THE CONTEXT OF TRANSITION

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THE CONTEXT OF TRANSITION

ARE WE NEARLY THERE YET?

Utility Week Live at the NEC on 21-22 May will be exploring transition in the sector in all its guises. In the first of a series of monthly reports Nadine Buddoo begins by asking – what does transition mean, and how much progress has been made.

In recent years discussion around the future of utilities has been preoccupied with the concept of disruption and the industry’s evolution. But as businesses embrace notions of change, how should they make transition a reality? And ultimately, what does the transition mean in practice for utilities firms across the country?

In a recent survey carried by Insight Advantage for Utility Week Live (UWL), one respondent succinctly stated that transition within energy networks means “meeting the changes driven by customers, technology and the environment”. This trifecta of concerns is a recurrent theme when discussing the definition of transition with Sara Vaughan, director of political and regulatory affairs at Eon UK. Vaughan is confident that the industry’s colossal transformation will deliver a future that is decentralised, decarbonised and digital.

“Eon, and indeed the wider energy industry, are utterly unrecognisable from when I joined; and it is not the same industry now as it will be in the next 10 years. We’ve made huge strides in decarbonising the UK economy – to that point, carbon emissions have declined to levels last seen at the end of the nineteenth century and have fallen 42 per cent since 1990. We’re seeing a similarly seismic shift with utilities, moving from large, integrated, centralised companies towards becoming digital-oriented, customer-focused organisations.”

Vaughan believes consumers must be at the heart of the transformation of the current energy landscape. While taking advantage of new technologies, such as solar panels, smart thermostats, electric vehicles and battery storage, there must also be thought given to how homes and businesses can play a key role in the way the energy system operates.

And energy efficiency should be the key starting point, according to Vaughan. “We believe [energy efficiency] should be made a National Infrastructure Policy, so we can tackle the seven million plus customers with solid wall homes currently without adequate insulation.” She insists that this should be the response to some of the foundation issues around the affordability of energy as well as benefitting the decarbonisation jigsaw before the future, smart systems that often grab the headlines.

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While Reid admits that there remains uncertainty across the industry about what the transition to a decarbonised, decentralised and digitalised system will look like in practice, for SSEN it will almost certainly introduce a fundamental change in the company’s relationship with its customers. 

“Customers engaging with energy in new and innovative ways will have greater opportunities to harness energy, through small scale renewables, balance against peak load, perhaps through their electric vehicle or batteries owned in the home and provide demand side response,” says Reid.

“For SSEN it’s important to be prepared for, and where appropriate help manage this transition. It is unclear how these new technologies will interact, which ones may be favoured by households and businesses, and crucially the speed with which they are taken up.”

“Electricity networks must be prepared to accommodate significant and potentially rapid change during the energy transition,” he adds.

Look to the future

But it’s not just electricity networks that are anticipating rapid change. Looking ahead to 2030, the UWL survey investigated to what extent businesses are expecting to transition over the next decade. Respondents were asked to provide a score on a scale from 1 to 10. While the current average state of transition is just 6.7, this is expected to rise to 8.0 by 2030. Overall, businesses anticipate their state of transition will be more aligned with the industry as a whole by 2030. The survey also found that while many businesses believe transition is underway, there is not a sense of complete upheaval across the industry.

However, while the current outlook may not depict widespread disruption, the survey found that on average businesses expect the impact of industry trends driving transition to be 23 per cent higher in five years time.

Key trends considered to be the major drivers for transition include competitive pressures (6.4 now vs. 7.0 in five years), changing customer expectations or habits (6.1 vs. 7.4), changing policy and regulatory framework (6.1 vs. 7.2), sustainability considerations (5.7 vs. 7.1), big data (5.6 vs. 7.1), smart meters (4.8 vs. 6.0), electric vehicles (4.2 vs. 6.3) and M&A activity (4.1 vs. 4.9).

Other trends that are likely to drive transition include climate change and step changes in sustainability, as well as changes in Government, changes in workforce and convergence of services. Headline trends relating to new technologies are likely to include the digitalisation of energy, the Internet of Things and augmented or virtual reality.

Future tech

Other new technologies anticipated to facilitate transition across all utilities include data analytics, smart grid technology, water metering, water reuse, blockchain, robotics and low carbon heat. Across all of the technologies surveyed, the average tipping point for mass take up is expected to be 2027.

There are already some exciting examples of innovation and adoption of new technologies across the sector (see case studies), but there is a risk that many of these developments are happening in silos. Is there enough joined-up thinking and sharing of ideas across the whole industry that will help deliver the energy landscape of the future? 

Independent consultant John Scott fears that the industry is currently on the wrong track:

"There are some good things happening, but underneath it I just fear that not yet do we have the right things happening. My worry is that we’ll end up in a world where the network companies will start to get bad press and will be blamed as the dinosaurs of the old energy world that can’t keep up. In today’s privatised world there is no party who is responsible for taking ownership of joining everything up. The onus falls on policy makers to decide how to do that.”

While there has been some good work coming out projects like the Future Power System Architecture (FPSA) programme – a collaboration between the Energy Systems Catapult and The Institution of Engineering and Technology (IET) established to investigate the functionalities Britain’s power system will need to meet future requirements – Scott is concerned that this research unavoidably leads back into the structure of today’s industry and its current codes and governance.

“The current rule book, the grid codes, the distribution codes and the committees and panels that sit around those bodies are all designed for yesterday’s world,” he explains. “They can’t possibly handle the kind of things we’re talking about, the future energy challenges.” 

But there is a glimmer of hope on the horizon with Ofgem’s RIIO-2 update, launched in December 2018. The RIIO-2 sector specific methodology document proposes a series of changes to how network innovations will be financed and supported.

The regulator has proposed a reformed innovation stimulus that will “fund solutions to the largest research and development challenges facing networks, and is a lot more joined up with government, with a bigger role for third party innovators”.

While this is an interesting development from the regulator, a question mark still remains over whether these latest price control proposals go far enough to reflect the financial risks faced by investors and the pace of change across the energy network.

Case Studies

SSEN's Orkney project

SSEN's Orkney project

Orkney is an area rich with renewable energy resources, from onshore wind, to emerging wave and tidal energy. SSEN’s head of DSO and innovation, Stewart Reid, explains: “[The area has] significant pressures on the distribution network that can be managed through constraint managed zone services.”

“As part of our work in Orkney, we introduced the world’s first Active Network Management (ANM) system to allow additional generation to connect and maximise the existing system’s capability,” says Reid.

ANM is a system that allows managed connections. It uses real time network information to calculate safe levels of generation for managed connections in accordance with their commercial agreements and Principles of Access.

To ensure the safe operation of the network, it is divided into zones which represent constraint points in the network on account of the additional generation. The ANM system measures the power flows at several measurement points on the network and controls multiple renewable generators that are part of the scheme.The system intervenes when real time information relayed back to it exceeds any of the limits at these points – it is a flexible network in practice.

“The Orkney project demonstrated a least cost scalable ANM solution to enable connection of additional renewable generation to a constrained network, integrating smart grid technologies into existing systems in the process,” says Reid.

EON's Future Energy Home

EON's Future Energy Home

Eon is working with UK property developer Berkeley Homes to pilot the Future Energy Home – a trial of the integration of the latest smart home technologies at Berkeley’s Kidbrooke Village development in London. The project has been established to better understand how to help homeowners live a lower cost, less carbon-reliant lifestyle.

“The project is the first of its kind to demonstrate innovative energy devices – integrated solar, batteries, EV charging, smart thermostats, building management systems – working seamlessly through a single, tablet-based dashboard,” says Eon UK’s director of political and regulatory affairs, Sara Vaughan.

Through use of the home energy dashboard, homeowners can access a detailed view of their energy flow across the whole building.

The scheme aims to give consumers practical control over their energy use and the ability to power their own homes. Residents can generate and store electricity in a battery, helping to cut bills, to make use of in-built renewable sources such as self-generated green energy to charge electric vehicles, and to relieve pressure on the power grid at times of high demand.

The property’s battery storage system is supplied by both mains electricity and solar glazing which can power the home when necessary or be diverted to supply the electric vehicle charge point at the front of the house.

The solar glazing, including canopy, glass balustrade and bicycle cover, can supply up to 60 per cent of the electricity needs of the Urban House, generating over 2,100kWh each year.

Commenting on the launch of the Future Energy Home pilot last year, Michael Lewis, Eon UK chief executive, said: “The new energy world is decentralised, green and interconnected but sustainability is about more than technology, it is most importantly about creating something that fits with people’s lives.

“Our work with Berkeley on the Future Energy Home is about making sure homes are smart and lower carbon but also convenient and manageable when it comes to managing our busy lives.”

Ask the industry

On a scale of 1-10, to what extent do you think your industry is in a state of transition?

Stewart Reid, Head of DSO and Innovation, SSEN

“As an industry we are clearly past the point of return on the transition to a flexible network. If a passive network scores 1, and a fully flexible network is a 10, I would put the industry at a 5.”

Andrew Burgess, deputy director, electricity network charging and access, Ofgem

“One of the exciting but also challenging factors is uncertainty about the scale and pace of change. We’ve already seen quite a lot but there’s more to come. As regulator we are challenging the industry to respond and ensure consumers benefit. My view is 8 to 10 and there are many statistics that demonstrate this.”

John Scott, director, Chiltern Power

“I would say the industry is currently only at a 4. There are some great things happening with real innovative technologies coming through and some fabulous network developments – that is necessary, but it’s not sufficient. I’m still left wondering how these new innovations will be scaled up and rolled out reliably if we haven’t got whole system thinking.”

David Elliot, group director, strategy and new markets, Wessex Water

“Some businesses are clearly transitioning more than others. The industry itself is probably around 5 or 6. There are some that are resistant to new business models, there are others who are grabbing it with both hands. The key to success will be keeping that process in your own hands and taking the opportunity to lead the transition rather than changes being force onto you.”

George Day, head of markets policy and regulation, Energy Systems Catapult 

“I would score this as 6 and growing. There is lots of innovation and new ideas, but incumbents (and our beloved gas boilers) are still dominant and looking difficult to shift in many market segments.”

The shape of water

With Ofwat preparing to publish its initial assessment of business plans as part of the 2019 price review (PR19), the issue of transition and planning for future challenges is understandably high on the water agenda. But what does this period of change and its resulting uncertainty mean for water companies in real terms?

“For Wessex Water, this is an opportunity to make our services much more community focused and focussing on a greater use of markets in those communities,” says David Elliott, group director, strategy and new markets, Wessex Water. “For example, if farming can improve water quality cheaper than we can do it, then we should be contracting them to help improve water quality.”

Wessex Water’s open system model is predicated on the concept of opening up regulated infrastructure. In a catchment “market”, investors and efficient infrastructure providers can bid to deliver a wider set of catchment outcomes such as flood alleviation and management, waste recycling or recycled water systems to reduce the burden of a growing pressure on resources.

“Effectively we are creating a market around the water system, rather than just thinking of our business as a water utility,” explains Elliott. “That will deliver better outcomes at potentially lower costs. Some of those outcomes deliver wider benefits than just improved water quality. Farming, for example, improves land management and water quality but it can also benefit biodiversity and reduce soil runoff into rivers. There are a whole series of other benefits that come from looking at these services in a very different way.”

The company’s open system model is largely driven through the adoption of more digital solutions. Elliott says this is about how the company uses data and then puts that information out into the marketplace to allow other stakeholders to develop new ideas and ways to deliver differently. “For example, if one of the drivers is water efficiency, can we utilise data from consumers who use in-house devices like Nest? We can see this expanding into water consumption in the home,” adds Elliott. “This could provide an alternative approach to investment in smart metering as a means of finding out what is driving customers’ needs around water use. There’s a lot of opportunity for information gathering.”

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Tackling leakage

Driving efficiencies through better use of data and smart technologies will also be key to reducing leakage across the network. Leakage reduction has become a thorny issue that is often used as a barometer for the sector, but Elliott believes the current focus is misplaced.

“We really need to take the discussion back to what we’re fundamentally trying to achieve through leakage reduction – it’s about reducing the amount of water that we abstract from the environment,” he says.

“We should be looking at measures around smart water resource, driving the efficiency challenge through better use of smart data and looking at a more modular approach to asset investment. It’s crucial to grasp these more modern approaches.”

Regulation concerns

But with these more flexible and diversified approaches, Elliott insists that a “one-size-fits-all” approach to regulation will be problematic, especially as more companies transition to use of catchment markets. “Businesses will be at different stages of evolution, so the way in which Ofwat adapts to that will be increasingly important,” he says.

“The sector is changing; it has to change. Depending the future on the past is becoming increasingly difficult. After 30 years of a pretty similar business model, it is time to look to an alternative model that is fit to tackle the challenges of the future.”