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  1. 1. Incentivising deployment ofsmart gridsClean power & smart grids conference5 June 2013 AskewSenior Manager, policy analysis
  2. 2. 2Contents1.  Encouraging companies to consider innovation-  Low Carbon Network Fund-  Innovation stimulus2. Rewarding innovation-  RIIO price control framework-  Efficiency incentive-  Totex approach3. Removing barriers to the deployment of smart grids-  Smart Grids Forum
  3. 3. 31. Encouraging companies to consider innovation
  4. 4. 4Low carbon future = change in network useIssue Consequence2020 targets Lower energy use,increased renewables,heat pumpsPlanningtargets & ZCHPartial local selfsufficiency; more urbanDGRenewableheat incentiveLower electricity use,more urban DG, districtheatingFeed-in tariffs Partial local selfsufficiencyDomesticsmart metersOpportunity for DSM andANMElectric cars Increase in demand butstorage potentialElectricstorageEnable more renewableDG connectionIncreased networkinvestmentChanging NetworkUse:•  Passive network• 2 way systemflows•  Activenetworks•  Smart grids•  DSODecreased / offsetnetwork investmentCombined effect unclear, butnetwork use will changeUncertainty around timing and scale of changes. LCN Fund established to encourageDNOs to trial ways of responding/anticipating this future
  5. 5. 5LCN Fund objectiveRespond: Facilitate:Explore how climate change initiativesimpact the networks and the role theDNOs can play, e.g. district heating,ground source heat pumps, energyefficiency measures etc.DNOs trial being a partner andfacilitator to energy schemes,providing information, or developingnew commercial arrangementsTrial innovative commercial andtechnical network solutions to:•  Connect increasing renewables•  Manage network impact of increasedrenewables, demand sidemanagement, electric vehicles etc•  Explore active networkmanagement, smart grids and othercommercial servicesTrials will generate learning which will increase the speed andefficiency that DNOs respond to changes in network useProvides a range of potential solutions to forthcoming challengesOBJECTIVE:To encourage the DNOs to use the DPCR5 period to prepare for the rolethey will have to play as GB moves to a low carbon economy
  6. 6. 6Structure of LCN FundThe LCN Fund comprises £500m over the five year price control period•  Expect integrated trials,working with third parties•  DNO funding (at least 10%)to ensure commitment•  Recognition of innovationrisk•  Dissemination of findingscritical including regulatoryor legal issues•  Provide counterweight tofocus on cost reductionsfrom incentive regulationbut not panaceaRIIO is now taking this thinking further with the development of the innovationstimulus packageLCN FundPLUS £100m discretionary rewardFirst Tier: Allowance for trialling newtechnologies and commercialarrangements to better prepare for lowcarbon economy.Second Tier: DNOs compete for centralfund. Allows trialling new technologiesand commercial arrangements to betterprepare for low carbon economy.IncreasingvalueIncreasingoversightIncreasingnumberofprojects£80mover5years£64mp.a.IFI: Allowance focused on R&D£20mp.a.
  7. 7. 72. Rewarding innovation
  8. 8. 8RIIO frameworkEqualised incentives New ideas fromenhanced engagementNew ideas resultingfrom potential forincreased competition indeliveryTime-limited innovationstimulusDiscretionaryrewards forcommercialinnovationOutputs-ledNo ‘with hindsight’adjustmentsLonger-term pricecontrolStrong efficiencyincentive- Ex ante allowance to deliver outputs (outputs led)-  Retain up to 70% of any under spend (efficiency incentive)-  No incentive to drive capex solutions (equalised incentives)How RIIO will encourage innovation and smart grids= ++Revenue Incentives Innovation OutputsRIIO price control framework
  9. 9. 9High level framework - Outputs & Incentives forED1•  The efficiency incentive (sharing factor) will make DNOs consider the most efficientresponse•  DNOs incentivised to use Smart Grids where it can maintain reliability or connect newcustomers more quickly and at lower cost•  LCNF today (NIA/NIC in the future) will allow testing of new Smart Grid solutions andrevealing of more efficient costs
  10. 10. 103. Removing barriers to smart grid deployment
  11. 11. 11Smart Grid Forum•  Established by DECC & Ofgem in May 2011•  Brings together DNOs, NG, suppliers, technology providers, consumer groups,academics, Government and Regulator•  2nd year work programme consisted of 5 work streamsWork stream DetailsWS1 Developed DECC low carbon scenariosWS2 - closed High level Smart Grids evaluation frameworkWS3 DNOs model building on evaluation frameworkWS4 Identifying closing doorsWS5 Ways of working – learning disseminationWS6 Regulatory & commercial issuesYear 3 work programme getting started and includes 1) consideration of the technical issuesassociated with accommodating active devices on the network and 2) production of a routemap for smart grids in GB
  12. 12. 12Smart Grids Forum – Work Stream 6 – last year•  We have examined regulatory and commercial barriers toDNOs deploying smart grids incl. DSR during the next pricecontrol period ED1Conclusions on barriers to smart grids (incl. DSR) – ED11. There are relatively few – DNOs already using DSR!2. Some technical specifications may need updating – ER P2/63. Connection charging rules may need slight amendment•  We have also identified a need to assess barriers and the need forcommercial enablers from a broader perspective•  Now taking this forward as part of 3rd year programme. Looking atroles and relationships required between parties and with customers
  13. 13. 13Work stream 6 – further programmeDevelop a number of options for the development of and consumerengagement with Smart GridsStage 1A B C DRoles and relationships for relevant parties under different options & trigger pointsfor these rolesStage 2Commercial /regulatory arrangements for each option to effectively discharge roles& identify barriers to and enablers for these arrangementsStage 3Output Defined roles and relationships with supporting commercial/regulatoryarrangements across a range of options & trigger points
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