How can market policy and system regulation help to deliver net zero at phase?

“Energy-smart places: delivering net zero” one-day conference was hosted by Innovate UK and Engineering and Physical Sciences Research Council, on 28th of February as a hybrid event. Among the many other aspects of the potential of local smart energy systems on the journey to net zero, the changes in policy and regulation to deliver net zero at pace was also brought forward to the audience as a panel discussion. The panel comprised of individuals across the energy landscape that represented Sustainable Energy Futures Ltd., Ofgem, Policy and Research Association for Decentralised Energy, FlexiGrid SMS PLC and ev.energy.

This article outlines the key points discussed by the panel on how the institutional and regulatory framework of UK’s energy sector should be amended in order to facilitate timely delivery of net zero in compliance with making net zero choices affordable for everyone. It also highlights the proposed reforms of local governance by Ofgem, that goes in line with customer propositions.

Keeping the renewable energy systems in balance

Chances of energy-smart places being successfully implemented strongly relies on its ability to contribute to balancing a majority of the renewable energy system. However, the prevailing balancing mechanism on paying excessive amount to keep fossil fuel generation to balance the system has impaired the ability to access the local resources. Meaning the local flexibility in terms of heat networks, smart heat pumps, energy efficiency, as well as demand side response. Thus, balancing the demand surplus from keeping up the fossil fuel generation needs immediate attention in order to create an operable decarbonised energy grid.

Private sector investments

Regulations to unlock investment potential in energy systems should be initiated. Predominantly, the heat network zoning, which needs private lead approach, as an outlier to those that have already been developed. Billions of pounds can be brought into the energy efficiency market, and it depends on how investable the heat network zoning context is. Achieving net zero it not necessarily to occur via approaches that are not cost effective. It is possible to direct financial benefits of investments on different infrastructures on long run marginal costs of the overall energy system. 

Right to self-supply

Prevailing regulatory framework of active network management system delegates authority to Distribute network operators (DNOs). They set up rules in establishing connections to local network systems, instead of Ofgem. However, due to this delegation of authority, if new connections to some local networks to be established, power should be curtailed at the point of generation. The generating systems are turning off, limiting not only the capability of exporting to the grid, but also of self-supplying to their customers. The reason behind this is to impair the negative effect on large scale generations. The existing regulations fit well into the larger scope of generations. However, for the smaller scale generation, it should be altered, or new set of regulations should be set up. For the smaller scale connections enables consumers the access to low-cost, carbon-free energy, the regulation seems quite unfair from their point of view.

Nationalising energy supply

Nationalising the energy supply is complex, yet, less complex than how energy supply network at the moment. Privatization of the energy sector came in back in the 90s, when most DNOs had about 5 to 10 generators across there, which has expanded up to millions at the moment. It is not realistic to expect a not-mass market consumers to be able to educate themselves to make the right decisions in terms of energy transition.

A centralized energy supply will contain all the data one needs to make informed choices on local energy planning. The data will be used to inform local energy planning through local energy hubs, which will be engaged in planning and implementation. Establishing advice centers for local consumers to get an understanding, rather than letting them come up with un-informed choices can help smoothening the transition process of nationalisation.

Local governance reforms to be proposed

Meanwhile, Ofgem has started series of consultations on their proposals on reforming governance at local levels. Enabling decentralization through a framework that work across the country is being declared as one of their goals. For that, three key elements were proposed.

Creating regional system planners was identified as an insightful initiation. These regional system planners will have to convene all of the relevant local actors as well as come up with a strategic energy system plan. The next element is flexibility market facilitation. Currently, the responsibility to deliver the services lies within several entities, making it hard for the energy sector to maximise the revenue. Accordingly, a single entity that should be responsible for the market facilitation of flexibility will be introduced to simplify the institutional and regulatory framework.

Keeping real time operations of the network with the DNOs, allowing them to focus on their core competencies and most critically, maintaining the reliability and ensuring they got clear accountability for the risks, was brought forward as the other element. However, for these alterations to be successful, a clear feedback loop between the three elements mentioned above should exist. Each element should share transparent and reliable data ensuring the timely communication of each other’s operations. 

Barriers make it harder for communities to do what is necessary, for businesses to develop customer focused or place-based energy propositions, and eventually, delivering net zero at pace to become challengeable. Only through a well-defined vision, that enables confident decision making, and sharply outlined roles and responsibilities, that alters the individual’s perspective to the whole system’s perspective, energy innovations can take place and pave the way to net zero goals.