Energy used at night in the city; Energy used at night in the city;

Are UK network operators ready to transition to a smarter energy system?

Smarter energy networks

Electricity supply and demand are becoming increasingly more complex with distributed generation, storage, electric vehicles, smart appliances and intermittent renewables all considerable factors. This is creating a bi-directional flow on the electricity network and we’re seeing the rise of the pro-sumer. So what do UK energy network operators need to do to create a considerably smarter and flexible system?

Night time energy usage impacting the grid Night time energy usage impacting the grid

Keeping up with change

Historically, a Distribution Network Operator (DNO) has managed a system with electricity flowing from large-scale generation to the customer.
As the market dynamic changes and the energy supply and demand becomes more multifaceted, network operators will need to potentially take on the new role of Distribution System Operator (DSO). The DSO will have to operate and develop an active system that facilitates Distributed Energy Resources (DER), pro-sumer behaviour (those who consume and produce energy) and efficient network use. The result? A smarter and more flexible system that not only benefits the customer but the environment too.

How can networks respond to the challenge?

With such significant change, UK energy stakeholders are currently grappling with the challenge and with one question in mind - what to do next? An industry roadmap for the transition has been published by the Electricity Network Association (ENA) mapping out the route to a system operator, rather than a network operator as part of project ‘Open Networks’.

Ofgem is reviewing how to incentivise flexible and smart solutions whilst network operators are looking to respond to the uncertain policy environment by devising their own system operator visions and strategies and by undertaking small pilot projects. We’ve seen UKPN, WPD and SPEN leading the way, but more operators need to make a considerable change in the coming months. Despite all of these activities no-one has come up with a definite answer to the dilemma - to be DSO or not to be DSO? The question may not however be binary. We believe it is more like a choice between options: depending on how involved network operators want to get into all the aspects of an energy system operator and how fast they want to transition. 

Choosing the next model

Could the network operators also develop a model to adapt to the challenges ahead as they move to a DSO? We can see three clear options - ‘skimmed’, a ‘semi-skimmed’ or a ‘full-fat’. Based on current roadmaps and our analysis – as shown in our graphic - , ED2 will be the period when the first truly ‘full-fat’ DSOs will appear and therefore the regulatory and market frameworks need to be ready to accommodate them to incentivise the right behaviour.

Network operators will need to decide soon what model they want to adopt and begin implementation.

Whilst they could change paths early in the preparation process and upgrade to a ‘fattier’more substantial model to allow sufficient prep time, in reality strategic objectives and a vision for the future of DNOs and DSOs will need to set as soon as possible. Investment in new technology and development of new capabilities will need to follow soon after. Investment required in the transition could well top £100m for each network over the next five to ten years.

Joining forces – the key to success?

It is also likely that strategic alliances with flexible services providers, suppliers or contractors will need to be developed soon – with advantage going to early adopters. We’ve seen two networks – UKPN and WPD – recently announce visions for shifting to DSO. We could soon see plans from them to procure their own flex services and enter into contract with aggregators to eventually be able to offer flexible capacity to National Grid.  

In a sector that has been burnt before by sudden changes in policy, the temptation may well be to wait for government or the regulator to provide certainty and introduce incentives to act. 

The future of the DSO

In a sector that has been burnt before by sudden changes in policy, the temptation may well be to wait for government or the regulator to provide certainty and introduce incentives to act. However, in the race to develop a smart grid, technology and commercial services innovation will differentiate the industry leaders. 

To increase the returns of an early start but reduce the risk of fully committing, DNOs should already start moving towards ‘semi-skimmed’ but wait for further policy guarantees to become ‘full-fat’ if sufficient incentives materialise. In the end, it appears that ‘full-fat’ is the most natural and tastiest choice.