On pies, fingers and National Grid

This piece originally appeared in BusinessGreen on 1st February 2017.

I see that Ofgem has finally taken a deep breath and launched a consultation on whether the System Operator (SO) functions of the National Grid should be separated out from its overall business activities: and has concluded that, ‘well, yes – to a point it perhaps should, and well, we might think about the SO becoming a more independent company within the National Grid group, perhaps with its own licence, and that might be achieved by something like 2019’. All of which means that if we all respond positively to the consultation, some Chinese walls within National Grid might be on their way within a couple of years.

It is not that National Grid does a bad job of running the System Operator: on the contrary, it does rather well, I think. I wonder though, if this rather tepid approach really is good enough to oversee the transformation of how the grid will work over the next 20 years as it transforms (or rather it completes the transformation – it already is transforming).

We are moving from a centralised system conveying the output of known large power plants across the country, hooking up with lower voltage district systems and finally into your household, office, or factory, into a decentralised system with inputs to the grid at all levels of operation, and with substantial elements of customers effectively going off grid to all intents and purposes.

National Grid is already managing some interesting possible conflicts of interest – it is the regulator, effectively, for the development of interconnectors, whilst having a substantial interest in an interconnector business. It effectively takes decisions about what to construct through the SO and then constructs what it has decided to construct for the good of the system itself. The system operator uses transmission connected generation and demand to support its management of system frequency, and then charges for those decisions and levies charges on imbalances subsequently. More recently the SO became the delivery body for the Capacity Market and for Contracts for Difference for renewable power. The SO has also now got responsibility to identify investment needs and to coordinate and develop investment options.

All of this screams out ‘conflict of interest’ in principle, since National Grid is a very successful publicly quoted company with responsibilities to its shareholders, and indeed has substantial business outside its role as SO to look after, not only in the UK but in North America. The fact that it has done well in operating the system without too many apparent clashes with its wider remit in the world is good news to date, but looks increasingly difficult to maintain as the system transforms.

How will such a company manage the inherent difficulties involved with the complex interactions of demand side reduction, system fragmentation and more than possibly finding itself in the role, in the end, of a periodically-used back-up system for a decentralised ‘grid’ that mostly will get along without it? As that possible outcome looms, will simple defence of its own interests as transmission owner conflict with this movement and perhaps, even with the best of intentions, distort or impede it?

And it is this latter prospect, at the end of the transformation process, that ought to give some pause for thought. For at that point, it is very likely that a residual National Grid will simply not be profitable, and will need to be maintained as a public good, rather like we maintain roads for public use and (mostly) don’t try to make them pay their way.

So I suppose government has two options for the long term future of National Grid. One would be to keep all the SO functions in-house and tied to an otherwise profitable and expanding company, in the hope that they will continue to keep a decreasingly viable high level system under their wing, even if that means those conflicts become very unmanageable. The other would be, for the sake of a better and more effective transition, to bite the bullet and effectively set up a SO that is fully separate, not-for-profit and is not tied to anyone else’s company decisions.

I know which route I’d choose: and I can’t help worrying that the Ofgem consultation, thoughtful though it is in some ways, doesn’t even start properly to address that choice.

The Rocky Road to Smart

 

This article originally appeared in The Environmentalist in December 2016.

We’re all going to have smart meters installed in our homes by 2020, and then life will be much better for all of us: meter readings will be a thing of the past, homes will be able to monitor and manage their energy use and supply accurately, and beneficial changes such as time of use tariffs for electricity can come in. All potentially very good, but there is, of course, a road to go down to get to that felicitous outcome, which rather obviously involves actually installing all those meters, and setting up a communication system that can deal with all the smart communication traffic that will make the meters work. And a report on the progress of all this, and the cost benefit associated with it just released by the new Business, Energy and Industrial Strategy Department, suggests that this road is becoming an increasingly rocky one.

By the way, the report from the department was completed in August, but is only now [in November] being released after a three-month delay, which rather serves as a leitmotif for the problems of the programme that it highlights. At its heart is the continuing delay in ‘going live’ of the all-important Data Communications Company (DCC) without which up-to-date, interoperable smart meters cannot realistically be installed: and this body, outsourced in its organisation to Capita (of local authority management services fame) has repeated failed to ‘go live’ when it has said it will. Indeed it is now more than a year delayed, and has just staggered into life in only two of the three main areas of the UK (the northern area is still further delayed). When I say staggered into life, it seems that the going-live process itself is still plagued with all sorts of unresolved issues and may not yet be reliable enough to assure the safe rollout of latest design meters.

This is important because no leeway has yet been given by the Government on the completion date for installation. It is still 2020, but is now being compressed into a shorter and shorter timescale of implementation. The installation of more than 50 million smart meters was always going to be a high challenge, but projections from the new report now suggest that the programme will peak now at over 15 million installations in one year in 2019 (an increase of over 2 million on projections just a year ago). This starts to strain credibility, not only about whether such a compressed programme is now technically feasible, but then, if it is, the additional costs of employing all those extra installers and managing a crash programme over a short period, rather than a measured programme over a longer period. It would add still further burdens on an already strained budget: the report indeed already records additional costs to the £11 billion programme (not least to the troubled DCC) and because of wider problems, decreased net benefit to consumers.

I certainly support the aims of a smart meter programme, and I am convinced that properly integrated into smarter grid management they can be of immense benefit not just to consumers, but to the ability of the system to manage itself in a far more energy efficient way and incidentally, to manage much more effectively the low carbon power now coming onto the system. But as matters stand, it is increasingly looking like the smart meter rollout is in danger of becoming a smart meter roll into a ditch.

I have called for a pause in immediate programme implementation to allow for an independent appraisal of overall programme progress and problems to be undertaken. I think this is necessary to ensure that we actually get the rollout right, and do not, as I think we are in danger of doing, resort to ever more counterproductive fixes to keep the show on the road. And if the rollout is completed by, say, 2021 – instead of 2020 – then at least we will know that it really is going to produce the benefits we all want from it, and will not end up as a half formed sub-optimal fudge. Someone (and this means BEIS) needs to get hold of it now.

Time to Celebrate National Battery Day

This piece originally appeared in BusinessGreen on 15 September 2016

Blink and you might have missed it (although BusinessGreen didn’t).

I hope the new ministers in Department of Business, Energy and Industrial Strategy (BEIS) weren’t blinking when the news came out, but what with all they have on the plates at the moment I fear they were.

What is it I’m enjoining you to pay attention to? Well, the announcement at the end of August that National Grid has procured 200MW of battery storage through its first Enhanced Frequency Response tender. When you recover from the crushing sense of anti-climax that this obscure fact is what I’m asking you to attend to, I’ll then tell you what you need to know about this event and why it is (I think) quite significant.

What you don’t need to know is that the tender was to support National Grid’s Frequency Response system aimed at keeping electricity supply at a steady operational limit. Changes in the operational range must be dealt with and with more distributed generation coming onto the grid, changes are more frequent. Hence the tender, which may be just a part of a larger establishment of plants able to provide instant response to frequency difficulties.

What you do need to know is that the tender prices came in at a quite unexpectedly low price – half of what National Grid had anticipated. This means that battery storage has effectively now become competitive on price with other forms of storage and by modest extrapolation can be seen to now be ready to occupy a whole range of important energy niches – not in the medium term, but very soon.

The prospect for inhabiting the Frequency Response system is perhaps limited and there are indeed other forms of storage like compressed air that can provide the speed of response equally well, but the prospects for areas where batteries can really make a mark are much more substantial. For example, operating in conjunction with existing renewables to convert intermittent output into effectively dispatchable output, or load shifting by storing output at low prices during the night and then releasing it at peak hours, which, by the way, has a price range difference currently of about £55/MWh.

Based on the sort of prices now deemed investable by contractors to the AFR tender, the prospect also opens up of battery-based Capacity Market bids for essentially limited amounts of supply each year, coming in when capacity margins are tight. Those contracts otherwise might go either to existing amortised gas plants, or even to new CCGT plants being built largely for the purpose of not actually producing much electricity. The likely price premium envisaged by the Capacity Market to ‘clear’ new capacity is, on the evidence of the prices for supply revealed by National Grid’s tender, well within the margin at which larger battery installations might clear.

So I think we might come to see August 29th, the day the tenders were announced, as the day on which batteries really came of age.

That is remarkable in the light of what has been received wisdom over some time that batteries were something for our future mix but not to be seriously addressed for the medium or short term.

The prices show just how wrong that assumption has been, but perhaps underline why the obvious measures that need to be taken to eliminate rule-based distortions in battery deployment have not yet taken place. Distortions like the double taxation of output from batteries depending on whether it is regarded as generation or consumption, or on the restraints on holders of existing licences such as Distributed Network Operators in owning or developing battery-based plants because of the separation of function built into licence provision.

The distortions to batteries operating to best advantage in the market are easy to fix and do not involve new levies or subsidies. It seems more likely that government has been in no rush to sort them out because it is simply felt that they can safely be placed in the long-term inbox because nothing much would be appearing over the next period. Well, all that has changed. Batteries look like they are here now, and with a little regulatory assistance can probably now quite rapidly develop a strong presence on the energy landscape. That prospect looks to be wholly necessary as the revolution in supply and in costs of renewables continues to roll forward. Time for the regulatory environment to get with the programme.