Northern Powergrid to create ‘virtual’ local energy market

Northern Powergrid has unveiled plans to use computer modelling and laboratory demos to create a “virtual” local energy market as part of a new innovation scheme.

The £1.9 million Customer-Led Distribution System project will help to inform the transition towards to a distribution system operator (DSO) model, whereby local grid operators will take a far more active role in the management of their networks.

Based on real network data, researchers at the University of Bath and Newcastle University will use the virtual system to simulate flows of energy, payments and information, and develop strategies to coordinate network and market operations.

“This project is a way of helping us to select the right technical, regulatory and commercial models and actually make it a reality on the ground,” said Northern Powergrid policy and markets director Patrick Erwin.

Speaking to Utility Week, Erwin said the project will build on and compliment innovation projects by other distribution network operators (DNOs): “We saw a real hole in the landscape in pulling together the learnings from those individual technological demonstrators”.

The scheme is scheduled to run for three-and-a-half years and the initial findings are expected to be shared in the first quarter of 2018.

Erwin said Northern Powergrid is hoping to develop a working model for local energy markets by the end of RIIO ED-1, which can then begin to be implemented over the following price control period.

He said the ultimate outcome will hopefully be a model that can be rolled out by DNOs across the country, albeit with some regional adaptations.

“I think both us and government need to see the opportunity here of using the SO [system operator] and the DSOs to create a simple, open, fair market platform for the wider system to operate,” he remarked.

“If you think about how this could turn out, if you’re not careful you’re going to end up with a really complicated system with lots of players and fragmentation, which will be very hard for anyone to properly interact with and will be very opaque.”

Erwin said one of the specific questions the project will seek to answer is how system operators can protect and support vulnerable customers in a future which offers substantial rewards for engagement.

He said the move towards a DSO model will involve deploying “a whole load of smart technology, digitalisation and big data, and that’s going to provide a load of opportunities for people with electric cars, with batteries and with solar panels to trade those assets and make money out of them”.

“It’s also going to provide opportunities for people to manage their power use, either by simply phasing their heating or using a battery to keep the low-cost energy,” he added.

“As well as making sure the technology is accessible to the most vulnerable, we also need to think how recast the system, so we don’t put them at a disadvantage and we maintain the fairness and the equity in the system.”

Another issue the project will aim to address is the rollout of electric vehicles, which Erwin said will present both “a huge opportunity and a huge threat”.

He continued: “Certainly for our network, as long as the rollout of electric vehicles is carefully managed, we’ll be able to absorb them with incremental investment.

“But if the rollout of electric vehicles unmanaged and chaotic, then we will see significant network issues across the country, where charging becomes synchronous and third parties operate the network in a way which overloads it.”

DNOs must therefore “grasp the nettle” so they can “realise the benefits and avoid the risks”.

Erwin raised fears over the ability of the government and Ofgem to keep up with the pace of change in the industry, saying they need make sure they devote sufficient attention and resources to the management of innovation.

He said one of the problems they will need to tackle is unnecessary market distortions: “If you look at the current system, there’s a number of places where people are running business that are nothing to do with the underlying economics and everything to do with exploiting regulatory distortions and we want the future system to not provide opportunities to free ride.”

Erwin therefore welcomed Ofgem’s recently published working papers on reforms to the connection and charging arrangements for the power grid: “I think the connections paper in particular was a really thoughtful piece of work and addressed exactly the right kinds of questions.

“The proof will be in the pudding, but I think Ofgem is doing exactly the right thing there. I’m very impressed.”