Letter from the Editor: Flexible networks are already a reality

If there were any doubt that the transition to a smart, flexible energy network was well under way, it was dispelled this week with the publication of Ofgem’s latest thinking on how users should be charged for the past, present and future costs of network infrastructure. In an update to its targeted charging review, the energy regulator set out a range of potential reforms that would see a dynamic charging system in which network users could choose to pay more or less to be connected to the grid depending on the time, quality and geographic range of their connection.

That’s radical stuff – but not as radical as a separate but linked set of reforms proposed by the regulator under which network users could be charged for the historic cost of the infrastructure, even where they are using on-site generation rather than power from the grid. The mechanisms by which this would happen are complex but the message is simple: everyone must pay. The howls of protest this has provoked among business users and other stakeholders were predicted by Ofgem chief executive Dermot Nolan as long ago as this summer, when he told Utility Week that the outcomes of the targeted charging review were likely to be contentious – but that Ofgem would not shy away from a fight, or even a legal wrangle, if it felt it was acting in the interests of fairness.

Two other developments this week are telling. First, Centrica paid £62 million for Europe’s largest demand-side aggregator, a clear indicator of the company’s confidence that flexibility can and will deliver value. Second, SSE and Npower owner Innogy are considering combining their retail businesses – a clear indicator that companies are being driven to desperate measures as they seek to realise value from the beleaguered sector.

Energy flexibility was on the horizon for a long time – but, like the falling cost of offshore wind – it has become reality far quicker than anyone could have predicted. The architect of Electricity Market Reform himself, Jonathan Brearley, said as much at last week’s Flexible Networks conference, and Aurora Energy predicts this week that flexible capacity will top 25GW by 2030. So as the industry’s leading companies follow the first-movers into the emerging markets, the regulator is right to ensure they’re fit for purpose, however painful that might be.