Market: competition, infrastructure and innovation Assessing market - - PowerPoint PPT Presentation

WEET Forum 26 April 2018

Priorities for the UK Energy Market: competition, infrastructure and innovation

Assessing market arrangements and getting the best deal for users Catherine Mitchell

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Getting the best deal for users – much broader than p/unit – more to do with having governance arrangements which deliver the services that users want

• Users

– Those that ‘use’ the energy system – buyers and sellers

• f services (supply, demand, flexibility etc, prosumers,

whatever scale, active/passive)

• User preferences / requirements / wishes:

– (1) Access the services they want; buy from and sell to whom/whatever they want; – (2) Decarbonisation by a set timeline (80% by 2050) – (3) Total cost of service to customers has to be affordable and equitable (including costs of resource; networks; non-network infrastructure; operating a secure and flexible system; and decarbonisation)

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Getting the best deal for users requires:

• Getting the ‘right’ governance in place (where

governance is taken to mean institutions, policies, network rules and incentives, market design, retail policy, customer preferences) Our fit-for-purpose governance framework

document: http://projects.exeter.ac.uk/igov/paper-gb-energy-governance-for-innovation-sustainability-and- affordability-2/

• Engaged and consenting users
• Whole energy system approach

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Best deal for users with respect to decarbonisation (no.2) on list: a new ‘user’ proposition

• So far, decarbonisation has focused on electricity and broadly been

‘hidden’ and without much domestic customer involvement

• BUT as we require more decarbonisation, at a quicker rate, then we

need to engage more with people/domestic customers e.g:

– To sort out heat decarbonisation, we will need energy efficient homes and, maybe, new heating systems (ie not gas) / district heating / heat pumps – To reduce emissions from transport, we would like people to walk/cycle or accept electric vehicles or public transport – For deeper electricity decarbonisation, we would like people to engage behind-the-meter more for DSR, flexibility services etc

• All these changes for people and their interaction with the energy system,

the way it is operated and how it is paid for, requires a ‘new’ user proposition – something which resonates with users

– All stakeholders have responsibility for this – not just users – Governance framework/ market arrangements have to fit the user proposition – has to stop having policies which take no notice of user proposition

Best deal for users (access to the services users want and cost of service, no.1 and 3) : we need a new energy system structure

In order to have the best deal with respect to cost of customer provision (no.3

• n list) for users:

We need Fit-for- purpose governance, making sure all the inter-linked variables which sum to the cost

• f service provision are

complementary to the flexible choice model (slide 5) Network charging Tariffs / Retail Policy User engagement Local, market coordinat ion and balancing Availability

• f markets

and data Regulatory mechanism Local resource provider licences / licence conditions

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We need process and timescales for change – not too quick; not too slow, eg NY REV, and to fit CCC budget – so that changes have a good chance of working https://www.energymarketers.com/Documents/MDPT_Report_150817_Final.pdf

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Getting the best deal for users

• More than p/unit, more about having an energy system

which delivers the services users want affordably and in an equitable way

• Needs a clear vision + process for change, with timelines

to fit with CCC budget advice

• User proposition linked to this Vision
• Governance change

– Regulatory mechanism (RIIO2) has to have a far greater percentage of revenue related to desired outputs i.e. Performance Based Regulation, so more adaptive – Customer provision better enabled through moving to a flexible choice model and having complementary costing methodology which is more evolutionary and dynamic, including the costs of moving from A to B – Institutional change, enabling decision-making and better coordination and direction

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Appendix

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IGov Fit-for-Purpose GB Energy Governance Framework

http://projects.exeter.ac.uk/igov/wp-content/uploads/2017/10/SYS-Copenhagen-27-October-2017.pdf

The cost of running a network depends on its use – and that use is effected by multiple variables. To get the best deal for users – there has to be a body to coordinate the most efficient area

• peration , taking account
• f all these variable, and

paid to deliver desired

• utputs.

network charging / licence conditions will influence take up of DER & system operation – and therefore effect regulatory mechanism allowed cost of service revenue new tariffs (for example, for EVs to help system balancing; for DSR; for solar) will provide different costs and values of services which will effect network charging & regulatory mech. – in effect, networks become a new sources of revenue which reduces network charging costs Customer involvement - new tariffs will impact on use of the system – and this effects the regulatory mechanism and the network charging distribution service providers (DSPs) can reveal value of DER (whether S, D, storage, flexibility) etc; can ensure value is accessible; & can market facilitate – will impact DER take up and system operation, and therefore regulatory mechanism and network charging Markets at wholesale, local co-ordinating, platforms (local

• r otherwise), P2P, enable

more granularity of value stimulating different uses Regulatory mechanism i.e. RIIO2 with more PBR (particularly if bring public policy goals into PBR) effects network use & DER take-up, DSR, EE, etc, and therefore cost of service revenue Local resource provider licenses and leasing enable local, community, P2P entrants + new roles and values to change network use

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Potential basis for RIIO2 – more PBR

Platform Service Revenues (PSRs) Earning Adjust Mechanisms (EAMs) Traditional cost of Service

Cost of Service Performance Based Regulation

Traditional cost of service to pay for wires; to maintain public service

• bligation

Platform Service Revenues to provide incentives to stimulate non-wire services & values of DER to enable & maximise this use. This moves to be paid per transaction rather than each kWh supplied. This could relate to information provision. Earning Adjustment Mechanisms to provide payments for networks & distribution wires to complement government goals such as reducing peak prices, increasing renewables, demand reduction, etc

Cost of Service

Performance Based Regulation

10 to 15 years

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Thankyou

For more information, please go to the IGov website http://projects.exeter.ac.uk/igov/