The government and Ofgem have published an updated Smart Systems and Flexibility Plan alongside the UK’s first Energy Digitalisation Strategy.
These two documents are designed to deliver on the commitments made by the government in the energy white paper, which was published in December.
Smart Systems and Flexibility Plan
In the Smart Systems and Flexibility Plan – which is an update on the 2017 version – the government and Ofgem have detailed their vision, analysis and work programme for delivering a smart and flexible electricity system that underpins energy security and the transition to net zero. This will require what the plan describes as significant levels of flexibility and the utilisation of smart technologies so the system can be run on low carbon energy sources completely.
The plan is split into six chapters; facilitating flexibility from consumers, removing barriers to flexibility on the grid, reforming markets to reward flexibility, digitalising the system and delivering on the plan.
The first of these chapters - facilitating flexibility from consumers – outlines how the government will support the deployment and uptake of smart, digital technologies and, when parliamentary time allows, regulate energy smart appliances to set requirements underpinned by the principles of interoperability, data privacy, grid stability and cyber security.
The government will also aim to consult in 2022 on an appropriate regulatory approach for organisations performing a ‘load controlling’ role, including flexibility providers who remotely control the electrical load of energy smart appliances and other technologies in response to changes in price or renewable generation. The government will also consider what legislative powers it will need to implement any solution, and look to take these when parliamentary time allows.
Ofgem will deliver a regulatory electric vehicle (EV) strategy by the end of this year while publishing with the government a joint policy statement on maximising the opportunity for flexibility from EVs as well as protecting the electricity grid and consumers in 2022.
The government has also today published a call for evidence on the deployment of technologies that allow EVs to export electricity from their batteries back on to the grid or to homes during times of higher demand, such as vehicle-to-grid or vehicle-to-home technology. Its response to this is expected in 2022.
Removing barriers to flexibility on the grid
The government is to ensure there is a level playing field between storage co-located with generation and standalone storage, as there is currently barriers to deploying storage alongside generation projects supported under the Contracts for Difference (CfD) scheme.
It will therefore work with the Low Carbon Contracts Company to produce guidance to clarify co-location requirements and if necessary it will consult on changes to the CfD contract requirements.
For long-duration storage, the government pointed to a competition worth up to £68 million launched to accelerate the commercialisation of first-of-a-kind longer duration energy storage through the £1 billion Net Zero Innovation Portfolio. This was first announced in the Ten Point Plan, before being reiterated in the energy white paper.
Alongside the competition, the government will also explore the need and case for more fundamental market intervention to support the deployment of these technologies and address the financing challenge, having published a call for evidence on facilitating the deployment of large scale and long duration electricity storage.
When it comes to smaller scale storage, the government will consider options for removing final consumption levies on electricity imported by domestic storage for the purpose of re-exporting back to the grid, which will also apply to V2G technologies.
Making reference to industry reports that possible distortions in the tax framework are currently impacting the business case for storage, the government said it will conclude its review of business rates in the autumn, and continue to work with industry to understand how VAT impacts storage.
In response to the release of the documents, Madeleine Greenhalgh, policy lead for the Electricity Storage Network and policy manager at Regen, said: “The Smart Systems and Flexibility Plan is one area of government strategy that is actually providing clear and concrete actions that will enable a smart, flexible, decarbonised electricity system. The progress made since the last iteration is clear, with big steps forward in long duration storage and modelling the future system.”
Reforming markets to reward flexibility
In the reforming markets to reward flexibility chapter, the government outlines its expectations from the Energy Networks Association’s Open Networks Project, such as that it should consider changes to the P2 planning standard that will release additional network capacity to accommodate flexibility and low carbon technologies as well as delivering a framework for appropriate data sharing based on the presumed open principle to optimise procurement across the whole electricity system.
David Smith, chief executive of Energy Networks Association, said: "The publication of the Smart Systems and Flexibility Plan along with the Energy Digitalisation Strategy is a huge sign of progress towards the intelligent and adaptive energy system which the energy networks have already begun building."
The Flexibility Plan continues to highlight that the government is aware that the Contracts for Difference mechanism doesn't factor in all system needs and could be causing costs to rise elsewhere, and as such it will continue to consider how best to strike the balance between supporting investment in generation technology and incentivising efficient behaviours at the system level.
For the Capacity Market, it will soon publish a call for evidence to start gathering stakeholder views on the longer-term future of the scheme in the context of net zero.
Ofgem will also undertake a review of electricity distribution system operation governance over the coming year, with a view to making a recommendation on any necessary changes by 2023 as well as improving price signals for flexible network usage through network charging reform, including consultations on DUoS, TNUoS, connection charges and access rights.
This has been a point of contention recently, with SSEN in particular campaigning for TNUoS reforms, citing analysis that shows that renewable generators located in Scotland pay what it said is “significantly” higher costs to connect their electricity to the grid than those in other parts of Great Britain.
Energy digitalisation strategy
Alongside the Smart Systems and Flexibility Plan, the government has published the UK’s first Energy Digitalisation Strategy. This builds on progress already being made by the sector, the work of the Energy Data Taskforce and stakeholder engagement throughout 2020 and early 2021.
Digitalisation enables the system to operate flexibly, optimising assets across the networks so that they can be integrated at least cost to consumers, the government said in the strategy, adding that it will be “very difficult to achieve the deep power sector decarbonisation needed to achieve the sixth Carbon Budget (2033 to 2037) without significantly higher levels of system flexibility”.
By the mid-2020s, the government is aiming to have standards and regulatory frameworks in place that ensure energy data collection and applications meet best practice and that data assets are treated as open and accessible by default while privacy and security is protected. There will also be a significant step-up in the visibility of assets across the system, with new digital services to make it easier for people to know what data exists and how they can gain access to it.
By 2030 and beyond, system operators will have visibility of all energy assets, making planning, forecasting and operations quicker, more accurate and cheaper.
To enable this vision, the government will work with industry to simplify data collection by streamlining small-scale asset registration processes, aiming towards a common registration solution.
It will also improve the visibility and searchability of energy datasets by delivering an Energy Data Visibility Project, with an alpha-phase ready by summer 2021.
Additionally, it will work with industry and innovation bodies to identify a long-term, enduring solution to asset registration to improve the quality and visibility of data on small-scale energy assets
The government and Ofgem are supporting an Energy Digitalisation Taskforce, with recommendations expected winter 2021/22. This was first announced in May, with the taskforce to be run by the Energy Systems Catapult and be chaired by Laura Sandys.
Ofgem will also conduct a holistic review in winter 2021/22 to identify and understand new and existing data and digital monopolies, while implementing an agile regulatory environment, integrating data and digitalisation obligations into relevant licences.
The regulator will ensure data and digitalisation expectations are included as part of the design of the RIIO-ED2 price control by requiring network operators to comply with Energy Data Best Practice and Digitalisation Strategy and Action Plan guidance.