DNOs get go-ahead to offer voltage control as balancing service

Ofgem has given the green light to distribution network operators (DNOs) to continue providing voltage control as a flexibility service to National Grid Electricity System Operator (ESO), despite strong concerns from key industry stakeholders.

The use of voltage control to manage electricity consumption and free up network capacity during peak times was pioneered by Electricity North West (ENW) in its Customer Load Active System Services (CLASS) innovation project completed in 2015.

The following year Ofgem issued a regulatory direction allowing DNOs to offer voltage control to the ESO as a directly remunerated service in competitive balancing services markets. However, this direction only lasts until the end of the RIIO ED1 price controls in March.

Over the last few years, Ofgem has been consulting on how to regulate the service in RIIO ED2. It has now decided to proceed with its minded-to position to maintain the current arrangements.

According to the regulator’s impact assessment (IA), the use of voltage control as a balancing service could deliver net benefits to consumers of up to £1.75 billion between 2023/24 and 2052/53, including through reduced balancing and distribution charges, if rolled out by all six DNOs.

Ofgem said ENW has been using voltage control to provide three types of reserve and frequency response services for the last four years. ENW said the service has already shaved £7.3 million off customers’ electricity bills since being deployed across its region more than two years ago.

Paul Bircham, the company’s engagement and regulatory strategy director, said ENW was “delighted to see a forward thinking move by the energy regulator” in enabling a national rollout of the service in ED2.

“The system really is one-of-its-kind and it will benefit all electricity customers and, if rolled out nationally, Ofgem have estimated CLASS could save customers in excess of £1 billion,” he added.

Despite this there is strong opposition to the move from some key players, with serious concerns about the impact on competition.

In its response, trade body Energy UK said the “vast majority” of its members “hold a position of opposition in principle to the use of CLASS in ESO markets”.

“CLASS participation in markets is viewed by those members as unfair, anti-competitive and in conflict with Ofgem’s principle that regulated monopolies should not be involved in the provision of flexibility services,” it added.

Meanwhile, Centrica reiterated its view that “implementing Ofgem’s minded-to-position would be unlawful”.

“We supported Ofgem’s decision to take time to consider the points raised by respondents to the 2020 consultation and conduct an impact assessment. Regrettably, despite Ofgem acknowledging stakeholder concerns, the IA is inherently biased towards defending Ofgem’s preferred option, indicating that Ofgem has closed its mind to other options.”

Ofgem said it believed concerns raised by stakeholders are “overstated”.

It said: “Stakeholders supporting our minded-to position recognised that CLASS is a low-cost, low-carbon innovation that will reduce consumer bills and strengthen electricity system security.

“Those against the minded-to position expressed concerns about the longer-term impact on investment in other sources of flexibility and the continued prospect of DNOs operating in competitive markets.

“We believe these concerns are overstated, and we were not provided with any evidence to demonstrate that the direct and indirect costs of CLASS would outweigh the considerable consumer benefit we found in our IA.”