Ofgem tells network companies to deliver more innovation for less

Energy regulator Ofgem is urging network companies to deliver ‘more innovation for less’ under a scheme which provides funding to help accelerate the shift to a smarter energy system.

The watchdog wants to trim the funding for electricity projects under the Network Innovation Competition (NIC) from £90 million to £70m from next year in a move it said would help ensure that innovations are cost-effective and offer value for money for consumers.

Ofgem said it was also keen to see network companies working in partnership with third parties to get new players involved in projects to drive further savings.

The NIC is the successor to Ofgem’s Low Carbon Networks Fund (LCNF), which ran between 2009 and 2015.

A new report compiled for Ofgem by consultancy firm Pöyry and Ricardo Energy found that the net benefits from the LCNF’s smart grid projects were £1 billion, three times the cost of the funding.

If the technologies were rolled out across Great Britain’s whole network then the benefits could be between £4.8bn and £8.1bn.

Jonathan Brearley, Senior Partner, Networks for Ofgem, said: “Network companies have improved their innovation, which is significant progress. However there is great potential to go further. Our challenge to the companies is to build on this progress and become high-level innovators, while delivering more for less. Involving third parties in the projects will help network companies take this next step.

“It is important that companies take this opportunity. We need a more innovative grid which will allow consumers to get the most out of their smart meters which are being rolled out across the UK.”

£44.6m for six projects

News of the proposed funding reduction came as Ofgem announced it was funding six new projects under the NIC, with the £44.6 million spread between four electricity and two gas proposals.

Western Power Distribution will use cloud computing software to allow local communities to make more efficient use of locally-connected renewable energy.

UK Power Networks will use new types of circuit breakers to help small generators connect to the grid in London. The company was also behind the Smarter Network Storage project which was funded under the Low Carbon Networks Fund. SmartestEnergy was a partner of the project which ran a trial of the largest grid-scale battery in Britain.  UK Power Networks said the trial has proved grid-connected energy storage can potentially transform the energy grid and play a major role in the transition towards a low-carbon economy.

National Grid Electricity Transmission will test whether small scale distribution-connected generators can provide services to the national network, such as voltage stability, and Scottish Power Transmission will test equipment to regulate frequency and voltage from wind farms.

National Grid Gas Distribution will blend 10-20% hydrogen with the natural gas being burned at Keele University’s campus and student accommodation and will develop a new billing system to incorporate biomethane and other “green” gases alongside North Sea stocks.

Industry reaction

David Smith, Chief Executive of the Energy Networks Association, said: “The outcomes from network innovation projects are already being rolled out into business-as-usual in some areas and will deliver around £900m of benefits to customers under the current price control.”

He added: “Energy network companies have worked hard to improve efficiency and deliver vital services at lower costs for customers.

“Network innovation is helping to avoid unnecessary costs for customers today and delivering the smarter, more efficient networks which are so important to an affordable and secure energy future.”

> Read Ofgem's proposals