The responsibility for planning local energy networks and delivering local energy flexibility markets will change, under new proposals tabled and under consultation by Ofgem.
The regulator says the current governance arrangements are not fit for purpose, given the energy system changes that are needed to deliver net zero.
Currently, network companies develop single energy vector plans, with significant variation in how regional context or priorities are factored in. The regulator says significant investment is needed in electricity network infrastructure and parts of the gas network could be decommissioned with other solutions including hydrogen or heat networks. It says strategic planning, taking into account increasingly complex trade-offs between energy vectors, will be critical to achieving a low cost net zero transition. This will be the responsibility of new regional system planners (RSPs) that will reflect regional priorities and resources and work with the Future System Operator on national system planning.
Ofgem said at the moment there is no concept of transactions across energy vectors but “Our vision is for regional energy system planning to be fully ‘whole system’, leading to coordinated development of the system across multiple vectors (electricity and gas – but also potentially heat, hydrogen, and so on).”
In addition, the regulator plans a single entity with a market facilitation function, to deliver more accessible, transparent and coordinated flexibility markets. At the moment, the regulator says there is no consistency between DNOs and nationally, which generates friction for market participants. DNOs are each creating their own processes and using different market platforms with different rules for market entry and operation, hampering investment potential for flexible assets. What is more, current market facilitation is not giving participants confidence that they will be able to maximise the value they can provide to the system. It says without a single entity there could be very different models for how the distribution system is operated and “there is a risk that less flexibility can be incorporated into the system, meaning it will be unable to meet the scale needed.”
Alongside the new functions, real-time operations would remain within existing gas and electricity network operators, “ensuring clear accountability for network reliability and safety”.
Download the full consultation Future of local energy institutions and governance