Ofgem proposes £500 million smart grid fund


Alistair Buchanan,
Chief Executive,
London, U.K. — (METERING.COM) — August 4, 2009 – Britain’s energy regulator Ofgem has proposed the establishment of a new £500 million fund to enable the nation’s regional distribution network operators (DNOs) to trial new smart grid and other advanced technologies and new commercial arrangements with customers for a low carbon economy.

The Low Carbon Network (LCN) fund would have a value of £100 million a year for the years 2010 to 2015, and a condition of participating will be that the DNOs will have to share what they learn with all the other U.K. energy distribution network companies.

The fund forms part of a £6.5 billion investment proposal in the distribution networks from Ofgem for its distribution price control review for 2010-2015, which is aimed at delivering better customer service from the DNOs, maintaining high network reliability, and paving the way for further carbon reductions.

Cutting the DNOs’ forecast investment plans by 17 percent, the full package should add less than £4 a year to today’s annual household electricity bill, the organization envisages.

Ofgem says it expects that the LCN fund would cover up to 90 percent of project finance, with the DNOs expected to fund the balance. Approximately £80 million (tier 1) would be allocated directly to each DNO to use for small scale projects with little oversight by Ofgem. The balance, around £320 million (tier 2), would go into a central fund for a small number of flagship projects with the DNOs competing for an allocation. Around £100 million of the total fund amount would be held back and awarded to participating DNO consortia to recognize schemes which have brought particularly valuable learning to the industry.

The kind of trials that would be helpful over the coming years and that could be funded by the LCN fund will be scoped out by the cross-industry smart grid group, Ofgem says. The group also will set a useful framework for the DNOs by mapping the issues that the future networks might face, the technologies and commercial arrangements that may address these issues and identifying knowledge gaps.

Some of the high level questions the projects receiving tier 2 funding might seek to answer are:

  • What technology combinations allow the DNOs to accommodate more renewable distributed generation while minimizing the need for network reinforcement? What are the cost implications and what are the regulatory and commercial barriers to the take-up of this technology?
  • Where a DNO implements active network management, what commercial arrangements best enable it to capture the benefits of these arrangements?
  • What changes to DNO systems and commercial relationships would allow the DNO to act as a funding intermediary for domestic installations such as micro-generation and insulation and are they a cost effective means of delivering or financing energy efficiency to households?

Other measures in the proposed package include incentives for the DNOs to connect low carbon generation, revised losses incentives, and revised customer service incentives and penalties.

Fourteen DNOs are licensed as regional monopolies in England, Scotland and Wales.

“The companies need to adapt to the needs of a low carbon economy. Greater use of electric vehicles, home-grown generation and other developments will demand radical change in the way networks are designed, managed and operated,” commented Ofgem chief executive Alistair Buchanan. “Measures like the LCN fund will enable the companies to explore new technical and commercial routes to a low carbon future.”

The proposal for the LCN fund and other proposals will now be consulted upon and final proposals will be made later in the year.