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

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 of 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) 2

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 3

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 4

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 Local with respect to resource Network cost of customer provider charging licences / provision (no.3 licence on list) for users: conditions We need Fit-for- Tariffs / Availability purpose governance, Retail of markets making sure all the Policy and data inter-linked variables which sum to the cost of service provision are complementary to the User Regulatory flexible choice model engagement mechanism (slide 5) Local, market coordinat ion and balancing

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 7

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 8

Appendix 9

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 10

The cost of running a network depends on its use – and that use is effected network charging by multiple variables. / licence conditions will To get the best deal for Local resource provider influence take up of DER & users – there has to be a licenses and leasing system operation – and body to coordinate the enable local, community, therefore effect regulatory most efficient area P2P entrants + new roles mechanism allowed cost of operation , taking account and values to change service revenue of all these variable, and network use new tariffs paid to deliver desired (for example, for outputs. EVs to help system balancing; for DSR; for solar) Markets at wholesale, local will provide different costs and co-ordinating, platforms (local values of services which will effect or otherwise), P2P, enable network charging & regulatory mech. – more granularity of value in effect, networks become a new stimulating different uses sources of revenue which reduces network charging costs Regulatory mechanism i.e. Customer involvement - RIIO2 with more PBR distribution new tariffs will impact on (particularly if bring public service use of the system – and policy goals into PBR) effects providers (DSPs) this effects the regulatory network use & DER take-up, can reveal value of mechanism and the DSR, EE, etc, and therefore DER (whether S, D, network charging cost of service revenue 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

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Potential basis for RIIO2 – more PBR Platform Service Revenues to provide Earning Adjustment Mechanisms to incentives to stimulate non-wire provide payments for networks & services & values of DER to enable & distribution wires to complement maximise this use. This moves to be government goals such as reducing paid per transaction rather than each peak prices, increasing renewables, kWh supplied. This could relate to demand reduction, etc information provision. Platform Service Revenues (PSRs) Performance Earning Adjust Mechanisms (EAMs) Based Performance Based Regulation Regulation Cost of Service Cost of Traditional cost of Service Service 10 to 15 years Traditional cost of service to pay for wires; to maintain public service obligation 13

Thankyou For more information, please go to the IGov website http://projects.exeter.ac.uk/igov/ 14