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24 October 2019

Ofgem edges the UK slowly towards a smarter grid

UK electricity regulator Ofgem has granted £64 million for electricity distribution projects, with focus on innovation as it slowly takes responsibility for grid reform into its own hands.

The investment has been approved under the RIIO-ED1 price control, where funds may be allocated to electricity distribution network operators for projects meeting Ofgem’s specified criteria. Applications were heard to help finance costs associated with high value projects; rail electrification; enhanced physical sites and specified street works. While funding was awarded for 12 applicants, approximately £258 million of requests were rejected.

Scottish and Southern Electricity Networks (SSEN) was among beneficiaries, with £16 million to fund necessary diversions required to electrify the Great Western Railway line. However, requests regarding cable replacements at Petland Firth East, which links Orkney to the Scottish mainland were not approved.

Ofgem has received some criticism for this. Current failure of the cables has meant that Orkney, famous for high renewable output, has not been able to access or provide grid electricity, meaning back-up power from Kirkwall Power Station has had to be used. With the existing cable proposed to simply be replaced, the £30 million proposal was rejected as a solution lacking efficiency or economic benefit.

Ofgem has been keen to push the idea of its Innovation Roll-out Mechanism (IRM), to facilitate the implementation of innovative technology within electricity distribution. Included within this, £15 million of funding has been allocated to Electricity North West Limited following the positive assessment of its Smart Street proposals.

In a published document outlining the decision behind this grant, Ofgem highlight its view that it is in “consumer’s interests that the network companies respond creatively”, with innovation placed at the front of the RIIO price control framework, “Revenue = Incentives + Innovation + Outputs.”

The Smart Street program aims to install AI-optimization software and use real-time measurement data to manage voltage on the low-voltage network through 180 additional distribution substations. This level of data management and voltage stabilization will be a positive step towards a system using microgrids to operate at a significantly improved efficiency, as energy demand grows with the introduction of EVs and electric space heating.

In terms of influence, you might expect that utilities would be driving the route to a smart grid. But with little immediate impact to revenue, and the added level of complexity the increased data would bring to business, they’re unlikely to be in much of a hurry. Ofgem however, with greater political responsibility, has a more imminent interest in decarbonizing the grid to reach net-zero emissions targets, and policies like the IRM may be more important than they appear at first glance.

Critics have argued that Ofgem is being obstructive by rejecting projects such as those by SSEN, slowing the transition to a renewables-based grid. However, the financial support through the IRM is a positive step towards promoting innovation within electricity distribution, and encouraging others, including utility companies, to follow suit. While the acceptance of small projects such as Smart Streets is a small step, the rejection of proposals using the same-old technology is likely to be far more influential in driving Britain to a smart grid and a carbon-free economy.