at center, and policies built around customer proposition

• Meaningful consent• Engagement• Trust, equity, legitimacy and

democracy• Tariffs, prices and bills• PSO

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Overview Findings of IGov

Transparent & legitimate policymaking/institutions

• Coherent, legitimate , co-ordinateddecision making (including incorporating CCC Advice via institutions)

• Less BEIS delegation, more SoSDirection (ie IISO v Ofgem)

• Consensus Building Body• Market Monitor and Data Body

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Overview Findings of IGov

Reforming Regulation

• Ofgem to become economic regulator (same heirarchy as IISO), but with duty to meet CCC carbon budgets

• More performance based regulation (iemore output focused)

• DNO to DSP• Restructured RIIO• Closer link between networks, markets

and data• Access to data

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Overview Findings of IGov

Flexible, coordinated operation & design

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Overview Findings of IGov

Flexible, coordinated operation & design

• Service should be able to sell to whom they want (national or local)

• Customer should be able to buy from whom they want (national or local)

• IISO has responsibility to develop infrastructure to meet CCC targets, and to coordinate and integrate across heat and electricity

• DSP are coordinators, balancers and integrators of local areas and markets, regulated through PBR

• Bottom-up system optimisation with TO increasingly balancer

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Now – trying to think deeper about the

role of distribution, and from a whole

system perspective

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The question to explore:

New techs

and

potential

new

services

Local and

regional

new things

which are

happening

e.g. new

apps, etc

Insufficient

co-

ordination

via regional

/ local /

policy /

governance

Less good

results

(cost/ new

entrants /

CO2

reductions

+ BUT

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Distribution issues, and questions which need answers

Is co-ordination at the

local level essential or

can it all be done at

national level?

If you think you need local

coordination because it

helps a no. of public policy

concerns, what…?

Issues to think about: Does it complement

other EP goals?

What would be the institutional response to

that?

What would the market response be? W+C@N

or W@N+L@D

What is the regulatory response – move to

more PBR?

What is the tariff response?

What would the customer role be?

Institutional – is this a wires + DSO? Or

separate? Does it matter?

PBR? How to value it? See next slide

A way to pay for networks? If energy costs

<50%?

Fits with wider issues of market design for variable

RE

Fits with wider issues of EE, integration between

sectors, customer involvement

What role TSO / ISO? And between T and D?

Supply and IT technologies are decentralising ie solar, storage,

2nd generation batteries etc

With more variable power need to change traditional regulatory

mechanism of matching infrastructure development to

wire capacity additions

Need more flexibility, including domestic DSR

Digitalisation and IT - new apps / platforms for new services –

what does that do for local co-ordination / balancing, system

op

What about domestic customers – can they be paid for system

services etc

Flattening / reducing load due to EE and better op.

Does local co-ordination / balancing (nested in

wholesale market ) have benefits?

A DNO, DSO, DSP? Should they be area coordinators or could another platform do

this?

Heat and demand side tends to be local; integration tends

to be local – need to understand more about the granular , dynamic time and

place values of DER and system services

What is the value of this for customers – total cost;

choice; Co2?What would the network

charging response be?

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How to regulate a DSP since its functions are so

different from a DNO? - NYS as an example

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DNO DSO DSP

1 10

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Alternatives (trying to think globally

not just as Denmark)?

• Is the current model: markets, network regulation,

customer involvement, ISO, tariffs going to work (as

in lead to sustainability quickly enough for GHG

targets; be secure and affordable) in a

decentralising, decarbonising, digitalising world

• Is democratisation of energy important?

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Thankyou

For more information, please go

to the IGov website

http://projects.exeter.ac.uk/igov/

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Additional Slides

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The IGov approach

Challenges to be met

Specific problems to solve

Principles of institutional

reform

Institutional solutions &

reform

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General challenges of transforming energy

systems

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6 Key Principles of Institutional Reform

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What is a traditional distribution network

utility?

Distribution Network Operator

• Supplying energy units to customers• Maintaining certain operational standards• Making a rate of return on capital assets, so incentive to add capital assets

Maintaining a safegrid

Maximising asset infrastructure

Rate of Return Regulation

Source: Adapted from CSIRO and Energy Networks Association 2015, Electricity Network Transformation Roadmap: Interim Program Report

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What is a Distribution Service Provider?

Distribution Service Provider

• Integrating all types of DER via increased system and energy efficiency • Enabling customers to provide and be paid for services to D-grid• Facilitating services between 3rd party providers and customers• Reveal value• Becoming ‘active’

Maintaining a safe &

resilient grid

Increasing system

efficiency

Optimisinginfrastructure

Support/ enable public policies

Enabling highlyreliable & resilient energy services

Bring forwardcost-effective ways of achieving outcomes

Providetransparent data

Higher proportion of Performance Based Regulation to Revenue

Source: Adapted from CSIRO and Energy Networks Association 2015, Electricity Network Transformation Roadmap: Interim Program Report

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Coordination at Distribution level important

Source: adapted from Vercschae, Kato, Kawashima & Matsuyam (2015) http://vision.kuee.kyoto-u.ac.jp/japanese/happyou/pdf/Rodrigo_ASN_2015.pdf

Demand Management (demand response) Co-ordinated energy management

Electricity, heat &

transport/DER

Aggregator

Supply-side Demand-side

Supply Management (operating reserve)

Top down signal

Consumers (EMS)

Electricity, heat &

transport/DER

Co-ordination

• Cluster of single actor best effort• Limited control ability

• Actors communicate to coordinate• control feedback

• Community best effort• Higher control ability

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Examples of International

decentralised marketsDeveloped World but still withinconventional wholesale market paradigm

Developed World but new institutionalised distribution / local market

Developing World

Apps NYS Eg Mobisol

Platforms Eg Solarkiosk

Some P2P – still rare on ground (ie Buffelton Sep 2016 Australia, PowerLedger))

P2P LO3 in NYS (no money passed yet)

Very occasionally demand side at local level

Community Choice Aggregation / Muni’s (sometimes owning the wires)

Amazon, Google more likely in this market structure

There are demand side electricity new business models but not as yet decentralised

Decentralised demand side AND integrated with heat and EV more likely in this market

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Links / References (1):• Our fit-for-purpose governance framework document:

http://projects.exeter.ac.uk/igov/paper-gb-energy-

governance-for-innovation-sustainability-and-

affordability-2/

• Our submission to flexibility call :

http://projects.exeter.ac.uk/igov/submission-beisofgem-

smart-flexible-energy-system-a-call-for-evidence/

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Links / References (2)

• A 6 part series on New York versus California regulation

• http://projects.exeter.ac.uk/igov/comparing-nys-and-ca-blog-1-

series-overview/

• Reset the reset (3 blog series)

http://projects.exeter.ac.uk/igov/new-thinking-reset-the-

reset-1-we-need-institutional-governance-reform-and-

we-need-it-now/

• Overview of RIIO Review

http://projects.exeter.ac.uk/igov/new-thinking-the-riio-edi-

review-just-how-successful-is-riio/

• Argument for Ofgem to be reformed

http://projects.exeter.ac.uk/igov/new-thinking-ofgem-has-

to-be-reformed-if-gb-is-to-meet-its-energy-policy-goals/

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Links / References (3)

• See our DSP slidepack

http://projects.exeter.ac.uk/igov/new-thinking-

distribution-service-providers/

• NY REV blogs

– http://projects.exeter.ac.uk/igov/new-thinking-

transformational-regulation-comparing-the-ny-rev-riio/

– http://projects.exeter.ac.uk/igov/us-regulatory-reform-

ny-utility-transformation/