Analysis: Smart systems – heed the call

The long-awaited call for evidence for the transition to a smart, flexible energy system holds little in the way of surprises, but at least allows the journey to get under way. Lucinda Dann explains.

The age of exclusive control by big energy companies and central government is over, declares Greg Clark, the new minister for business, energy and industrial strategy, in his foreword for the long-awaited call for evidence on the move towards “a smart, flexible energy system”.

Industry has been waiting far longer than it expected for this moment – the potential catalyst for technological and market innovation and the end of the energy system as we know it.

In reality, Ofgem has been consulting on the future for some time. Last year it issued a position paper on flexibility. Before that it had consulted on the transformative potential of non-traditional business models and their challenges, risks and opportunities.

Now the focus is on where regulatory change or space for innovation is needed. The smart system positioning paper identifies four main areas of work necessary to build a system capable of cultivating innovation and meeting the changing demands of customers: removing barriers to storage and demand-side response; improving price signals to allow more flexibility; catalysing innovation; and assessing changes to roles and responsibilities in the energy system.

Clark says that both the government and Ofgem “ask open questions about these strategic choices”, but Ofgem has ignored calls to allow distribution network operators (DNOs) into the storage arena. Instead, it has pushed forward a vision of competition despite voices of doubt from the industry on whether a truly competitive market for storage is possible. Ofgem sets out its vision for storage in the box on this page.

Little in the call for evidence is a revelation. As expected, energy storage sees the full range of known barriers addressed and potential solutions given. But some less discussed areas have also been singled out for attention, such as the role of aggregators, low-emission vehicles and cyber security.

Previous work by Ofgem has identified a range of barriers preventing aggregators from delivering smart technology and processes, and the consultation aims to address these. They include selling services to the system operator and accessing the balancing mechanism. There could be some further issues, including cross-party impacts in the energy market, aggregated actions that impact on the secure operation of a local or national system, and consumer protection risks.

The paper also recognises the potential risks of allowing the ultra low-emission vehicle market to evolve without some guidance. Ultra low-emission vehicles, such as those based on electric and hydrogen fuel cell technologies, are critical to meeting carbon reduction targets and tackling air pollution.

But the paper states that “without any intervention, there is a risk that electricity demand to support these vehicles could add to existing demand peaks, triggering expensive network reinforcements and a need for additional peak generation capacity”. It says there is the “opportunity to help shape norms, expectations and markets so that electric vehicles are integrated” in the most cost-effective way possible.

The government has said little before this on the role it could play in the development of this important sector. But it is now calling for views on how it and industry should bring forward smart charging propositions for consumers.

A smart system inevitably means a more interconnected and digital system, opening the door to security issues. The paper makes it clear that building security into any solution will be a fundamental priority. It will potentially be the first time the energy system receives major guidance on how to implement cyber security.

The consultation can no doubt expect a wave of input from all corners of an industry that has been waiting with bated breath. But the period of response is short. Businesses have until January to submit their views so that Ofgem can publish a plan in spring 2017.