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Innovation and governance
for future energy systems -
what role will distribution
companies play
Catherine Mitchell
SYS DTU Lunchtime Seminar
26 October 2017
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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/