Last month, distribution network operator UK Power Networks unveiled details of its upcoming flexibility services tender, the first of its kind in the UK to be launched on a regional level.
Sotiris Georgiopoulos, head of smart grid development at UKPN, explained to Clean Energy News, why the DNO had chosen to launch the tender, how it will operate and what UKPN hopes to gain from the milestone initiative on the path to DSO status.
What prompted this tender for flexibility now?
It's always been our strategy to use flexibility to deliver benefits for consumers. Flexibility is a low cost alternative to upgrading the network or to manage uncertainty. At the same time, we have had 8.5GW of generation capacity on the network, over 1GW of contracted capacity for storage on the network and we recognise the nature of the network is rapidly changing.
Over the last year we've been working on how to accelerate this transition to a more active distribution network because we need to, based on what we are seeing on the ground and the pace of change. We've been working on the flexibility tender in a way that we can identify the network locations, put them out to market in a technology agnostic fashion but also help and hopefully signpost potential locations where resources can help support the network and deliver networks.
If you look at our DSO strategy, customer flexibility and the benefits from that is one of the five strategic areas, so this is the beginning really.
How often do you plan to carry out tenders for flexibility services?
It will depend on what needs we have. We want them to be regular but we're trying to define the frequency based on some of the feedback we got from the market. It's not only about the frequency, it’s about the timing and which part of the year it works best with other tendering rounds such as the capacity market.
We expect them to be at least annual but we're looking to see if we need to be more frequent or not.
How would you seek to balance local flexibility needs with the national services tenders participants may be engaging with?
We want to make this service as compatible with others as possible and avoid any elements of exclusivity. That will allow the providers to access other revenue streams when not being used for our purposes and hopefully it will allow us and the consumers to get better value out of the service.
We have always maintained the position that to get lowest cost for consumers and best value for money, we need to increase compatibility of how the services are designed as much as possible. This will be an evolving process but there is a continuous effort to minimise the conflicts and improving the design of all the respective products.
For this to come together there's also the other side which is how the other services are contracted and the terms and conditions around them. I expect progress will be made at national level through the Energy Networks Association because this is a live issue for them as much as what we try at a local level.
How do you plan to price the flexibility you are seeking?
What we are trying to do here is manage uncertainty over the timing of the network upgrade. Instead of upgrading the asset we will have put in place a flexibility contract and it will allow us to have met the need without necessarily having upgraded the asset. But there is uncertainty about when that network upgrade will be needed, so there's a value in deferring that reinforcement and that's what we're looking to monetise as part of the flexibility tender.
But the pricing we get back has to be such whereby the package is a lower cost alternative to the asset option that we have.
It's not about avoiding capital investment as we may still need to do that and especially as you move into the 2020s when the network is going to see different demands both from load growth and generation growth, having those contracts in place that allow you to fully optimise your investment profile is going to be very important.
What else are you hoping to gain from running this new tender?
We want to allow the market, knowing there is a need in those areas, to innovate and come forward with ideas and business models that we haven't necessarily foreseen. We're not taking the stance that we know best what flexibility there is in the area because the market is moving quite fast.
There might be communities, suppliers, third parties or aggregators that can put together different types of flexibility packaged in a way that meets our needs but in a way that we haven't foreseen is possible.
One of the outcomes we want to see is not only to stimulate the market but also to look at what innovation is out there and what alternative business models may be there that can meet our needs.
All technologies are being invited to express interest to UKPN and should be able to deliver the service from January 2018 and/or next winter (2018/19).