The Embedded Generation Working Group Report into Network Access Issues
< Previous | Contents | Next >
Appendix D
Assesment of embedded generation contribution to network performance 21st June, 2000
1 Statement of the Question
It is likely that, in the future, generating plant embedded in distribution networks will contribute a larger proportion of total national generation, considering the Government’s policy objectives for renewables plant and CHP and the wish among developers to introduce various types of generating plant in distribution networks. Set against this background, and taking into account the new regulatory structure under which distribution companies will have to facilitate competition in generation and supply across their networks, this paper discusses the relevant technical issues. In particular, it addresses measures for ensuring that Distribution Network Operators (DNOs) manage networks economically and compare the connection and use of embedded generation on an equitable and transparent basis with other alternatives and that they have regard to the possibilities of obtaining security services from embedded generators and are incentivised to do so.
2 The Independent Member’s view of the current position
2.1 In the past, investments in network assets have been favoured by DNOs, owing to their interpretation of the current regulatory arrangements. In simple terms, the DNOs believe that they are rewarded with a return on investments they make in network assets. The rate of return is believed to be at or above that deemed by the regulator to be their cost of capital. Expenditure via contracts to provide local generation or load management is not similarly rewarded. In addition, the DNOs have concerns regarding the real time availability of the “non-conventional” means of system support.
2.2 As a consequence of these views, DNOs have not sought to encourage the development of embedded generation. Indeed, the DNOs’ planning procedures do not currently take account of the contribution to security from [either] embedded generation or load management. However, I am aware of occasions where DNOs have asked embedded generators to provide generation support at short notice.
2.3 The recent attempt by OFGEM to link revenues to performance measures could cause the DNOs to change their attitude to embedded generation. If revenues are linked directly to what customers actually value (few interruptions, stable voltages, speedy response to queries or requests for work or connection, low accident rates etc) rather than the size of a DNOs asset base, then the DNOs would not be “guaranteed” a return on their investments. Indeed, the DNOs would have an incentive to score well on the performance measures, but to spend as little money in doing so. In essence, they would seek to deliver the system at lowest possible cost by whatever means possible. The DNOs would then encourage novel forms of system support, but only if they provide cheaper alternatives to investment in infrastructure.
2.4 If performance based regulation is to be the future, and we would need some encouragement from Government and OFGEM that an increasing proportion of DNO revenues are to be set in this way, then there are, in my view, two ways to proceed. We could let the “market” decide. In this case, the more innovative DNOs would recognise that it is in their interests to change the way they both plan and operate their networks. To this end they may consider:-
- Developing and implementing their own planning procedures which explicitly recognise the potential benefits of embedded generation and load management
- Publish maps identifying where network reinforcement is being planned and where generation could be easily accommodated or where load management would be welcomed. Clearly, covering the whole 415V or 11kV systems could be labour intensive and expensive. Maps of the 33kV system, identifying the maximum in-feed that could be accommodated without further investment may be more feasible.
- Change their system of connection charges to make them “shallower”; so that new generators would not have to fund the reinforcements to non-local parts of the network. This would bring the DNO charging policies in line with those of NGC.
- Publish the prices they would be willing to pay for system support services at planning and operational time-scales.
- Devise techniques for managing active, rather than passive, networks.
- Give indicative price estimates, where appropriate, for frequency responsive generator operation, so that the generator could, if required, support a part of the network that might become isolated.
2.5 The provision of this information and creation of new procedures will not come without cost. DNOs will only be willing to countenance such expenditure if they believe that:-
a) a greater proportion of their revenues will be set by performance, rather than asset bases;
b) that the encouragement of these innovative forms of system support will allow them to deliver the system at a lower cost and and with the same security and quality; and
c) the shareholders will enjoy the benefits of any associated cost savings.
2.6 DNOs with the most effective and innovative approach to securing the system would be likely to earn higher profits than the laggards. In other words, the “market” would reward superior performance.
2.7 However, it may take some time for the DNOs to develop the appropriate expertise and develop markets for these innovative forms of system support. On the other hand, the DTI and OFGEM may consider that achievement of the Kyoto targets and those for CHP and rennewables would be at risk if these arrangements are not instituted with some haste. As a consequence, some form of “minimum” requirements, as part of the DNOs’ Licence, may be necessary, over and above any commitment to performance based regulation. It may also be necessary to allow, for a transitional period, some additional revenue for the DNOs to develop the necessary expertise and procedures. These may be of the form:-
- The planning guidance for the DNOs’ networks (Engineering Recommendation P2/5) needs to be updated to allow explicit recognition of the contribution to security from modern forms of embedded generation plant [and load management]. This would include the benefit that diversity of generation [and load management] could offer on particular parts of the network
- The publication of information equivalent to NGC’s “Seven Year Statement”, to an agreed standard for all DNOs, setting out the development plans for the networks, identifying opportunities where novel forms of system support may allow the DNO to forgo investment or at least reduce the cost, either for reinforcement or replacement. This may include:-
- Maps of the 33kV system (possibly lower), identifying where new generation (up to 1MW, 5MW, 10MW, 40 MW) could be accommodated with minimum further expenditure.
- maintenance policies and anticipated schedules for the following years(s)
- expected loads and load growth on the networks
- Embedded generators should no longer be charged for “deep connections”. The DNOs will make a connection charge for the assets involved in physically connecting the plant to the network. In principle, the DNOs would then only levy a “use of system charge” which would only depend on the local balance of supply and demand. This would bring the DNOs charging principles in line with those of NGC. However, as long as the DNOs’ networks remain essentially “passive” it may be necessary to develop an appeals procedure, involving both OFGEM and the Regional Development Agencies, for particularly large connections.
- The publication of a system support schedule each year, setting out the price the DNO would be willing to pay for load management and embedded generation services in particular areas of their network.
3. Carrot or Stick?
3.1 It may be the case that, having introduced performance-based regulation, the DNOs find that the novel forms of system support cannot compete with investment in assets. Moreover, the Government may also find, possibly as a consequence, that it will be unlikely to meet its targets for CHP and renewables. The Government may then wish to set targets for embedded generation. There is no doubt that this would involve the DNOs with higher costs and some mechanism would be required to ensure that the DNOs carried this out at lowest cost. Such an outcome would clearly be detrimental to the DNOs shareholders as it would increase the amount of Government intervention in their business.
3.2 Since the DNOs do not yet know whether embedded generation can provide wide-scale system support services cost effectively, it is essential that the Government gives the DNOs adequate time and adequate incentive (in the form of performance based regulation) to explore the possibilities of innovative forms of system support.
< Previous | Contents | Next >
Top of page |
