Networks must define future delivery systems

Electricity network operators were urged to embrace new technologies and adapt to an uncertain future at a roundtable discussion hosted by Utility Week in partnership with Accenture.

Attendees said electricity networks have significant responsibility to decide whether the utility “death spiral” will become a reality. It is their role, they said, to define the energy delivery system of the future.

While few felt that a death spiral of consumer migration off grid and increasing technical weakness in unbalanced electricity networks would inevitably lead to the demise of traditional utilities, it was agreed that radical transformation lies ahead and that defensive action or denial of this will lead to diminished revenues and value potential for networks and suppliers alike.

Changes to the networks are “happening now and will continue to happen”, said Ofgem associate partner in smarter grids and governance Andrew Burgess. “And it’s not clear exactly which direction things will go in. They’ve got to change their businesses, but without a definite sense of how they might change.”

Simon Harrison, Mott MacDonald’s group strategic development manager, emphasised the need for a system architect to offer a “forward-looking, whole systems view”. Such a body should develop protocols to encourage the entire energy system to work together “from the highest voltage on the network to beyond the meter into the consumers’ premises”, said Harrison.

Advice from Electricite Reseau Distribution France (ERDF), a subsidiary of EDF that manages 95 per cent of the electricity distribution network in France, echoed this view, saying that a centralised system is needed to manage a decentralised world.

All the attendees agreed that the spectre of regulation hangs over the ability of networks to innovate effectively for decentralised energy systems. There was a call for Ofgem to ensure current regulation does not get in the way of change and, looking to the future, to find new ways to drive  innovation.

Burgess suggested this would be a challenge given that today’s regime was “established for a world that existed 10 or 20 years ago, but might not be fit for purpose in the future”. Meanwhile others around the table were more forthright, censuring the current style of regulation as stifling, and declaring that networks are told to think differently, but “not too differently”.

It was pointed out that regulation should follow innovation. In most markets, innovation is led by commercial organisations that see an opportunity and take it, and the regulation comes later to make sure consumers get the overall benefit.

The separation between suppliers and networks means the environment for innovation in the UK is “especially challenging”, Harrison said. And although the distribution systems operator model should help, parallel drivers such as city-level strategies for energy and smart cities mean utilities will have to completely transform the way they operate. “We’re only just beginning to see the potential impact of that,” Harrison said.

Having a different relationship with customers was flagged up as a way to address the challenges facing the network companies, and to avoid the prospect of the death spiral scenario.

Currently ingrained in the energy industry is a situation in which the supplier has the customer relationship and the network sits in the background. However, to adapt to the future, networks must start to have direct relationships with their customers – relationships that prevent them becoming low-value peripheries to independent energy communities.

The conversation came full circle as delegates reiterated the need to think about the entirety of a system that was designed on the assumption that the world would never change. The reality of a radically (and rapidly) changing world has resulted in the need to revisit the fundamentals of what is needed to keep the lights on.

Utility Week editor Ellen Bennett wrapped up the discussion by asking the question: “What is the catalyst for change? Is it game-changing technology, is it the policy objectives, or is it what customers want or don’t want?”

Speaker quotes

“There’s a huge uncertainty of what happens with possible new entrants in electricity or energy supply. It’s easy to imagine suppliers managing a home energy system via a customer’s internet connection, so the smart meter just ends up watching the match, not refereeing it. The network company won’t know what’s going on and may have to over-invest.”

Simon Harrison

group strategic development manager, Mott MacDonald

“As a network company you have a huge range of challenges and, to address a lot of those challenges we need to have a different relationship with our customer base. What we hear a lot of the time is that we need to be careful that there aren’t any brakes on supplier-led innovation. Why does innovation need to be supplier-led? Particularly market innovation.”

Paul Bircham

regulation director, Electricity North West

“Distribution businesses are making a lot of investment in the US.  But in some markets that have competitive retail electricity supply, it’s proving challenging to deliver both the full value of those investments across enhanced utility operations and customer enablement for increasing penetration of distributed energy resources.”

David Shepheard

managing director, North America Resources operating group, Accenture

“We’re two years into RIIO and my view is that the innovation mechanisms that have been put in place have provided some good stimulus. In some cases there are things we would probably have done anyway, but in other places I think we are doing things and looking at things that we would not otherwise have done had not those mechanisms been in place. Which I think is a positive tick for the RIIO framework.”

Stephen Parker

regulation director, Northern Gas Networks

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