Interpretación…

The Utilities Act 2000 requires DNOs to facilitate competition in electricity generation and supply. Effective information flows, clear market entry processes, and equitable

transparent terms for connection and use of the distribution system are central to such a requirement.

The existing regulatory framework does not easily allow the financial and operational benefits of embedded generation to DNOs to be recognised. Indeed, embedded generation often results in additional costs to DNOs rather than providing business development opportunities. The regulatory environment could be re-structured to allow DNOs to develop their business through increased load connections and collect revenue through Use of System charges. DNOs will do what is asked, provided the correct incentives are in place to motivate them (Group Review, 2001).

New Electricity Trading Arrangements (NETA)

The immediate impacts of the introduction of NETA on embedded and renewable generation have been widely debated, and will be central to a report to be produced by Ofgem and DTI in August 2001. To summarise the debate, NETA’s Balancing and

Settlement Code places penalties on suppliers for failing to match their contracted levels of output, either above or below. Generators that are ‘out of balance’ are required to ‘top-up’ or ‘spill’ via the Balancing Mechanism and are subject to penalty charges. This clearly impacts on generators who might have difficulty in accurately controlling and predicting output, such as some renewable and embedded generators.

NETA has moved the goalposts to reflect more the economic benefits of certain types of generation. The Group Review concurred with the concern regarding the impacts of NETA on technologies with variable outputs. It also acknowledged that, despite Government and Ofgem objectives and responsibilities, NETA does not attempt to address the social or environmental aspects of energy policy (Annex Four). NETA may continue to remain defective for smaller market players with less reliable outputs, who will continue to be exposed to the Balancing and Settlement Code. Large generators with access to diverse forms of generation should be able to bear the risk of the variable output of renewable and other plant.

In relation to the transmission network, the role of the NGC is more focussed on security of supply within their system balancing responsibilities. The role of transmission is very much changed in the liberalised market, now more a facilitator than a constructor or maintainer of the network.

The current market appears unlikely to be conducive to meeting renewable and CHP targets, so meeting these targets may require Government intervention. One option would be to pull CHP and renewable generators out of NETA. CHP and renewable technologies are likely to need more than the oft used ‘level playing field’ to meet the targets and for DNOs to become renewable and embedded friendly. Another option may be facilitating the

development of aggregation (see below) and supporting energy storage technologies to smooth the variable outputs of some technologies (see Chapter 5). It is important to note that tweaking the market by government is much more transparent in the liberalised market and will require clear justification.

Aggregation

The concept of ‘aggregation’ or brokerage has been raised in the debates concerning the recent California energy crisis (Brooks and Butler, 2001). Electricity supply problems in California have been of great concern to industry, particular for the hi-tech, high-energy users located in the state. Many of these industrial users responded to past fears of supply security by purchasing on-site, off-grid back-up generation capability, often in the form of diesel generators. Such generation is restricted through permits and has tended to lay idle for much of the year, actual utilisation falling well under that permitted. Companies have begun to establish a niche in the market through aggregating this unused capacity from a number of sources and making it available to the grid. The DNOs could take this

aggregator role in the UK, taking excess output from CHP and other small-scale generating technologies. Other potential ‘aggregators’ include third party ‘Trading Co-operatives’. Such developments are advantageous to owners of embedded generation, as long as their security of supply is guaranteed, as it offers them access to another income stream without too much administrative time and cost. Such developments could make embedded and distributed energy a much more viable and attractive proposition. Policies designed to ease aggregator access to electricity networks will have a significant impact on such

developments. Indeed, some have suggested that aggregation and generation co-operatives might be a market response by renewable and CHP generators.

Providing Incentives to Distribution Network Operators

Provided with suitable incentives, DNOs will invest in their network to augment the potential for embedded generation connection. They could strengthen the network to maintain acceptable fault levels and increase the scope for connecting new generation. Amending the network’s configuration may allow more flexible operation of embedded generation under fault conditions. New technology such as super-conducting fault level limiters, energy storage technologies and household technologies such as energy efficient lighting and appliances, PV, fuel cell, Stirling Engine, etc could all be encouraged by DNOs through links with Government Departments, the Energy Savings Trust, and the Energy Efficiency Commitments of electricity supply companies.

technological shift required to encourage the expansion of renewable and embedded generation, in partnership with other agencies. The right commercial and regulatory frameworks need to be in place to facilitate this.

Minimising Red Tape on Embedded Generation Projects

Small-scale generators seek as simple contractual arrangements as possible. The existing arrangements often require embedded generators to enter into contractual relationships with both the NGC and DNOs. The EGWG report highlighted the need for NGC to adapt their contractual agreements with DNOs so that embedded generators may choose to have a single point of contact with their host DNO, and choose whether to enter into agreement with NGC.

Licence conditions would need to be developed for DNOs to link to NGC. One point of contact for embedded generators concerning connection would be provided, the DNO undertaking all liaisons with NGC. Such developments could facilitate DNOs taking on the aggregator role discussed above, and measures to stimulate aggregation require

consideration.

Provision of Information

The EGWG report highlighted the importance of information and transparency in facilitating the development of embedded generation. Information regarding connection points and the effect of location on likely connection charges is central to decisions on the location of embedded plant. Developers of embedded generation have been concerned that the information made available to them is erratic, inadequate and overly complex (EGWG, 2001). Effective information flows, accessible processes for market entry and transparent terms for connection and use of networks are all key factors.

The Utilities Act 2000 requires DNOs to publish network development statements, intended to inform the market place, enable developers to identify potential business opportunities, and provide transparent costs for network connections.

EGWG acknowledged that an appropriate balance between the value and costs of providing the information must be established (EGWG, 2001). Comparisons are readily made with the information provided in NGC’s Seven Year Statement (SYS) which provides information on system opportunities, policies on connection and use of system charging, and general approaches to facilitating new market entrants. These were cited by the EGWG as good practice and worthy of consideration for addressing the issues that are emerging at the distribution level with respect to embedded generation. (EGWG, 2001)

However, acknowledgement must be given to the relatively increased complexity of

distribution systems, their extensive length, varied voltage levels, dynamic demand profiles and variety.

At the very least, however, a consistent approach across DNOs to the provision of information and the connection application process would assist embedded generation development. General connection guidelines for embedded generation that clarify the roles of developers and DNOs and set standards, both for the quality of information submitted by developers and the quality of the response from DNOs, would be another encouraging development.

Cost and Benefits of Embedded Generation

DistributionCharging Principles

At present, generator customers incur ‘deep’ connection charges. Such charges include the costs of the direct connection and any associated costs of reinforcing the distribution network as far as the local grid supply point. In comparison, demand customers pay relatively shallow (‘shallowish’) connection charges along with Distribution Use of System (DUoS) charges.

The current arrangements present a significant financial barrier to the connection of new generation. A generator may only need a portion of the minimum reinforcement for which it must pay. This produces clear inequities between first and subsequent generator connections. EGWG suggested that a move towards sharing more of the benefits with others, such as existing and future customers and future embedded generators is required. Therefore, the duty on DNOs to facilitate competition in generation may require significant amendments to be made to the way in which DNOs charge for the connection to and use of distribution networks. A number of charging options exist and include:

• ‘Shallow’ charges, whereby the generator pays only for the connection to the distribution network at the nearest suitable point. Such charges are similar to connection charges applied to generators connecting to the transmission network. • ‘Shallowish’ charges, whereby the generator pays for connection as above plus any

reinforcement triggered by the connection to the distribution network at the same voltage as the connection and one voltage level above that of the connection. This structure is analogous to the connection charges applied to load customers connecting to distribution networks.

incurred and encourage additional connections of embedded plant. EGWG acknowledged that ‘shallow’ charges would likely to be more effective than ‘shallowish’ charges in this respect.

An important consideration is the potential weakening of locational signals that are present in the existing ’deep’ charging structure. ‘Shallow’ charging provides no locational signal whereas ’shallowish’ charges may place significant costs on other users. But, varied charges between locations could provide incentives and disincentives to plant location. Discussions in the Group Review reflected on the option of introducing a rationed or auctioned subsidy to fund reinforcement, thereby lessening connection charges, retaining a locational signal in the price, and building infrastructure so that the first-comer doesn’t pay for the second-comer’s “free ride” (Annex Four).

The above charging options may require that reinforcement costs be met through other charges. Demand customers could pay all reinforcement costs through increased Demand Use of System charges, although significant embedded generation would result in

significant additional costs and raise inequity concerns. Generation customers could pay all reinforcement costs for generators through a new generator entry charge. Alternatively, load and generation customers could pay reinforcement costs through entry and exit charges. Such an option is equitable while providing significant encouragement overall to the connection of new embedded generation. It could also provide the locational signals to generators and customers lost through a move to a new charging regime.

EGWG highlighted that, regardless of any amendments made to the charging regime, analysis and assessment of the potential short and long term impacts of options for changes is required (EGWG, 2001). Such analysis should encompass existing embedded generators that have already paid deep connection charges.

Recognising the Benefits of Embedded Generation

Embedded generation can provide benefits to customers through increased reliability, uninterruptible service, energy cost savings and onsite efficiencies (NREL, 2000). Similarly, there are a number of potential benefits to the distribution network in terms of lower transmission and distribution losses and reduced capital requirements.

For instance, the Transmission Network Use of System charging procedures provide locational signals as to the most economic areas for development from a transmission system point of view. Embedded generators may also receive the benefit of the avoided demand charges when meeting demand of local suppliers, such benefits being of higher

value in the south of the country. The potential for improving the economic efficiency of locational signals is currently being undertaken as part of a wider review of transmission access arrangements currently led by Ofgem.

However, it is not enough simply to recognise the true value of embedded generation. The regulatory framework must reward this value (see charging structures).

6.3 Technical Issues