In its response to Ofgem’s consultation on the electricity distribution price control (ED3) framework, Elexon has called for the regulator to better articulate the “critical role” of flexibility in the modern electricity network.
Elexon, which manages and delivers the balancing and settlement code (BSC) in the UK, has published its full response to an Ofgem consultation on the ED3 framework which closed yesterday (16 January). In the consultation, the regulator asked for feedback on proposed changes to regulatory models and their potential impact on consumer outcomes, suggesting that ED3 could enable a more proactive approach to new capacity.
In response, Elexon has stated that it is “generally supportive” of Ofgem’s proposals and agreed with the reasoning behind them. However, the company added: “We believe there is an opportunity for Ofgem to enhance the strategic messaging around […] the critical role of flexibility as emphasised in the government’s Clean Power 2030 action plan is equally recognised.”
In particular, the firm notes that the messaging around the shift from the “flexibility first” approach of RIIO-ED2 to RIIO-ED3’s greater focus on network reinforcement should be clearer in order to ensure that flexibility is not undervalued by distribution system operators (DSOs).
According to the Energy Networks Association (ENA), the first year of RIIO-ED2 saw DSOs tendering and contracting 6.4GW and 3.2GW of flexibility respectively, setting new records for UK network flexibility. Elexon is keen to ensure that Ofgem’s shift in focus to reinforcing networks does not limit the growth of the UK’s flexibility market.
Of the continuing importance of flexibility, Elexon said, “undervaluing its role, even unintentionally, could risk sending mixed signals to DSOs as they develop their respective flexibility markets”, adding: “We strongly recommend that all Ofgem teams maintain alignment in their approach to flexibility and continue to prioritise its development throughout the RIIO-ED3 period.”
Network reinforcement ‘not a silver bullet’
Furthermore, Elexon cautions that Ofgem and DSOs should ensure they neither under- or over-invest in network reinforcement. The company warns that while underinvestment can result in higher future costs for reinforcement, overinvestment may also increase consumer costs by creating “an overdesigned network that is underutilised”.
As such, Elexon commented: “DSOs should establish a robust baseline to build out their networks effectively, avoiding the extremes of underinvestment or overinvestment.”
The importance of flexibility was once again emphasised here, with the company adding that “network reinforcement alone is not a silver bullet. It should be complemented by other tools, such as network flexibility”.
Elexon is calling for “clearer and more defined” interactions between the Market Facilitator and Regional Energy Strategic Planners (RESP), noting that while this was not explored in the consultation, the firm believes that there will be “a growing need for coordination and information sharing between these two entities”.
Finally, Elexon states that the role of flexibility is likely to grow in the coming years, owing to the UK government’s recent publication of the Clean Power 2030 document and its target of achieving 12GW of consumer-led flexibility by 2030. This growth is also fuelled by the introduction of the Market Facilitator role and the maturation of local flexibility markets. The company also notes that the Review of Electricity Market Arrangements (REMA) may influence flexibility and network reinforcement, with key balances between the needs of evolving markets and planned network upgrades needing to be considered.
Elexon commented: “Looking ahead to RIIO-ED3, flexibility will continue to play a critical role in local markets, particularly in post-fault and restoration scenarios. However, taking a whole-system approach, effective network planning and development by DSOs can unlock flexibility that could benefit the system, rather than limiting its use to the local level”.