Robert Tudway of Lux Nova Partners explores the recent emergency powers granted to DNOs for last resort disconnection of distributed generation and the wider implications for grid management of low and zero carbon electricity generation.
On 7th May Ofgem approved with immediate effect a change to the Grid Code, enabling the Electricity System Operator (ESO) to give Distribution Network Operators blanket instructions to disconnect an aggregate quantity of distributed generation capacity within their areas, without compensation to the generators affected.
This is an emergency measure, but is to be followed up by the ESO constructing a permanent mechanism for Ofgem’s approval.
It is fundamental that any long term solution adopted to address the actual underlying problem is a product of extensive participation by distributed generators and does not discriminate against the low and zero electricity generating capacity that it contributes.
Why the emergency?
The ESO already has a power to ask DNOs to disconnect an individual item of generating capacity embedded in its system if departing from the normal balancing system processes is justified; but it has rarely if ever been used and does not apply to the aggregated distributed generating capacity or percentage capacity connected to DNOs’ systems, but only to specific individual plants. However, the reduction in electricity demand resulting from the combination of ‘stay at home’ restrictions to combat Covid 19 and the progressive increase in the amount of distributed generating capacity triggered the ESO to want the ability to include embedded generation collectively in its balancing armoury - so much so that, from a standing start, the ESO felt that the modification needed had to be done before the May Bank Holiday week-end to avoid the risk of the transmission network crashing.
The quantity of distributed generating capacity has been increasing steadily.Around a third of the electricity consumed in the UK is now from renewable sources, a substantial proportion of which is in smaller generating plant directly connected to electricity distribution systems. The result has been that, when Covid 19 arrived and caused reduced electricity demand as we stayed at home, it brought to the surface the question of Grid control over this new and expanding source of electricity generation within the distribution networks. Unfortunately, the hurried measures now taken could unfairly and unreasonably disadvantage distributed generators in competing in the market place with sources of generation directly connected to the Transmission Grid. A long term, fairer and more transparent arrangement is needed.
Working for an enduring solution.
In the ESO’s modification proposal [GC143], to give it the control it wants over the disconnection of distributed generation, the ESO sets out its solution –
‘The changes proposed will give the ESO the clear ability to instruct DNOs to disconnect embedded generation in an emergency situation. This would only be pursued as a last resort if no further actions were available to the ESO either commercially or in the BM [Balancing Mechanism]. As part of the solution a sunset clause has been included which will time out the additions to the Grid Code in October 2020 if not further amended by this point.’
‘It is the intention that a more considered solution to the issues identified here will be developed in the meantime…’
In allowing the modification to the Grid Code, Ofgem made it clear that the ESO must bring forward a further modification to develop an enduring solution in consultation with industry stakeholders ‘on a non – urgent timeline to allow all relevant points of view to be taken into account’.
Ofgem also state that the solution should be based on the development of a ‘market based enduring solution’
Ofgem’s decision also refers to the EU’s ‘Clean Energy Package’ [Regulation on the internal market for electricity 2019/943] and quoted from it the requirement that ‘where non-market based re-dispatching is used, it shall be subject to financial compensation by the system operator requesting the re-dispatching to the operator of the re-dispatched generation, energy storage or demand response facility except in the case of producers that have accepted a connection agreement under which there is no guarantee of firm delivery of energy’
This might sound re-assuring, but the distributed energy sector should not be lulled into thinking that events can be allowed to take their course –
in their assessment of the impact of the temporary measures contained in their modification proposals, the ESO assesses there to be no impact on the facilitation of effective competition in the generation and supply of electricity, despite the fact that directly connected generators are compensated either though the BM system or under commercial arrangements, whilst the distributed generators are not;
Ofgem finds, in its determination on the modification, that the change will have a neutral impact on the facilitation of effective competition under the Grid Code;
in its recent review of embedded benefits, Ofgem virtually removed embedded benefits. This was in spite of cogent arguments being made on behalf of distributed generators that the business model of many them depends upon embedded benefits to correct for a market structure that favours large scale, directly connected generators. The removal of embedded benefits has a clear negative impact on their businesses and a further distortive impact on competition;
although Ofgem (through the Authority) has environmental obligations, they do not interpret that obligation as requiring them ensure the market structure supports low and zero carbon energy production.
What next?
The underlying message is that, although the ESO is committed to a proper review of the long term position and Ofgem has included some re-assuring words regarding a possible market based solution and the possibility of compensation, nothing is settled and much is in doubt –
since both participation in the BM and commercial arrangements with the ESO involve payments in return for directly connected generators not generating, there needs to be a basis of compensation for distributed generators which is equivalent and does not leave put them at a further competitive disadvantage;
how would a market-based system (as Ofgem would appear to prefer) work and how will it be made transparent and practical for smaller scale generators to participate in?
what would be the role of the DNO and the specifics of their obligations in operating a scheme beneath grid supply points?
will the DNO operate a bidding system or other pricing mechanism to establish on each occasion whose generating plant will be disconnected or will there be a series of commercial agreements with each connected generator?
These questions are merely a broad outline. The distributed generation sector will do well in the coming months to identify the issues which are important to them and to the outcome of the forthcoming debate. They will need to play a leading role in constructing a fair and transparent scheme, rather than risk leaving too much to others. Left to their own devices, the ESO and DNOs will naturally choose solutions that fit their own systems and a market structure designed for transmission connected generation, more than ones that meet the legitimate expectations of distributed generators.
