Significant Progress Is Being Made to Create a Flexible Energy Market in Britain

Westminster Energy, Environment & Transport Forum's seminar on the future of smart and flexible electricity networks in the UK demonstrated the significant progress being made to increase the use of flexible resources in Great Britain. 

The industry is in advance of many other markets in setting the direction for a 21st century electricity network. Ofgem recognises that regulatory frameworks must be changed, and is applying fundamental principles—based on market mechanisms, agile regulation, insuring against uncertainty, and fair payments—to create a regulatory framework for flexibility. The separation of system operation from the management of National Grid’s transmission networks (due to be launched in April 2019) will accelerate the transition by creating more open and competitive markets.

Increasing flexibility means encouraging the participation of assets that are predominantly connected to distribution networks. But there was little agreement on whether flexibility will be coordinated by a single system operator (SO) that oversees transmission and distribution, or a transmission SO, communicating with multiple distribution SOs. Finally, there was widespread agreement that a flexible electricity market requires a new approach to data management. 

Lack of Explicit Policy Objectives as the Driving Principle Is Concerning

The course may be set, but does the industry know what the final destination is? While there was significant discussion regarding policies, there was far less regarding policy objectives and their outcomes. The industry is not creating a flexibility market simply for the sake of creating a flexibility market. Policy objectives should be the guiding principle for the shift to flexibility, not a consequence of it. Without this guiding principle, the transition to flexibility becomes a series of tactical responses with no overarching strategy. While many of the presentations alluded to policy objectives, more should be made of them. 

Guidehouse Insights believes grid and customer benefits are equally important. While customers were discussed at the forum—particularly in terms of easing market entry—the focus was skewed too far towards network benefits. The discussion of value was conspicuously absent. Flexibility markets recognise the value of every grid-connected load and supply. Without value recognition, there is no flexibility; with it comes opportunities for value creation. For example, value recognition creates market-based incentives for distributed energy resources ownership. The more benefit customers deliver the network, the more they earn. Market-based incentives negate the need for subsidies, bringing down electricity costs for all.

Haven’t We Been Here Before?

It’s easy to slip into the weeds of a large-scale technology deployment and lose sight of long-term objectives. I presented at a smart metering communications conference 5 or 6 years ago, speaking after presentations by Ofgem and Smart Energy GB. Neither of these presentations contained the word “customer.” I argue that a lack of focus on customer-focused policy objectives contributed significantly to the smart meter deployment’s current problems. 

If the industry is to embrace flexibility, it must place customer outcomes at the centre of its strategy, regardless of consequences for incumbents. A market-based incentive for solar ownership could in time make self-generation sufficiently cheaper than other power sources. If a significant percentage of the residential market shifts to solar, the existing supply industry will suffer. Many suppliers are planning for a transition to a service-based energy market; however, some may find the transition too rapid. Delaying residential customers’ access to flexibility markets is an attractive option for energy supply. Vested interests must not be allowed to trump customer choice. While the transition to flexibility creates many new business models it will destroy existing value streams. This should not deter policy makers.