Northern Powergrid suggests some DNOs overpaying for flexibility

A senior figure at Northern Powergrid has said the company is being “careful” not to “overpay” for flexibility and suggested some distribution network operators (DNOs) may be procuring more than they actually need “just to have a high number”.

Discussing the company’s draft business plan for the RIIO2 price controls, policy and markets director Patrick Erwin said it also refraining from creating separate body to perform its distribution system operator (DSO) functions, describing this as an “artificial distinction”.

“We are being quite careful,” Erwin told Utility Week. “What we’re trying not to do is frankly what some of the DNOs have done where they’ve procured flexibility they don’t really need.”

He said Northern Powergrid actually halted its last flexibility tender after the expressions of interest indicated that none of the flexibility on offer from prospective providers would be cost-competitive with their own solutions.

“We’re trying to do the right thing,” he added. “We are absolutely flexibility first but what we’re not going to do is overpay for flexibility just to have a high number. That’s maybe a bit of a differentiator.”

Erwin continued: “Flexible customers can only help in places they are downstream of and the places where we had a need for flexibility, we didn’t have customers who could cost-efficiently offer flexibility.”

“What we’ve avoided doing is having our customers bidding into a process they were never going to win. We thought that was really important.

“At the moment, we’re not contracting a great deal of flexibility because it doesn’t make economic sense for our customers. We expect we’ll be doing quite a lot of it in ED2 but we’re only going to do it where it makes economic sense.”

Erwin said this is partly a reflection of the specific situation in its license areas: “We’ve had less of it our patch than pretty much any other DNO simply because we’re coming from a different place.

“Because the North East and Yorkshire had a strong history of heavy industry and coal mining, the extra high voltage network here is pretty big and it pretty good health. We’re not seeing the capacity constraints that some of the DNOs down south are seeing, because we’re still harvesting the dividend of industries becoming more efficient and indeed of industries closing.”

Erwin said Northern Powergrid is therefore putting more emphasis on squeezing spare capacity out of network assets, describing its mantra as “monitor, manage, reinforce”.

“If you imagine we’ve got a population of substations, only a proportion of those will be getting towards full capacity and at the moment, although we’ve already deployed quite a lot of smart grid technology at substations, we haven’t got the full population.”

He said: “The first thing we do is deploy monitoring. And what we tend to find when we deploy monitoring is you either find that the substation is already too heavily loaded or, more often than not, you find that because you’re measuring real numbers rather than inferring them, you can actually be more relaxed and leave it longer.”

“The second thing we do is manage. Part of that will be monitoring actually because as customers get more flexible, we might find that the peaks don’t turn up because customers are being flexible by responding to agile tariffs. But once we get to a point where the substation is getting towards its capacity, that’s where we start buying flexibility.”

He said Northern Powergrid expects to start procuring more flexibility during the RIIO ED2 period as more constraints start to emerge on its low-voltage networks.

As part of its draft business plan, UK Power Networks announced plans to establish “the UK’s first independent DSO”, saying this would “transparency of investment decision-making and ensure that the lowest cost solutions overall for customers are adopted”.

Erwin said this is not something Northern Powergrid is planning to do: “We’re doing some appropriate bits of business separation and it’s important for customer confidence so they can see that we’re making decisions around, for example, flexibility in an appropriately separated fashion, but we’re not going as far as creating a DSO directorate because we think it’s an artificial distinction to be honest.

“DSO functions really are evolutions of running a network and what we’ve tried to do is rather than create artificial organisational barriers, we’ve tried to harness the synergies.”

UK Power Networks also published multiple sets of figures corresponding to different potential pathways towards net zero emissions.

Explaining Northern Powergrid’s approach to the issue of uncertainty, Erwin said its business plan for RIIO ED2 will really be an “interim” plan: “The real plan is net zero by 2050. I’m sure that’s pretty much true for all of the DNOs.”

“What we’ve done in our scenarios analysis is we’ve taken the National Grid Future Energy Scenarios and the Climate Change Committee scenario, we’ve tested those with our stakeholders and a result of that we’ve added an extra scenario, which has been net zero early.

“The majority of our local authorities have declared, albeit largely aspirational, but serious targets to get to net zero before 2050. So to cover the range, we added that even faster scenario. And what we’ve done in our central scenario is we’ve chosen the lowest level of deployment we can that’s consistent with a sensible pathway to keep options open.”

“The biggest challenge here is to have the right sized organisation with the right skills and the right people to deliver a lot of work,” he remarked. “You don’t pick up engineers of the street. You have to recruit and train and develop them. So, we’ve tuned the scenario that allows us to always be in a position to quickly ramp up to the top of the range.”

“If you go for a slow start and you go to the bottom of the range it becomes almost impossible to accelerate. Your shoulder becomes too steep and you get to a point where it’s undeliverable. Its the lowest scenario that keeps options open.”