London is not just a dynamic and trend setting city, it turns out that Great Britain is doing innovative work on how to unlock the value of grid flexibility. GridLab, Advanced Energy United and RMI took seven US state regulators to London in May to learn about this innovation in practice as part of the CHARGED initiative. This joint initiative is designed to accelerate the adoption of new technology and approaches in distribution planning and operations, in order to reduce costs for consumers and enable electrification. The commissioners visited with a variety of stakeholders: distribution utilities, the regulator, the market operator, the system operator, a competitive retail utility, and the association for distributed energy companies. The idea was to learn from the mistakes and successes of an energy system with a different construct from the commissioner’s home states. The visit was designed to inject ideas and opportunities along with innovation successes and challenges.
Great Britain has an energy landscape that most closely resembles Texas, with a fully restructured market that has competitive generators alongside competitive retailers. There is also a robust ecosystem of aggregators and technology platforms to support flexibility. It has three monopoly transmission utilities, six monopoly distribution utilities, and a publicly owned independent system operator (the National Electricity System Operator). Great Britain has a single regulator (Ofgem) that has a multi-year rate plan known as RIIO (Revenue = Incentives + Innovation + Outputs), what we would call performance-based regulation in the US. RIIO provides incentives for utilities to leverage flexibility and avoid capacity investments. These reforms are consistent with Great Britain’s overall regulatory stance, which is to create a competitive framework and let market forces provide the services consumers need.
This emphasis on markets and innovation is infused across the energy sector in Great Britain, and we saw this clearly in two places. The first was at Octopus Energy, the largest competitive retail utility in Great Britain, and one of the fastest growing both in Great Britain and globally. Octopus Energy has offered innovative products to its customers, including dynamic pricing and assistance in electric vehicle and heat pump purchases and installations. Octopus believes strongly that customer flexibility is key to reducing its exposure to expensive peak energy purchases, so the company uses their advanced software platform (Kraken) to nudge and incentivize customers to use energy at times of low prices and high supply.
The second place we found significant innovation was in distribution utilities. Often a neglected part of the utility business, distribution utilities in Great Britain are world-leading in innovation. We visited two of the leading distribution utilities: UK Power Networks (UKPN) and National Grid Electricity Distribution (NGED). These two utilities have created Distribution Systems Operators or DSOs that manage and procure flexibility across the distribution networks. Ofgem’s DSO incentive has driven these new entities to improve their offerings to customers and developers alike, to drive down costs and support distribution grid services. The DSOs have created distribution flexibility markets that allow Distributed Energy Resources (DERs) to bid in and provide grid services, deferring expensive traditional grid investments. These could be simple, such as managing the charging of a fleet of EVs to relieve a distribution constraint, or more complex, such as controlling generators and/or storage on the distribution grid. Both DSOs have also created processes that allow for flexible interconnection, a way for new large loads to interconnect to the distribution grid that limits upgrade costs by allowing the new load to control their output based on grid constraints. Even more exciting, UKPN has an online tool called Connections Lab that allows DER developers to test different interconnection locations, sizes, and configurations to see what the network will accept and how much they might be constrained as a result.
What we found refreshing and insightful from the visit to these entities was a willingness to experiment and tackle incremental change, and to work together across industry to do so. In the US, we often think of launching the DSO model as an incredibly complex and expensive endeavor that requires significant regulatory and cultural change, with conflicting views based on end-points rather than stepwise improvements. While these barriers still exist in Great Britain, the utility and the regulator were able to define performance based incentives, resulting in the implementation of DSOs over the course of several years. For example, the distribution utilities were able to create a DSO by moving the planning function out of the traditional distribution utility, and creating a flexible marketplace platform at low cost. Some utilities (like UKPN) created their DSO as a subsidiary, while others (such as NGED) simply created another function inside the existing utility. Another example of incremental change — the utility implemented a Distributed Energy Management System (DERMS), starting with just one or two feeders that faced constraints. Here in the US, utilities often view DERMS implementation as a multi-year software project that can cost tens of millions of dollars. We learned from our visit that incremental change is possible through a collaborative approach between regulators, monopoly utilities, and the industry. That is the belief at the core of CHARGED, that a collaborative approach between actors can produce meaningful change.
Our state commissioners came away from this visit with a deeper understanding of how another energy system worked, but more importantly, a fresh perspective on opportunities for their own utilities. Many of the commissioners are launching efforts back in their home states inspired by this visit. Having a peer exchange in which US regulators can learn from the successes (and failures!) in another country, with a different regulatory perspective, can be hugely valuable. We look forward to continuing this pragmatic dialogue with our colleagues “across the pond” as well as other countries as part of our CHARGED initiative.