In an earlier blog I outlined the motivation for, the important elements of, expected benefits of, and the strategy for developing the UK smart grid. 

Regulation

The Office of the Gas and Electricity Markets (Ofgem) regulates the electricity and gas markets in the UK and is a prime mover in implementing the UK smart grid.  Ofgem is governed by an Authority whose powers are provided for under the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998 and the Enterprise Act 2002.  Its priority is protecting consumers.  The interests of gas and electricity consumers include the reduction of greenhouse gases and security of the supply of gas and electricity.  To do this it promotes competitive gas and electricity markets and regulates the monopoly companies which operate the gas and electricity networks to ensure adequate investment in the networks.  Ofgem is funded by the licensed companies it regulates who are obliged to pay an annual licence fee which is set to cover Ofgem’s costs.

Electricity Distribution in the UK

In the UK electricity distribution networks carry electricity from the transmission systems and local generators to consumers.  There are 14 licensed distribution network operators (DNOs) which are owned by seven different groups. There are also four independent network operators (IDNOs) which run smaller networks embedded in the DNO networks.  Consumers buy their electricity from suppliers who pay the DNOs for use of their networks to transport electricity. Ofgem is responsible for price controls for the 14 companies that run the regional electricity networks, four companies that operate the energy transmission networks and the four companies that own the local gas distribution networks.   Price controls set the maximum amount of revenue which energy network owners can charge consumers to cover their costs and earn a return on their investment.

Smart Grid and the Low Carbon Networks Fund

As part of its electricity distribution price control arrangements for 2010 to 2015, Ofgem established the Low Carbon Networks (LCN) Fund, which provides for up to £500 million to the distribution network operators (DNOs) to understand what they need to do to develop a smart grid and assist in the creation of a low carbon economy.

The LCN Fund provides two tiers of funding. The First Tier is designed to enable DNOs to recover a proportion of expenditure incurred on small scale projects.  The Second Tier provides for up to £64million annually awarded competitively for a small number of flagship projects.

In the first year (2010), four projects were awarded Second Tier funding
•    Customer-led Network Revolution (CE Electric UK)
•    Low Carbon London (UK Power Networks)
•    Low Carbon Hub (Central Networks)
•    LV Network Templates for a low carbon future (Western Power Distribution)
These include trials to assess the impact on the networks of electric vehicles and wind and solar generation; how best to provide timely and efficient connection to renewable generation; the role that demand side response can play in future network operation and the extent to which time of use tariffs [and smart meters] are successful in changing consumption patterns.

Customer-led Network Revolution

The largest Second Tier award in 2010 was £27 million for a £54 million project developed by CE Electric UK and its partners, British Gas, Durham University and EA Technology.  The project plans to involve 14,000 homes and businesses in the north of England and is aimed at reducing both energy costs and carbon emissions.

Over a three-year period, CE Electric and its partners plan to pilot smart grid solutions on the higher voltage networks within the electricity grid as well as creating clusters of smart-enabled homes.  The project will roll out smart meters to 14,000 customers in the North East and Yorkshire.  In addition, 2,500 customers will be installing solar PV panels, heat pumps or charging stations for electric vehicles.  The results are intended to help the DNOs ensure that the electric power networks can handle the mass introduction of distributed generation (solar panels), electric cars and other green technology.  It brings together Britian’s largest regional wires-only distributor (CE Electric) and largest national unaffiliated energy retailer (British Gas) to test a range of customer-side innovations (tariffs and load control incentives) alone and in combination with network-side technology including voltage control, real time thermal rating and storage.  The project is designed to produce five learning outcomes: (1) customer characteristics, (2) customer flexibility, (3) network flexibility, (4) optimum solution to resolve network constraints, (5) effective means to deliver optimal solutions.