Navigant Research Blog

The Case for Smart Grids Grows in Britain

Eric Woods — February 11, 2015

We are reaching a tipping point in the movement toward smart grid deployments in Europe. There is growing agreement among stakeholders—utilities, regulators, and suppliers—that the benefits of the core technologies have been proven but that structural barriers still remain. The challenge now is to establish the right investment models, regulatory frameworks, and methods for appropriate cost and benefit sharing. These messages are reinforced by a new report on the results of one of Europe’s most ambitious smart grid pilots and by a new study of the impact of smart grids in Great Britain undertaken by Navigant Consulting.

Low Carbon London (LCL) is a £28 million ($43 million) smart grid and energy efficiency project led by the distribution network operator UK Power Networks. It was one of the first and most expansive of the projects enabled by the Low Carbon Network Fund, which was established in 2009 by U.K. energy regulator Ofgem. The £500 million ($768 million) fund has supported projects sponsored by distribution network operators to test the viability of new technology and operating and commercial arrangements.

LCL focused on four core issues: demand-side response and distributed generation; network planning and operation; electrification of heat and transport; and the future distribution system operator. The project was completed in December 2014 and UK Power Networks has now produced a summary report titled DNO Guide to Future Smart Management of Distribution Networks.

A Green Light for Demand Response

One of the most important elements of the trial was its examination of the potential for demand response (DR) programs to ease pressures on the distribution network and provide financial benefits to customers. The industrial and commercial DR program had 18 MW under contract at its peak, running across 37 customer sites, and provided more than 300 MWh to the London grid at peak times. The result has strengthened confidence in the capability of DR programs to contribute to the better management of the distribution network.

The residential dynamic time of use (TOU) trial was one of the first of its kind in the United Kingdom. The trial was used to examine the role of dynamic TOU to support constraint management on the network and to balance energy supply to reflect the availability of renewable resources. During the trial, 95% of households saved money compared to the standard flat rate of the non-TOU control group. Another important finding was the high level of approval among customers for the TOU program, with 81% believing that “it should be the standard tariff for everyone.”

A Changing Landscape

As a result of the commercial DR program, UK Power Networks has been able to include demand-side response as part of its business-as-usual model and expects to save £43 million ($66 million) on the cost of its service to customers (£12 million, or $18 million, on the London grid alone) over the next 8 years. These savings will be made under Ofgem’s new regulatory framework for network price controls, which begins in April 2015. Through the RIIO (Revenue = Incentives + Innovation + Outputs) model, Ofgem aims to encourage network operators to make use of technologies such DR to reduce costs and improve performance.

In the future, we will see a greater role for DR at the distribution level in the United Kingdom. Today, the main program for DR is the Short Term Operating Reserve (STOR) program run by National Grid, the United Kingdom’s transmission system operator. However, modelling by the LCL team suggests that, by the mid-2020s, energy suppliers could be equally significant players as the grid operator, particularly as they seek to manage the impact of much greater renewables generation.

Overall, the findings from the LCL project reinforce the message from a recent Navigant study, prepared for SmartGrid GB, on the potential benefits of smart grid innovations to the United Kingdom.  That report, Making Smart Choices for Smart Grid Development, estimates that smart grid development can deliver £2.8 billion ($4.3 million) of value to Britain’s economy by 2030. These studies are part of a growing body of evidence for the importance of smart grid innovations to meeting the country’s energy needs. The challenge now, as both reports emphasize, is to continue to develop the right mechanisms for funding and benefit sharing to ensure that the momentum toward large-scale deployment is maintained.

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