We asked Ofgem how they see the electricity system evolving and what this will mean for communities. Their response is below.
The GB energy sector is facing significant transformation. Renewable energy, new technology including electric vehicles and decarbonised heat provision could revolutionise the energy system in the future.
The growth of local energy forms part of this energy revolution. We have seen a range of different local energy projects emerge over the last few years. An overview of the emerging local energy business models was published last year. These projects have diverse characteristics and often cut across traditional sector boundaries such as generation, networks supply and consumption. We welcome the emergence of local energy and consider that it is increasing consumer engagement and choice.
Making better use of existing grid capacity
The changes to the energy system provide new opportunities and challenges for network operators. For example, new technology allows network operators to better manage the network in real time. However, changes in the location and amount of generation and demand has led to network constraints in some areas.
To accommodate these changes in the energy system, and ensure that we able to capture the benefits of local energy, we must make better use of existing network capacity. If we don’t, then it will push up bills for all consumers and increase the cost of getting local energy projects connected to the grid.
Last year, Ofgem and government published The Smart Systems and Flexibility Plan, which estimated potential total savings of between £17 billion and £40 billion by 2050. Of this, £10 billion to £13 billion of the prospective savings were from reduced network reinforcement by making better use of existing network capacity. Local energy projects can help achieve these savings, by better matching generation and demand and avoiding situations where networks constraints are reached.
Ensuring network access and charging arrangements reflect the benefits of local energy
In July 2018 we published our proposed scope of a review of reforms to improve how grid access is allocated and charged for, to make better use of the existing network. The proposed scope of the review reflects the benefits that local energy can provide to the energy system and will better reward users, including local energy projects, that relieve network constraints and so reduce the need for investment in new network capacity. We want to ensure that the arrangements for network access and charging provide better signals about how importing energy from or exporting energy onto the network at different times and places could increase or reduce network costs.
In our consultation, we are proposing a comprehensive review of network charges at the lower voltages (i.e. distribution) to more accurately reflect the value, or costs, of users’ actions on the network. In particular, we want to improve the locational signals that are sent through charges. For local energy users, this could better signal the benefits of matching generation and demand locally. We consider that this could be the simplest way of recognising the benefits of local energy.
We are also proposing to review the proportion of network reinforcement costs that are paid by connection customers. The potential high upfront cost of getting connected to the network has often been highlighted as a potential barrier to local energy and reforms could help address this.
In addition to reforming network charges, we are also proposing to improve the choice and definition of connection options available for network users. This could allow local energy projects to choose the type of network access that most suits their needs and could allow more users to connect to the network. For example, a local generator could choose whether it wants to buy access to the network to export electricity at any time, or it could pay less and buy access that varies over time (e.g. seasonal or time-profiled access). We are also seeking views on whether it would be possible and desirable to develop new access options to allow some users to obtain “local” access to either a geographical area or certain network voltage level. However, this could be complex and we think that the benefits of local energy may be captured more easily by reforming network charges.
As part of our consultation, we are also exploring ways to allow local generators and demand projects (or other users) to exchange capacity they hold, with others who are looking for grid access. This will make for better use of capacity and could help speed up connections.
How we propose to take these areas forward
We want to hear from stakeholders about our proposals. In particular, will be engaging with stakeholders about at the next Charging Future Forum on 5 September. More information on our proposals can be found in our consultation [link here] which closes on 18 September. We will make a decision on our way forward later this year.
If we go ahead with these reforms, we want to have all the reforms in place between 2022 and 2023. We must seize this opportunity to make changes which will help new projects, including local energy, get connected to the grid more quickly, and at the lowest cost for consumers.