Delivery Group 27 June 19 Ofgem Delivery Group m eeting agenda - - PowerPoint PPT Presentation

Delivery Group – 27 June 19

Ofgem

Delivery Group m eeting agenda

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Agenda topic Tim e W elcom e and introductions 10: 00 – 10: 05 Actions update 10: 05 – 10: 20 Project update and forw ard w ork plan

• Working paper update
• FCA open letter
• Analytical fram ework
• Charge design
• Subgroup updates – connection boundary and sm all users set up

10: 20 – 11: 50 DNO access to disaggregated consumption data 11: 50 – 12: 20 Lunch 12: 20 – 13: 00 Pros/ cons of different flexibility options 13: 00 – 13: 30 Cost Models update 13: 30 – 15: 00 Access subgroup update 15: 00 – 15: 45 Close and AOB 15: 45 – 16: 00

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Actions update

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Project update and Forw ard W ork Plan

Project update – W orking paper

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1 st w orking paper – Sum m er 2 0 1 9

• The work of DG and CG
• The links between access, charging and flexibility.
• Cost models framework options
• Network charging options
• Access rights options
• Combined charging, access rights and cost model options

Project update – Open letter to update on tim ing and next steps on Future Charging and Access reform s

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In May we published an open letter where we announced:

• The creation of our “Future Charging and Access ( FCA) ” program m e – which is our new umbrella

term to cover the Access, TCR and BSUoS projects

• Two implementation date changes:
• Other embedded benefits reform to now occur in April 2021, and
• Transmission charging reform in the Access project to now occur in 2023
• We are also considering 2023 implementation for TCR residuals reform (to align with Access reform)

In the Access project:

• We intend to target implementation of all changes, across transmission and distribution, and across access

and forward-looking charges, on 1 April 2023. This is the start of the RIIO-ED2 price control period

• We plan to publish the first working paper this Summer and the second paper later this year
• We intend to consult on our draft Access SCR conclusions in mid-2020, with a decision on final SCR

conclusions (including a final impact assessment) in early 2021.

Project update – tim efram es

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Project update – Analytical fram ew ork

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W e have continued to progress our analytica l framew ork:

• As not ed on an earlier slide, we have been developing our first working paper t o be published over t he summer. This includes a

qualit at ive assessment of our longlist of opt ions against t he guiding principles (for t hose areas in scope of t he paper).

• We’ve furt her developed our modelling requirement s, including:
• Defining t he segment at ion of our requirement s int o t hree segment s (i) Reference Net work Model development ; (ii) Modelling

t he impact of opt ions on t he t ariff met hodologies; and (iii) impact assessment including dist ribut ional, behavioural and syst em analysis

• We’ve commenced discussions wit h DNOs on work t hat has been done on dist ribut ion reference net work models previously,

and dat a available. We are t aking t his forward t hrough a planned discussion wit h t he ENA on t he work done t o dat e by WSP .

• The DCUSA panel have signed off a first phase of work t o scope out t he t ariff met hodology scoping requirement s and t o

ident ify t he opt ions t o be included for modelling purposes.

• We will be t aking forward t ransmission level t ariff modelling wit h t he ESO, as discussed at t he previous DG.
• We’ve cont inued development of our modelling specificat ion for (iii) and we int end commence a t ender process for t his in July
• As we cover in furt her det ail in t he following discussion, we have carried out eleven int erviews wit h supplier members of t he

Challenge Group, focused on t he impact of changes t o net work charges on t heir syst ems and t ariffs. A number of t hemes have emerged from t his process. We’re also current ly developing our plans for furt her engagement t hrough a survey of all suppliers and subsequent int erviews, commencing over t he summer. This will consider t ariff design for small consumers. Testing our developing approach:

• We t ook our analyt ical framework approach t o t he Challenge Group on 14th May. We received a range of feedback which we are

t aking int o account in t he furt her development of t he framework and in t he shaping and delivery of modelling requirement s.

• We held anot her analyt ical panel session wit h senior policy and analyt ical leads wit hin Ofgem t o t est and furt her refine our

modelling requirement s

Project update – Charge design

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• We carried out eleven supplier interviews, focused on the im pact
• f changes to network charges on their system s and tariffs.

I nitial em erging them es include:

• All agreed that technology and autom ation solutions are

needed, but significant differences in views on tim eframes and custom er take up

• Responses differed significantly between sm all users

(several suppliers noted SME also fall into this group behaviour wise) and I &C custom ers

• Most suppliers have seen no (or very little) interest in

com plex tariffs in the dom estic group and would continue to socialise costs for a large part of the m arket

• Suppliers noted challenges with agreeing initial capacities for

all custom ers and m onitoring changes over tim e

• No support for curtailm ent of sm all users, although several

noted ability of suppliers to m anage loads rem otely.

• We will assess the findings in further detail and consider the

im plications for our charge design workstream .

• We are going to be undertaking further engagem ent with

suppliers through surveys and workshops in the second half of the year, with a focus on sm all user im pacts. Key findings from the surveys are:

• Most DNOs indicated m ore clarity is needed

before they can provide estim ates for costs and im plem entation tim eframes for dynam ic charging

• ptions. Those DNOs who provided estim ates

indicated they were very uncertain.

• I ndicative tim eframe for im plem enting static

charging options was proposed as 2-5 years.

• Several technical solutions for curtailm ent were

suggested, including use of fuses and circuit breakers and use of load shedding schem es. Concerns raised about this being an option for dem and custom ers and dom estic custom ers in particular.

• All DNOs do som e short term forecasting,

although generally for network m anagement purposes, and the m ajority of DNOs are doing trials looking at im proving forecasting in the

• future. Although DNOs recognise links between

this and DSO transition, lim ited views on future accuracy of forecasting. DNO surveys Supplier interview s

Project update – Charge design: seasonality

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Season of peak dem and occurs for prim ary substations in NPg’s Yorkshire region The m ap suggest that:

• A significant num ber of

prim aries in towns peak in

• ther seasons
• I t m ay not be cost

reflective to only have winter peaks

• Not all regions have a

clearly dom inate season Further work will need to be carried out to determ ine whether there are sim ilar findings in other DNO regions 1 . I s this consistent w ith the evidence across

• ther DNOs?

2 . Do all DNOs have data to carry out sim ilar analysis?

Project update – Charge design: tim e of day

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Count of UKPN substations peaking at different tim es ( HHly) * Som e key points illustrated in the graphs include:

• The m ajority of substations peak during

the ‘tea tim e’ peak (4-7pm )

• However, in London there is a significant

second peak period between 2-3pm , suggesting it m ay not be cost reflective to have a single peak period in a region

• We have seen analysis from other DNO

regions that indicates they also have secondary peak periods

• The analysis does not identify different

locations to determ ine if there are specific characteristics driving the second peak 1 . I s this consistent w ith the evidence across other DNOs? 2 . Do all DNOs have data to carry out sim ilar analysis?

* Not e, t he graphs used act ual t im e-of-day dat a and so t he t im e periods are not exact ly t he sam e.

Mem bership and initial m eetings

• We have had a good response to the request with all DNOs, an IDNO, NGESO and NGET represented
• The group has met twice to agree the Product Descriptions and start considering options for change
• NGESO also hosted a session on transmission user commitment

I nitial options under consideration

• Grouped into three categories
• Variations on the existing distribution arrangements (High Cost Cap, Voltage Rule, Cost

Apportionment Factor)

• Variations on the existing transmission arrangements (shallow boundary, User Commitment)
• Other (standard connection charges, delayed payment)
• Compatibility of different combinations also being considered
• We are developing the options for change first before assessing the potential value

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Project update – Distribution connection boundary subgroup

Evaluation criteria

• Options will be evaluated against criteria informed by the SCR principles
• Efficient use and development of the energy system (impact on flexible connections, customers
• ver/ under requesting capacity, clustering, competition in connections)
• An essential service (impact on connection and DUoS charges)
• Practical and proportionate (ease of implementation)

Key m ilestones*

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Project update – distribution connection boundary subgroup

Sub-group meetings (from June 2019) Initial draft output (Sep 2019) Working paper 2 (end of 2019)

* Detailed plan being developed with ENA

Test emerging thinking w ith the DG/ CG? W hen and how ?

Project update – sm all users subgroup

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Mem bership

• We have received a good response to the EOI, including representatives from suppliers, network operators

and Citizens Advice

• We are considering the EOIs we have received and will confirm the process to finalise membership, and

arrangements for launching the subgroup in the coming weeks W ork to be covered

• Contribute to ad-hoc pieces of foundational analysis, likely to include:
• Understanding user characteristics
• Enablers of benefits
• Potential adaptations and protection options
• Contribute to develop a view on option packages and undertake a high level assessment

Project update – sm all users subgroup: high level plan

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• We aim to:
• share materials from foundational phase with members to test with the group in mid-August
• start subgroups meetings in late August/ September
• There may be aspects of foundational analysis where we seek earlier input from group members

Working paper Option variants across workstreams High level assessment of

• ptions packages

Subgroup first meeting / introductory webinar Foundational analysis Key m ilestones*

June-August 2019 August 2019 October 2019 End of 2019

* Detailed plan being developed

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DNO access to disaggregated consum ption data

Data access – Data Access and Privacy Fram ew ork

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• Under the DAPF

, DNOs are only able to access domestic customer consumption data on an aggregated (or

• therwise non-identifying) basis. This decision is set out in standard licence condition 10A, which specifies that:
• DNOs need to submit a data privacy plan that satisfies Ofgem that it can implement arrangements to ensure

customers cannot be identified through the data they access (SLC 10A.4(a)).

• Data relating to periods less than one month cannot be associated with a domestic customer at a relevant
• premises. This can be achieved through aggregation with other consumption data or by means of ‘any
• ther process’ (SLC 10A.5).
• We have identified two areas where the restrictions under SLC 10A may create challenges, which are discussed

in detail in the following slides:

• Calculation of DUoS charges and billing suppliers on an individual customer basis
• Access monitoring and enforcement
• On option is to amend the DAPF to enable DNOs to access disaggregated consumption data for the purpose of

calculating and billing network charges. However, we consider it may not be possible to complete this process (i.e. impact assessment, consultation, licence change) in sufficient time to be reflected in development of solutions. 1 . Are there lim its to w hat a DNO can do w ith data that in anonym ised to prevent them being able to identify a custom er at a prem ises? 2 . Are there any other areas w here DNOs w ill require access to disaggregated consum ption data?

Data access – Charging calculations and billing

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• Under the current CDCM, suppliers are billed for their domestic and small non-domestic customers on an

aggregated basis. In our charging design note, we set out that charges could be applied on an individual customer basis or aggregated by customer group (as per the current arrangements).

• If we implemented individual billing, DNOs would need to have access to customers’ individual

consumption data in order to calculate DUoS charges. As noted previously, this is not possible under the current DAPF .

• One alternative is to centralise the DUoS calculation and billing process with a third party that is able to

access disaggregated consumption data. We discussed this with WPD and they identified a number of challenges and potential issues for us to consider:

• The DNOs’ revenue collection is subject to significant internal and external audit scrutiny
• There would be treasury and budget implications if the DNOs were no longer able to set up individual

billing timeframes and cycles. Suggest SLAs would need to be put in place

• DNOs also carry out a number of associated functions, such debt collection and handling customer

queries.

• W e are also considering w hether to continue w ith aggregated billing for sm all users.
• 1. Can you identify any other issues w ith centralising DUoS charge calculation and billing?
• 2. W hat im plem entation tim efram e w ould be required to enable DNOs to m ake any changes to

address these issues?

Data access – Access rights m onitoring

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• To realise the benefits of better defined access rights, parties need to comply with their access rights
• DNOs currently only access domestic customer consumption data on an aggregated basis. For small users

they do not have access to individual meter data to monitor compliance with access rights.

• For customers with an agreed capacity, DNOs can monitor customer capacities (sourced from use of

system billing data) and apply to an excess capacity charge.

• If we improve the definition of access rights, DNOs may need access to more granular data to monitor

compliance with access rights (eg time-profiled access rights). This data may also be required to calculate network charges.

• Alternatively the monitoring of access could be outsourced to other parties that do have access to

disaggregated data (eg suppliers). The access sub- group is developing a note on the current approach to m onitoring and enforcing access rights, and the potential changes that m ay be required to im plem ent new access choices. This w ill include drafting on the data required. Do you have any view s on the data that m ay be required to m onitor and enforce new access choices?

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Flexibility options

Sources of flexibility valued under different access and forw ard-looking charging options

The mat rix below illust rat es how different pot ent ial SCR out comes could mean t he value of flexibilit y is relieving net work const raint s is recognised in different ways. These are simplified pot ent ial out comes; in pract ice, t here might be some ot her variant s or hybrid opt ions. Flexibility is m ainly valued through flexibility procurem ent. This is effect ively t he current approach for t ransmission generat ors (via t he Balancing Mechanism). Overrun charge met hodology could also be used t o value flex. Flexibility is valued through tim e of use charging, t hough addit ional flexibilit y procurement may be needed t o t he ext ent t hat charges t o do not reflect value in a part icular locat ion at different t imes As left + above, flexibilit y may also be valued t hrough access right choice. However, users m ay have lim ited incentive to choose m ore flexible access rights if charges are solely tim e of use basis. Users are able t o indicat e t hey are willing to

• ffer flexibility in their choice of access

right, in exchange for a lower capacity

• charge. Addit ional flexibilit y procurement may

be needed. Agreed capacit y based charges Charges based on usage/ demand at cert ain t imes No access right choice Significant access right choice As alluded t o here, addit ional decisions impact t he ext ent t hat access/ charging will provide full value t o flexibilit y:

• Even wit h t ime of use charges, t he different opt ions will more or less accurat ely reflect t he real short - run cost s t hat t he ESO/ DNOs would face

(under t he count erfactual of no charges) t o manage net work const raint s. Eg fixed t ime of use vs real t ime pricing

• To t he ext ent t hat charges do not fully reflect locat ional differences in cost s, t here may st ill be a need for flexibilit y procurement in high cost

areas, where t he averaged charge (or discount t o charges for flexible access choices) does not engender sufficient flexibilit y

We previously discussed the above matrix with the DG. We have now done more thinking on the relative pros and cons of different routes for valuing flexibility and want to get your input on this.

Access rights

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• Giving users choice of access right s can give users a more direct choice (t han

t hrough charging) of t he ext ent t o which t hey offer flexibilit y. For example a user may select a level of firmness or t ime profiling which t hey can t olerate for an appropriat e and agreed level of benefit . Giving users choice over t he access right may be perceived by users as having it s own value. Giving users choice

• ver access, rat her t han exposing t hem t o dynamic pricing, can be seen a form
• f hedging against volat ile charges.
• The development of access right s also builds on work already under way

t hrough t he implement at ion of flexible connections. The number of flexible connections on t he dist ribut ion net works across GB is expect ed t o grow in t he near fut ure. Clarifying right s for t hese users may be necessary, and ext ending defined right s t o ot her (exist ing) users may be pragmat ic.

• The use of flexible connections has also int roduced another pot ential market

mechanism t o resolve net work constraints. Curt ailment liabilit y t rading offers flexible connected users t o t rade t heir posit ions in t he curt ailment order t o allow user who most value net work access t o pay for it , even if t hey were supposed t o be curt ailed.

• Non- firm access right s should give net work companies a degree of cert aint y in

t he response which is more reliable t han response from price driven flexibilit y.

• Access right s for t he net work are not somet hing t hat t he average electricity

consumer is used t o engaging wit h, and t hey are not clearly defined for users

• f t he dist ribut ion net work. Therefore, it might be difficult for small users t o

underst and and engage wit h access right s in a way in which t hey can offer flexibilit y t o t he syst em.

• Curt ailment of small users, especially for essential services such as heat ing or

light ing, may not be appropriat e or acceptable, whereas wit h charging, users always have a choice t o consume electricity if t hey are willing t o pay.

• Access right s must be agreed bet ween t he user and t he DNO. This may

present some pract ical difficulties, part icularly if t hose agreement s are bespoke.

• Monit oring and enforcing t he access right would require significant t echnology

and syst ems cost t o int roduce.

Advantages Disadvantages

Charging

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• One of t he principle advant ages of charging is t hat an efficient signal can be

sent t o all users of t he net work, all of whom must pay net work charges. This means t hat net work charges are able t o drive a shift in t he baseline demand or generat ion of net work users away from t hose regions and t imes where t hey are driving net work cost s.

• The signal is very t ransparent and reasonably predictable (depending on

charging cost models), which can help give flexibilit y providers a clear invest ment signal

• Some charges (such as a seasonal t ime- of-use charge) are likely t o be

relat ively simple t o implement wit hin t he current regulat ory framework and inst it ut ional arrangement s for net work charging.

• One challenge wit h net work charging is being able t o signal very localised

net work constraints t hrough an administ rat ively calculated charge. Net work charges at lower volt age levels are current ly averaged over wide geographical area, in part , due t o challenges associated wit h modelling t he net work and accurately calculated a charge t o such a granular level. For highly localised const raints, it may not be feasible t o calculate an accurate net work charge that can accurately signal t he constraint.

• Similarly, t ime- of-use charges risk incent ivising flexibilit y at t imes where it is

not act ually needed (because t hat period does not t urn out t o be a peak net work event ), ie unnecessarily dist orting t he efficient dispatch.

• Dynamic pricing of net work capacit y availabilit y could address t his but is likely

t o be inherent ly more volat ile which could increase t he risk exposure of net work users t o suddenly sharp charges which could have an undesirable adverse impact on t hose who are less engaged or less able t o respond.

• More advanced net work charging opt ions (such as a highly dynamic, highly

locat ional charges signalled close t o real-time) could be very economically efficient, but may int roduce increased complexit y and could be more challenging t o implement given significant differences t o current arrangement s. The practical challenges of implement ing dynamic charging increase as you go down t he volt age levels, because t he high volt ages already have more monit oring t echnology and syst ems embedded.

Advantages Disadvantages

ESO/ DSO flexibility procurem ent

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• Where t here is adequat e compet ition bet ween flexibilit y providers, t his should

reveal t he efficient price for delivery of net work services.

• Flexibilit y procurement can be highly locat ional and dynamic, whereas access

right s and charging will inherent ly have an element of averaging.

• Net work monit oring equipment for ESO/ DNO procurement can be rolled out on

a t arget ed, st rategic basis, i.e. where t here is a specific need. Meanwhile, administ ered access right s and charging rely on a ubiquit ous approach, and so would require a wide- spread roll out of net work monit oring equipment . It is likely more efficient t o roll out monit oring infrast ructure at t he lowest voltages

• n a needs case rat her t han t o all part s of t he net work due t o t he costs and

pract icalit ies of doing so.

• Flexibilit y procurement can send very short t erm signals based on t he act ual
• perat ing condit ions of t he net work.
• Flexibilit y procurement should give net work companies a degree of cert ainty in

t he response which is more reliable t han response from price driven flexibilit y

• Market s are not mat ure, and t here are significant inst it utional development s

and t echnological solut ions t hat need t o be implement ed t o deliver t he benefit s. There is also a risk t hat t here may be some areas where liquidit y is very low.

• Unless accompanied by appropriat e cost reflective charges, t here is a risk t hat

t hose causing constraints end up being paid t o fix t hem, wit h t he cost of t his being socialised across wider consumers.

• Flexibilit y procurement relies on net work users being more proactive in t heir

engagement wit h emergent flexibilit y market s (as opposed t o charge which is passively and aut omat ically applied in a cost reflective manner). This could make t he rout e t o market could be more challenging for small users who may be less aware and less able t o access t hese market s compared t o larger users. This may be part icularly in locat ions where t here are few flexibilit y providers t o engage wit h (whereas access right s and charging reforms by t heir nat ure will send signals t o all flexibilit y providers).

• There has been a perception t hat DNOs, and t o a lesser ext ent t he ESO, are

biased t owards net work build solut ions or t hat t heir decision-making processes are ot herwise insufficiently t ransparent. Any actual or perceived non- neutralit y in procurement could harm engagement and invest ment signals.

• Prices and revenues could be less predict able t han administ ered access right s

and charging reforms, which may mean less invest or confidence.

Advantages Disadvantages

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Cost m odels

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Access subgroup update

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Feasibility of new access choices Access sub-group has produced a spreadsheet assessing the feasibility of offering new access choices across several key them es. A draft of this docum ent has been circulated to the DG for com m ent – any com m ents w elcom e.

• Monitoring and access rights

Monitoring and enforcem ent regime im portant for realising benefits of im proved definition of access rights. We are preparing a note on:

• Current approach to m onitoring and enforcing access rights.
• Potential changes to m onitoring and enforcing access rights if we im plem ent new

access choices. We intend to circulate the note to the DG for com m ent by em ail. New access rights – m arket participation Access sub-group has produced a spreadsheet assessing the com patibility between new access choices and wider m arkets that users m ay want to participate in. A draft of this docum ent has been circulated to the DG for com m ent – any com m ents w elcom e. Value to netw ork users of new access choices – survey We have issued a survey to CG about the value of different to access rights. We have had ~ 23 responses. Value to netw ork and system

• perators of new access choices.

We have issued a survey to all network and system operators to determ ine the benefits to them of im proving the choice and definition of access rights. Access sub- group