65: Energy networks and smart local systems

What role do energy network operators - or DNOs - have in developing smart local energy systems? Becky – along with guest co-host Dr Jeff Hardy – lead an EnergyREV panel discussion with:

Maxine Frerk, director at Grid Edge Policy

Adam Bell, Head of Policy at Stonehaven Global

Melanie Bryce, SSEN Oxfordshire programme director on Project LEO (Local Energy Oxfordshire)

Doug Cook, deputy director at OFGEM responsible for digitalisation and decentralisation

Transcript

Becky: Hello and welcome to Local Zero. You may notice that I am without Matt and without Fraser today, but I am joined by the very fabulous and longtime friend of the pod, Dr Jeff Hardy. And the two of us will be having a conversation with four phenomenal experts about the role of the UK's network operators, or DNOs, all about their role in future energy systems.

So we actually recorded this conversation as part of one of the EnergyREV workshops that we ran earlier in the year, but it was such an interesting chat that we thought we just had to release it as a Local Zero episode. But before we get into it, just a reminder: do subscribe to the pod if you haven't already. Search “Local Zero"wherever you get your podcasts. you can join the chat on Twitter, @localzeropod. You can email us localzeropod@gmail.com – we want to hear from you, and do make suggestions for future episodes. Do get engaged on all of our social media platforms. But for now, I think we should get into the conversation.

So we recognise that there's this big sort of transition underway around DNOs and the shift towards DSOs, and the increasing role that DNOs will likely play in our energy systems of the future. And what we really want to try and explore in this session is how this is evolving? What is the role that DNOs um, need to play? Are they going to be critical to the success of smart local energy systems? And are there any barriers or challenges that we need to explore moving forward? 

I’m absolutely delighted that we're joined by a phenomenal panel of guests. I'm going to kick off by maybe asking each of my panel members to introduce yourself and maybe give a quick two-minute overview with some of your initial thoughts around the role of the DNO or DSO in unlocking that smart local energy future. And perhaps, um, Maxine, we can start with you. 

Maxine: So, Maxine Frerk, for a while back I was at Ofgem, Senior Partner Networks, I now wear a variety of, of hats. I'm on the SSEN Customer Engagement Group, and I chair a stakeholder challenge group for the Open Networks Project, which is where all of the DNOs come together to talk about how they get flexibility working, which is a key part of this.

So, you know, kind of the question we were initially set, you know: what’s the role of DNOs and DSOs in a smart local energy system? You can't do a smart local energy system without the DNOs being involved – it’s their network that the electricity travels over – but also the DNOs need smart local energy systems to be able to kind of cope with the uptick in demand and the changing demands that they face.

What does that mean? Uh, and a kind of lesson, well, I guess, the way that Ofgem has tended to carve up what the DSO role is about, is a bit about planning, uh, and that's about engaging with local authorities in particular, but a whole range of community partners to understand heat, transport, wider distributed generation in an area.

So a kind of planning role, creating the markets so that, that, that people can participate and, and offer the, the, the resources that they have and the flexibility that they can offer into that system where the challenges are around trying to make a market that is, looks uniform across different distribution areas whilst not making everybody wait for the slowest.

Uh, so I kind of just my, my own networks work. Um, but you know, really important to get a market that works and is a way of, of capturing what customers can offer in ways that work for them. And then kind of just smartening their own networks so that they can see what's going on.

We know that the very ends of the network have always been pretty dumb. We've had smartness in different, higher up in the network for a long while now, but the tail ends of the network down, down at the individual street and secondary substations are pretty dumb. So, so the networks don't really even know what the level of load is and what problems they might be facing there.

So one of the big challenges smartening up that part of the network, so that they have visibility of what's actually happening, including using smart meter data for that purpose.

Becky: Brilliant. Thanks Maxine. Um, Adam, over to you next. 

Adam: Certainly. Hello, I'm Adam Bell. Head of Policy at Stonehaven. I've been in the sector for over a decade now. Um, I spent far too many years in government in what is now, well, I'm just gonna call it DESNZ. Um, uh, in the most recent role as Head of Energy Strategy, where I worked on the 2020 energy white paper. I was also around when the Open Networks project was kicked off by the ENA. The earlier ambition certainly hasn't necessarily, um, materialised in the same sort of timeline we expected, but there's still been some really positive results.

And I think one of the things I want to talk about today is what the, the, the DNOs want to buy and what different sorts of, um, asset holders want to sell and the mismatch between those to a degree. Because I think there's something really interesting happening in the market right now. You're seeing lots of different sorts of novel assets coming forward.

There's not necessarily any coherency around who's going to win, what sort of business model is going to come out on top. But for anyone trying to sell into local flex markets, which the Open Networks project has started to engender, there's a lot of difficulty in matching their technical capabilities with what the DNOs are looking to buy.

Um, just to give you, kind of illustrate this a little. Last year, um, the DNOs tried to procure about four gigawatts worth of flexibility services. They were able to buy less than half of that. Now, generally, if you're trying to buy something, you're creating a reasonable price and you're not getting it, there's good reasons for it.

And a number that will be some of the local assets that they would need to buy those services just don't exist in the places where they want to buy. And by that I didn't necessarily mean, is there a battery at the end of this wire? It's is there, um, an adequate number of consumers with the high, um, electricity demand assets, or, um, some form of local storage themselves, that they can utilise in a, in a probabilistic controlled way to service those contracts. Right now there's not, but there's going to be, and there's going to be really, it's going to be really quickly. And fixing that kind of mismatch is going to be key. 

Becky: Brilliant. Thanks, Adam. Really great, really great ideas to kick us off. And I'm thinking Mel, you might be perfectly positioned to respond to some of that and share some initial thoughts for yourself.

Melanie: Yes. Yeah. Hello, Becky. Um, I'm Melanie Bryce. I'm Scottish and Southern Electricity Networks, and I'm the Oxfordshire Programme Director on Project LEO, Local Energy Oxfordshire, um, which is drawing to a close soon. So I'm going to be able to tell you a lot about that. And I'm also moving into a role as the Head of Network and Market Development, and that's very much taking that innovation into business as usual.

So for me, the role of the DNO and DSO in the energy transition is absolutely critical in Project LEO. And we've been looking across developing these markets, looking at trialing flexibility, looking at building, um, community of skilled people, and then also looking at investable business models. So this has to work from a business point of view.

So we've come away with some key things that we want to talk to people about. And the first one is around Local Area Energy Plans. We think these are absolutely key going forwards, um, for things like collaboration, like Maxine's just said, um, across the gas networks and the councils as some of the key people who need to be involved.

We also think that, um, aggregators and suppliers are absolutely key to this and we need that route to market and it needs to be well-established. And then we need the investment at the very edge of the grid. So we need investment in data and digital, and also we need to be able to do more sort of strategic reinforcement because we know net zero is coming and we need to be able to make sure that we're able to to do that.

So, so yeah, so I'd like to look at it in three different ways. We've got the customers, the network and society. And for customers, we really want to be enabling those low-carbon technologies onto the network through connections. We want to be able to develop the network efficiently using flexibility. And then from the network point of view, we want to be able to prioritise our reinforcement and that's helped by flexibility.

We want the monitoring and forecasting, and also to be able to operate these markets. And then from the societal point of view, collaboration is gonna be absolutely key. Um, there has to be a bit of a societal shift in the way people are heating their homes and getting around, and the interaction that can have with the electricity system.

And finally, we're going to end up with a much greener electricity system when we bring all this together. So for me, the DNO and DSOs are absolutely fundamental. 

Becky: Brilliant. Thanks, Mel. Great, uh, great ideas, and I'm really excited to unpick some of them as we move forward, um, but I'm gonna hand over to Doug now to perhaps close us out with the initial ideas.

Doug: Thanks so much. Good morning, everybody. My name is Doug Cook. I'm a Deputy Director here at Ofgem. I'm specifically responsible for digitalisation and decentralisation. So two of the trends that really come to bear in this DSO/SLES space. Maxine, you stole my Ofgem triptych of functions, but let me riff on it a little bit.

Let's adopt for a second a consumer lens. What, what does this mean for the people of this country? What are we trying to do here? Firstly, we need to ensure value for money. In this space, what does that mean in the DSO/SLES nexus? Well, basically we need to maximise the use of the physical infrastructure we have as well as we can, right?

So that maximises utility as society changes as others have said, you know, we're getting more electric, electrification of transport, more electrification of heat. Well, we need to optimise the use of the physical infrastructure as best we can.

Secondly, we need to reward changes in behaviour. So if, for example, it would be socially better to reduce a particular peak or to avoid a congestion, we need to communicate that, whether it's via signals or prices to consumers, we need to help them understand when they should be using the physical infrastructure we've invested in.

Thirdly, capital deferral. So SLES can play a critical role in helping network organisations to not invest until absolutely required. So we don't have to increase bills any faster than we would have done otherwise. If you follow the logic, all things be equal, otherwise we incur those costs sooner. And obviously there's a penalty then on the consumers.

Invest appropriately. Now, this is a very loaded term, I appreciate, but when new network is required – and bearing in mind that a significant amount of the cost is in groundworks – making sure we build the network out to facilitate and enable the social transition and SLESs of the future, as well as those of today. This is related, of course, to planning.

And finally, prove it, right? There's a trust gap. Let's be clear about that. We need to share data about every step of the above journey to make sure that everybody trusts and believes in the level playing field. 

Becky: Brilliant. Thank you, Doug. So a great panel ahead. And I think one of the people that I forgot to introduce is going to be critical for this is my co-host Jeff Hardy. So Jeff, I'm going to push over to you to, uh, to start the interrogation of our wonderful panel. 

Jeff: Brilliant. Thank you, Becky. There was something Maxine said right at the start that captured my attention, which was about this kind of like role of a DNO or Distribution System Operator, and smart local energy systems, and Maxine basically said, well, it should be natural. I’m paraphrasing, Maxine.

But, you know, so, and what I was thinking is, well, actually, yes, that feels like there's almost like a symbiotic relationship here. You know, it's kind of like natural, kind of like complementarity, and all of that. But then what we heard from other panelists is several reasons why that's not happening naturally. Adam, you talked about four gigawatts called for, and two gigawatts gained.

You know, our assets in the right place or are they incentivised? We've talked about the kind of like the incentives for customers. We've talked about the incentives, um, on the DNOs. We've talked about all sorts of things. So, I think what I'm interested in is about the role of the DNO, and why that symbiosis isn't happening naturally right now. You know, is it a function of regulation?

Is it a function of responsibilities on DNOs? Is it a function of markets not being there? You know, are there particular things that would really kind of like, that we can dig into, that would start to kind of like create the conditions for this quite natural symbiosis to happen. Adam, thank you.

Adam: So there's lots of reasons here. I'll only unpack a few. I mean, the perspective I'm going to bring to this is I'm going to represent some of the consumer tech firms I work with, who are engaging a lot in the space and looking to enter these markets and where they can. I think there's something really interesting about the kind of difference of perspectives you get from a DNO, as versus someone who has a direct relationship with the consumer.

Now, there are two different sorts of entities that are going to have direct relationships with consumers and with, um, DSOs when they're procuring these services. These will be both suppliers and asset operators. And by asset operators, it means someone who owns a wind turbine. It means someone who is running a charger or a heat pump and a thermal store on behalf of the consumer, and who might be reaching out through, um, the meter to sell those services upwards. There's no particular reason why a supplier or an asset operator should win out in any particular markets, and there is a regulatory debate going on right now on how that's configured, but let's leave that, leave that to one side.

If you're an asset operator, say you're responsible for keeping someone's car charged, your priority, above everything else, is making sure that consumer has a positive experience. And you know across all of your assets that an X percent of that charge will be available at Y times. If you're a DNO, by contrast, what you want to buy – and you see this note in the tenders that come forward – are things that look much more like traditional generators.

They're less stochastic, they're much, “This is a fixed amount of power. I want it it available to me between X hours”. What I can sell to you, while maintaining my relationship with the consumer as a tech provider, is something that looks more like, “Here's a stochastic, um, level of reliability I can provide that will, that I can guarantee up to X percent of the time”.

Um, now, especially on the micro levels that of these tenders are happening below 11, 11 kilovolts, there's just not that many assets in the system. So that level of averaging, that, um, is just not present. And so it's difficult to provide that sort of, um, sell into DSOs. I think the key here is, um, to find some way of making these sorts of different perspectives meet in the middle, to enable DSOs to understand that they can buy different sorts of things, and to enable, um, the tech providers to understand there's different ways of configuring these sorts of assets to deliver what, what these entities want.

Jeff: And I quoted you, Maxine, and I'm glad you're waving your hand, so yeah, why don't you come in there. 

Maxine: Yeah, I mean, I kind of, what Adam's saying really resonates. I mean, I, I bring the perspective of kind of having overseen what DNOs were doing, you know, through ED1, I do think it's, things have changed. Uh, and that they are more ready to, to kind of try to be a little bit more flexible in how they approach these things.

But, you know, they have a history of, of having to, number one is keeping the lights on and you kind of, as an engineer, you take quite a safe view of kind of, as you say, you absolutely need to know that if you press the button, X will happen. And that kind of stochastic thinking about things is a bit different, but also, you know, and will the regulator beat them up if they take a bit of a risk, in some of this doing something a little bit more stochastic around the network?

You know, how much room is there for forgiveness if things go wrong? And then I think if I was trying to pull out from what Adam saying, you know, the market simply isn't isn't quite there yet, so although we're shining a light on what, and the DNOs probably still need a bit more of that, that flexibility in their mindset, I think we don't yet see a market for the suppliers and aggregators who can be the, that interface between the DNOs and DSOs and the actual end customers.

I think the DSOs see the world as their network, and are worried about what flexibility services they can buy and the big challenges for suppliers, if they're interested at all, are interested in the wholesale market and the opportunities, you know, Octopus Energy-type agile tariffs are all about wholesale energy prices, and I've not seen quite how those two worlds come together.

And then I guess the third bit of that is the, are there enough assets? And we all know the sorry story about connections’ lead times, and if you want to install a battery on the DNO network, particularly if there are issues further back into transmission, people are being quoted 2030, 2033 timeframes. So the real problem is getting connections.

And I think some of that is about how battery storage is, is treated alongside generation. It's assumed that it's gonna be creating the same demands on the network as, as, as generation will, when the whole point is it's going to be used at, almost certainly at different times. And I haven't quite worked out whether the responsibility sits with Ofgem or with the DNOs for cracking that one, but I think, you know, anybody that talks to anybody trying to install assets, that's their number one gripe at the minute.

And two talks I've heard recently from both Ofgem and BEIS have not featured that among the priority issues that they see need tackling. Um, so I think that one needs addressing swiftly so we can get the assets there, so that we can start this whole thing moving. 

Becky: I'd like to pick up on something that you said and actually pass the ball over to Mel. Particularly reflecting on your experiences in the LEO project, because you have been looking at trialling local flexibility marketplaces and engaging, uh, people in that local area in new ways.

And I'm wondering if you've got any thoughts around this whole, like, how does, how do you get those people in how do you get the assets in? And then how does that interplay with what we're seeing in the national system? And, you know, uh, things that are happening. And I think Maxine, you mentioned Octopus, right?

So that doesn't particularly look at the local level. So how do all these things start to interplay? And have you got any insights from, from the trials you've been running in LEO? 

Melanie: Yeah, absolutely. So I think the first thing I would, I’d like to say is, um, there's a lot of focus on, um, you know, gigawatts, gigawatts of flexibility, when in actual fact this, this transition is happening at the very edge of the grid, it's happening behind the secondary substation.

This is where people want to connect their LCTs. And I see a direct correlation between the data that we have on the system, and how well developed markets are, at each individual level. So the higher up the voltages you go, the better developed the markets are, because we have better information on the system.

So it's hard to develop a market when you haven't got the information. So the first thing we need is to get that data in from all over the system so that we can model and forecast properly. And then we can start using some of those sort of, how'd you say it, the probabilistic techniques that are required in order to mass many assets and work out the probability of them delivering what you want to deliver, um, in a system where there's a lot of other probabilistic things going on as well.

So, so in LEO, we looked at lots of different assets. So we had larger, um, solar farms, we had aggregated demand, we had right across the board, we had vehicle-to-grid. Um, we were trying to get as many different sorts of assets and people to participate so we could see what the different behaviours were. And it was really interesting to see, you know, that the, the demand-side aggregation did work well, but it's a case of knowing how much you think you're going to get at any particular time.

And that can only happen if we have, have it joined up across the energy system. So, you know, whether that be suppliers or aggregators, we need to have enough people who are wanting to take part in that. And I think that the recent work that has been done by, by the ESO over this winter has really brought that to light and made it a talking point in people's homes.

So that's been a, a great thing for flexibility and kind of demand-side response, which we're absolutely going to need going forwards for the for the energy transition. 

Jeff: Thanks Mel. Uh, Doug, I'm going to flip over to you if it's okay. I mean, there's obviously quite a few points in there that you might want to respond to, but I was thinking there was a few interesting themes coming out there about decentralised energy, generally speaking, and kind of like whether there's enough of it, whether there are barriers, um, currently, um, that's, you know, maybe not having enough assets in the right place. 

We've also, I think, started to talk about data and digitalisation and the extent to which that is gonna be an enabler or is missing, at the moment, you know, is maybe a barrier at the moment in one way or another. Oh, and one other thing that's kind of like, probably quite important that's coming through here, so just pick the bones out of any of this, is this idea about kind of like, the role of local markets within the context of national markets and perhaps even the transparency between them.

So if you've got an asset, in theory, you can offer multiple value to the system in different ways, but actually, can you realise that at the moment? Can you realise the whole system value of your assets? So I realise those are all quite big ones. So perhaps pick the pick the ones you want to get to at the moment.

Doug: Yeah, thanks, Jeff. My goodness. Um, I don't know how long I have. You're gotta time box me here. These are three huge questions. Um, the role of small things. Let's let's talk about that for a second. And this comes to Maxine's point about network connections. It comes to Melanie's point about aggregation and what's going on here.

I’m a pretty simplistic human, and I actually think we're seeing trends in different places at different speeds. So despite the fact there's a cost of living crisis, despite the fact that economic uncertainty, despite the rising electricity bills, 1,200 electric vehicles would have been sold every day this week to consumers across the UK.

How many of those required a network connection in the formal sense of the way Maxine's saying? I would suggest very few. Some of them probably didn't even notify you. Sorry, Melanie. You know, that's, that's life, right? Um, how many of those consumers felt engaged by the energy system around them to allow their asset, their thing, their car, their proud new shiny Volkswagen or Tesla or whatever it was, to form part of the world that we, energy tragics, think of as the energy system.

I would suggest very few. My mum may have been one of them, and she does not trust the system to share. So, so how is that gonna work? How's that gonna vibe? And I think we need to bifurcate the discussion between a very, very large number of very tiny things that were purchased for reasons nothing to do with the energy system, that we want to be useful, because otherwise they're parasitic and it's going to cost everybody more.

Versus flexibility in the classic Ofgem or BEIS sense, or DESNZ or whatever it's called now, Adam, in terms of like a big large thing that you can go and visit with a minister with a hard hat and a high viz and, like, look at something shiny. Both are valuable, both are important, but they are being rolled out at different speeds for different reasons. We group them collectively into “flexibility” or collectively into “the response of the DSO". Actually, they're very, very different. They need to be dealt with and sort of adapted in different ways.

Just want to open that out because I appreciate it's a big question. Second, on digitalisation, is this a barrier, Jeff, paraphrasing? Massively, massively, right? I was looking at a graph from a consultancy that will remain unnamed. It wasn't Stonehaven, sorry, Adam. Um, and it showed the energy industry at the wrong end of a spectrum of digital maturity.

And specifically caught in, and I, and I'm trying to describe the consultant's word without, without naming them, um, caught in a trap of “trials and innovations”, quote unquote. Compare and contrast with banking – or not that they're amazing all the time, I appreciate – but, uh, social media, uh, healthcare, even.

Yeah, or very different places on the spectrum and we were not looking good, right? Why not? I think there's a significant role for standards, data ontology. I think there's a significant role for data sharing and I think we should be having a grown up and adult conversation about the value of data. I bought the line from central government that data should be free and open and shared, and I can be as hippie as anyone else.

But I'm ex of a software company and I know that it costs, it costs to host that data, it costs to clean that data, it costs to share that data. And elsewhere in the woods, presumably, someone's getting value from that data. Right? Presumably. So, so why aren't we having a grown up conversation about the value of the data?

Even if it's a transactional or a nominal value, that drives business cases, that drives investment, that drives a change in culture. And then finally on markets and pluralism. This is a difficult one. Imagine you're connected, your electric vehicle, your heat pump, or whatever is connected in Melanie's grid.

However, you're behind a constraint. Wholesale price goes negative, or wholesale price goes incredibly high, and behaviour change is warranted in some form. But actually you're behind a constraint. Somehow, we need to get a more granular and sensitive signal to the driveway or to the garden shed or garage or wherever the heat pump's hiding.

Um, about what they should be doing at that point in time. And it has to be high fidelity. I.e. what's happening in that specific home is probably not the same as what's happening, you know, down the road, wherever Maxine lives or something like that. And as a system, we're just not that smart. These things are not connected.

And to your point, Jeff, is it about connecting markets? Well, yes, we are, I sit in the regulator of gas and electricity markets. I am an economist. It would be, uh, crazy of me not to say yes, markets are the solution. But I'm actually not convinced they are. Prices are valuable. But what is price elasticity of demand ultimately going to do?

If, like many of you, I'm sure, you have small people clamouring for dinner. And the price happens to be sky high, but you want to cook dinner because otherwise the small people clamouring is going to become a complete disaster, right? Um, we could bifurcate markets there too. We could say, you know what? We can protect consumers.

We can put them on relatively simplistic time of use. I say relatively simplistic – there's still a price sensitivity, but it's not absolute. Meanwhile, how you charge my car – privately, I don't mind. I'm cooking dinner for my kids. The car can be doing as it wants. And as somebody said in the introductory comments, it, it's about the consumer outcome.

And all too often we forget that, we, we lose that in the noise of discussions of DUoS or TNUoS or the relative price elasticity of a consumer. It's like, no. Come on now. We could get so much smarter, to paraphrase from a lady called Laura Sands, who I'm sure many of you know, uh, in the energy industry, we have about six archetypes for consumers.

Do you live in a house? Do you live in a flat? Are you retired? In, Amazon has 130,000. There's so many smarter ways that we could use data and analytics to create better customer value propositions to drive more confidence, critically, in a stochastic or probabilistic world, around what the likely outcomes are. And ultimately, that's a benefit to us all. I'll pause. Jeff, sorry, you opened Pandora's box. 

Becky: I love it. I love it. And I love that you've brought us back round to people, and I'm deliberately not going to call them “customers”, 'cause I think they play a very different role in the energy system of the future than perhaps, um, just as a customer.

And, and Maxine I'm mostly looking to you here in the first instance, ‘cause I'd love for us to just think about people a little bit more, and this notion of you know, how, how do we create value for those people that do have assets? Or, you know, how do we even get the assets there – if that's part of the role of the DNO, DSO – how do we create that value?

But then more to the point, what about people that don't have assets or can't participate, whether it's because they're behind a constraint or whether it's simply because they don't have, um, the capacity or the infrastructure to to have that asset, for example? You know, is this something that needs to be, um, considered by the DNOs, DSOs?

Is it something that needs to be considered by the energy system more widely? I mean, Maxine, tell us a little bit more about your thoughts on how we do this in a way that’s not just going to engage people and give them value, but do it fairly. 

Maxine: Yeah. Um, you're absolutely right, it's a huge challenge and I think, you know, Doug's point is beginning to kind of unpack, you know, there isn’t, there's not one “What what do consumers think about this?”, you know, there's there's, there's going to be a myriad different responses, challenges, issues, depending on, on people's life circumstances and, and more. Um, I, I struggle a bit with whether this ends up as the DSO role or whether that is the, you know, you have an interface that is the supplier or the aggregator who, who can really understand customers.

Um, you know, that is an interesting tension because Ofgem have also put obligations onto the DNOs to say, “You've got to work out how to ensure, play your part in ensuring no one is left behind in the energy transition”. And it's kind of a bit hard to work out how you do that without getting a little bit more into the people side of things.

But, you know, you can do that still through working through with, with partners. Um, and, and the kinds, you know, you're absolutely right, you know, the, some of the bigger issues around those left behind are the, uh, simply the ability to afford the assets, um, you know, quote the figures, you know, about, you know, we all get very excited about electric vehicles, and that's clearly important, and we want to move ahead with that side of things, but it's worth remembering, you know, in the bottom decile of the population, you know, the majority of people don't actually have a car at all at the minute, whereas across the rest of the population, in the top four deciles, they have more than one, um, 97% car ownership. 

So you've got, you know, you've got existing discrepancies. It's not like the transition is just creating something that, it doesn't exist. So, you know, one answer to that is to make sure that in our thinking, we don't just focus on the sexy bits. Um, and people who know me may know I have a hobbyhorse about storage heating, for example, um, and I've just done a load of work on Economy 7 tariffs and how just nobody pays any attention to thinking about those.

Uh, that is your basic time of use tariff. That is an existing one-and-a-half million households with storage heaters at the minute, who are one of the few people who are doing something that is part of that aggregated, disaggregated kind of response, and who are typically at the other end of the socio-economic spectrum, though not entirely.

So to make sure that we don't lose sight of the opportunities that do exist, um, in, in other parts of the market, um, you know, and I talk about public transport as another one that you can, you know, thinking about different forms of, of transport and mobility to make sure that we are addressing the needs of everybody, not just, uh, those who are best able to pay.

Jeff: So, yes, Doug, I was just going to say it's going to feel now that we've kind of gone into this area, um, I'm sure others will have other points to bring up as well. 

Doug: I would like to be a little bit controversial, ‘cause it's Thursday morning and I welcome the discussion, the dialogue, right? This is more of a Doug perspective, not an Ofgem one, please, for those of you who are taking notes. Um. I, I get it, Maxine. Of course, I’m, I work for Ofgem. Ultimately, I'm here for the public interest. I'm a civil servant, not a capitalist, right? That said, there are a number of people who would argue that the adoption of low-carbon technologies, as Melanie called them, or consumer-owned devices, as I would call them, um, is no longer just early adopters.

We're moving to the mass adoption part of the curve. It's now quite normal to see electric vehicles around the country. It is increasingly, or it will be increasingly normal to have heat pumps installed, albeit less visible, I appreciate, to the average person walking by. And at the same time, of course, climate change will affect us all, rich or poor, well, to a greater or lesser extent, depending on your ability to insulate yourself, I appreciate. But I wonder whether there's a tragedy of the commons problem emerging here, and a future cross subsidy problem.

We are going to need more network to support the deployment of these technologies. And you're correct, Maxine, they are not going to be deployed equally. They won't. So what do we do about that as a society? Do we accept that the rising costs of network and the rising costs of firm generation capacity to supply electric vehicles that are all charging at peak at six o'clock in the evening should be borne by everybody?

Because a lot of these bills are socialised, as you well know. Or do we say, you know what? We're gonna actually pay that rich person – rich in relative terms, top four quartiles, or deciles, I think you said – um, to change their behaviour? Because actually that saves, that helps, uh, avoid the rising tide of network charges that would have hit every consumer in the country and, or it can be even more provocative.

Do we use a rich data scene about exactly who's doing what, where, when, and why, to make network charges specific? In other words if Adam is a good human, inverted commas, and plays nicely with the system, his network charge is X. If for whatever reason he decides that no, he wants to have his electric vehicle charging whenever the hell he likes, thank you so much, um, we reserve the right to charge him additional.

This, these are real questions that we're grappling with within Ofgem, but I think we should be discussing them more widely within society. 

Maxine: Yeah, and I think, I think it does raise just a bigger question about, you know, what is a fair way of recovering the costs of the system. Um, I, I think the other, point I put on the table is, you know, for those who are really struggling to afford their energy bills, actually, if you can do that by doing things at a different time and make a real difference to your bill, you've probably got more financial motivation among those who are on lower incomes than you have on, on higher, on those who are better-off.

But, you know, I mean, that's, again, a massive, generalisation, but you know, I think, I don't think I’m ask, suggesting that we slow down what we're trying to do in terms of getting the, you know, the EV's and the other assets working as they should. Uh, I’m just trying to make sure that we're thinking about the ways that others can participate in that system as well.

Becky: Interestingly, this brings us back as well to the digitalisation component, because at the moment, um, we can't really distinguish between the EV being charged or the heat pump, versus whether it's a household that has medical equipment that needs to be left on all the time, and it's quite a high use, and therefore, without that data, we run the risk of penalising people inappropriately. Adam, please do come in. 

Adam: I was about to make a very, very similar point, and then subsequently a more controversial one. So certainly the granularity of data is currently not readily available to the, to the networks and that impedes their ability to set particular sorts of charges. Um, contrary to Doug, I am absolutely a capitalist though, and I suspect that as this, um, regime builds out, it won't just be EVs and heat pumps you'll be looking at.

You can already go out and buy a hob with a battery in it that allows you to supercharge your, your, uh, shove massive amounts of heat into your cooking, for example. So when you're cooking your dinner at five, you could have charged your hob at four. Micro batteries are going to make a significant difference to the smart revolution in a way which we can't yet anticipate.

To my more controversial point, though, I think you do need this data. You do need to understand what consumers, um, absolutely want. The question is, who needs this data? So right now, if you want to sell flex services in from a very wide number of consumers at an 11 MKV transformer, um, you do so by an API that gives the DSO the right to switch things on and off.

It's the button you press, Maxine, to your, um, earlier point. Now, the consumer tech I'm talking about – if they do that, if they randomly switched on and off, if they can't guarantee a certain level of charge on that asset, then it's going to stop participating in the system. And a lot of tech players know this, and so therefore they won't go into markets where they're handing over control of those assets because they have that data about consumer behaviour.

Um, as a result, it's not clear to me that you actually need to hand that data over to a more centralised, um, way of looking at these things, when you have people who have direct relationships, and evolving relationships, with those consumers now. You need a form of intermediary, but that could be some sort of hyper-local pricing, or, um, that’s developed on a much more sophisticated basis than something that is, you know, a one-off tender every year.

Um, and to your point, Jeff, about local markets and what they look like, there are local markets right now. There are annual tenders for particular postcodes against certain sorts of services. That's not as sophisticated as we need to be. It's not as sophisticated as, um, certainly future markets are going to want. 

Becky: We've been chatting a little bit about the role of the DNO or DSO. We've been chatting a bit about some of the challenges that we might be seeing. What I'd really like for us to move to is to think about how we can start to overcome some of these challenges. What are some of the big changes that we need to be making right now, um, putting in place to help overcome them?

And, and just to kind of bring us back to some of the things that we've talked about throughout, throughout the conversation so far, I, um, you know, we've touched on the need for collaboration, not just in niche places like, like what we're seeing in Project LEO and in Oxfordshire, but how do we support that collaboration more broadly? And I think that ties in with notions around planning. And in fact, um, somebody put a, put a question in the chat around, you know, is there a role for DNOs to take responsibility of, of funding or part-funding local energy area plans if these are, or sorry, Local Area Energy Plans, if these are going to be so fundamental to the future?

Um, we've also chatted about the need for market creation or market alignment and transparency, um, better forms of customer engagement and alignment across the system, digitalisation, data sharing, the value of data, trust. I think trust underpins a huge amount of this, whether it's with the customers or kind of across parts of the system, and actually another thing we haven't explicitly touched on, but I think again underpins a big part of this discussion is around speed, and um, the fact that some parts of our energy system do typically move very slowly.

Other parts, um, particularly around the innovation and digitalisation are moving very quickly. Um, and how we kind of reconcile some of this. So huge number of things that we can focus on, but I think I'm going to open up the discussion and really ask you what, with all of these sort of offer challenges and opportunities that lie, what do we really need to be doing right now to create changes?

And um, Mel, I'm actually going to come to you first because you are doing something right now. So perhaps reflecting on that, but, but what else needs to be done either by DNO's is like, like yourselves more directly, or by others in the system?

Melanie: Okay, so I'm going to start with the comment you had on time. Um, you know, doing this quickly – that, that is the challenge, you know, 2045, 2050, not really that far away. Especially if you look at the way that regulatory processes work with the, with the price controls chunked into, into five years. So, one of the things that I'd like to see change is the sort of legacy way that that has been set up, changing to something that's more proactive and more targeted to somewhere where we need to be in the future, and then working backwards so that we know that we're absolutely going to get there.

So, so that's my first thing. Um, my second thing would be around, um, strategic investment, which I think Doug said, you know, in an ideal world you invest at exactly the right time and then you get the optimum, the optimum cost to the consumer, but realistically that is, that's quite hard to do.

So I think being able to, to do more strategic investment when we know that we are going to need that to get to net zero is something that we're going to have to do because practically, you know, on the ground actually, you know, getting things like weigh leaves, you know, and all these things in place takes, you know, quite a considerable amount of time. We've got supply chain issues for actually delivering things, um, you know, across the globe. We're competing in a global market for a lot of these things that we need to get to net zero, you know, be it solar panels, be it copper, you know, all the basic things that we need.

So, so being able to get ahead of the curve on that would be amazing. And then the third point would be around the collaboration theme. And although DNOs want to have a good input into Local Area Energy Plans, uh, we mustn't forget the, the gas network. So, so when we go and speak to local authorities they, they have, they have a transport strategy, they have a heat strategy, they have potentially a hydrogen strategy, and then they have an electricity strategy. We need some, um, someone who's able to sort of arbitrage between all of those and come up with an optimum strategy for, for an area for net zero. 

Becky: Wow, really good points. I'm actually going to, um, pass over to you, Doug, particularly with your kind of Ofgem hat on, as well. You know, some of those things that, that Mel mentioned, do they fall to, to Ofgem to be, to be taking lead on?

Doug: Between us and the new DESNZ, uh, department, I can't pronounce its name with a straight face because I have a three-year-old. Um, yes, absolutely. I think this is, this is big, social trend stuff. The thing that occurs to me is, Melanie, you gave the numbers 2040 and 2050. I mean, that would be nice. But as far as I'm concerned, we need net zero in the power system by 2035.

Melanie: Absolutely, yes.

Doug: And that is 13 less years away, 12 years away now, um, scarily. That means a couple of things we need to change in my humble opinion. It's beyond my shift to change them. But one of the things is we should be scrapping five-year price control periods. It's just too long. Something that we do or don't do in a given five-year period is just taking far too long, right?

Secondly, we need to be very conscious of the incentives we're creating. Theoretically right now, most of them are based on the premise of competition. Right, six DNOs in the country, let's get them to “compete”, inverted commas. I appreciate RIIO, Maxine, you've been there for longer than I have, and Adam, obviously, back in the day.

Um, that's good and sound, it was a product of its place and time. But is it appropriate for the thing we need now? And I would suggest, probably not. Is it my personal shrift to change it? No, of course not. Um, and then I, I do think a lot about the role for state intervention. At what point do you say, you know what, it's great that everybody's getting on with these things. It's great that we've done all these innovation projects, these trials. We can all agree that there's merit in progressing here. But the pace of change just is not there. And how long are we prepared to wait, talking about the pace of change, before somebody says, “No, actually we need to step in and do some critical things”.

That's the sort of perspective I'm taking in this entire space. Things like digitalisation, things like standards. I'm not talking about actually building markets or command economies. I'm talking about critical enabling and facilitating elements that would allow all of this to accelerate. 

Jeff: This is really interesting. So it feels like we're getting a, pace is becoming both critical and in need of acceleration. And there's a lot of moving parts. So I'm just wondering, Adam, I'm looking at you. What are the critical components that are going to get us to a zero-carbon electricity system by 2035 that that feels really important. And what's the role of the DNO in that now, and what should it be going forward?

Adam: So in terms of pace, um, I think there's an excellent argument for a significantly stronger executive agency to make strategic choices around the volumes of network that you require, certainly at the transmission level, and to a degree further down the, further down the voltage levels.

At the same time, though, what you're asking is for a large number of assets delivered very quickly, and in some cases potentially at risk. Entire network infrastructure is largely either entirely privately owned or publicly listed companies that are mostly, mostly owned by a combination of infrastructure and pension funds.

Those are not people who want to spend money on taking risks. I think you need to move towards a much more competitive environment for network provision. You know, you do need to chip away in a quite a large way out of current monopoly ownership across, across across the piece. Um, and that does mean thinking about competing over ownership of existing assets as well as just for reinforcements.

So going significantly beyond where, um, the current proposals for onshore competition are. I can see you shaking your head a bit Maxine, but I can't see any way in which you get the right sort of money in to make these changes as quickly as you can, without exposing the market to that sort of very, very different sort of investor.

Maxine: So if I start with that one and wind back to other points. I guess, you know what I always say when people talk about competition at the DNO level is, can somebody explain to me what benefit independent DNOs, IDNOs have brought to the system, and to what extent they are participating in this new world? I think some of these things end up as a big distraction.

Um, clearly you need different sorts of, you know, you need, you need a lot of investment in a lot of different places, but, so, you know, we obviously just agree to disagree on that one. If I wind back as well to Doug's comment about, you know, so what happens about, what do we need in terms of that local governance to make some of this happen with the local authorities?

I mean, I know Ofgem's been doing some thinking and I think you've got a paper coming out fairly soon on, on the response to your consultation on local governance. You know, to some extent that could only ever be about the role of the network players and the bits that are within Ofgem space, and one of my concerns there is, you know, actually it needs to be fully joined up with the rest of government.

It's not even just DESNZ, it's, it's the Department of Transport, who might, you know, if they're funding, who's funding local authorities? Is the Department of Levelling Up and whatever it’s – you know, actually to try to get a smart local energy system, impacts across the whole of government. And, you know, one of the questions about the new, the new department is, you know, how well will it manage to interface with the rest of government, I think is going to be a key to its success.

And I think the answer to the local governance question really needs proper kind of joined-up thinking across government. Uh, and then just picking up on the comments to be made about RIIO. I mean, I'm amused because actually when I took over RIIO, it was an eight-year price control because everybody decided we needed, you know, these are long-term assets.

We need that stability for investment. And certainly, you know, I was overseeing that kind of my one message was, you know, the pace of change, you know – what was changing in five, eight years is now just a ridiculously long period. And I think, you know, people are beginning to see that I think the question is, you know, it's a much bigger debate, you know, what do you do?

You need occasionally to stand back, I think. You can't be doing the kind of price controls that you're doing. And it's a very different model, I think, for each of the sectors, you know, it's really good stuff if you, Ofgem’s done on the transmission side to kind of, uh, working with the FSO to kind of really speed up how much, how those big projects are approved.

It's a different question for, for the DNOs and therefore which bits need to be thought about, uh, in, in different ways. Um, and there, again, I think you're not quite sure where you were going on the competition front but, you know, actually what I see is I think I want to see more collaboration across the DNOs rather than more competing to win incentive prizes.

You know, we need a consistent approach to some of these things. We need learning shared. We need joined-up approaches to – that's what Open Networks is all about. It's how you interface with the connection price without ever, you know, without it slowing things down, but a sense that people are open about what they're learning and from the other side, interested in finding out what others are doing rather than it being much more fun to do your own innovation project.

Um, we really need a spirit that actually you get rewarded for collaborating and learning, not for coming up with the best, glitzy little bauble on your price control submission. 

Becky: I love that vision. I'm going to hold it there. Um, and I'm going to turn over to Jeff, you know, for the last word here. 

Jeff: Goodness, which is dangerous in many ways. So I do realise I'm between you and a cup of tea that we promised you. I think I'm just going to reflect on a couple of things. So EnergyREV last year published a report on enabling smart local energy systems. What are the most important decisions that are going to enable that? Many of the themes that we came up with in, in a short, very short, report that summarised that are common to what we've discussed today.

So there is something about that role of the DNO, DSO, whatever we want to call it in the future. But the fact that it's part of a more collaborative system, you know, so it's working hand-in-hand with not just energy planning at, say, a local authority level, but also spatial planning, you know, because after all, net zero is a whole economy thing.

It's not just kind of like siloed into energy and other stuff. You know, it's about transport. It's about who's building what, where – all of that kind of stuff. So it's the idea that that needs to be much more collaborative, together, thoughtful, perhaps regional in some ways as well. But also the idea that some of those actors currently in the system who should be having a really important role, like local authorities, like local actors, can't really, from a mixture of resources, powers, capabilities, funding, etc.

You know, so there's, there's things to sort out that are going to enable much more action and collaboration at the local level. There's also issues of kind of like, how do we integrate this complex myriad of markets that we have at the moment? Which, you know, particularly for your local asset, which means you're not particularly well defined in the energy system and you don't have a lot of agency. Means that it's very difficult to realise the full value of your actions, even though there is an awful lot of value in doing the right thing locally.

And I think that final point, the whole systems perspective, which I think we were starting to get to, you know, obviously when we're talking about DNOs, we tend to be talking a lot about electricity, and even more so we're talking about really local electricity, but actually what we're trying to do, I think here is build the smallest energy system we need in the future that meets our energy service needs.

You know, that's the end game here, but that's a whole system. It's not the system in Rotherham or in York. It's the whole system. And everyone's, every bit of that system is playing a role in it. But at the moment, we really do not have any handle on the whole systems value of doing something, somewhere in there.

So, you know, taking a decision on an electricity network, which is good for gas customers or good for transport or good for something else. You know, that is invisible at the moment and it's not taken into account, decision making. Yes, I know there's methodology coming and that kind of thing, but we have been talking about this for a decade or more, by my reckoning, on how to get to a whole systems value of doing things. And that needs greatly accelerating as well. 

Becky: Yes. So thank you so much, Jeff, for being a fabulous co-host and thank you to our brilliant panel for such a thought provoking discussion. We really hope you enjoyed the chat. I know it was a bit different, and we will be back with our regular episodes very soon.

Um, a reminder again, please do subscribe to the pod if you haven't already. Find us on Twitter @localzeropod, and email us localzeropod@gmail.com. And of course, the final shout-out goes to my fabulous co-host for stepping in there at the last moment. Thank you, Jeff. You were absolutely fantastic. Always welcome on the show again. But for now, thanks and goodbye.