Embedded Generation Working Group(EGWG)… the first step
since it began more than a century ago. But recent Government initiatives
on
renewable sources and combined heat and power (CHP) stations have
embedded generators are treated in the energy market. For
Royal Commission on Environmental Pollution called
networks can best be financed, managed and
contributions to energy supplies
and quality of
range of issues relating to embedded
generation and published some initial
recommendations for action by relevant
bodies to help ensure that embedded generation
is treated on an equitable basis compared
to other users of distribution and transmission
networks.
(153 Kb)(click for the complete report)
The Group has identified that current
arrangements are not conducive to the development
of embedded generation. This report
puts forward a series of initial recommendations,
together with a proposed timetable
to implement changes. Taking account of the physical
limitations of the networks themselves,
and how they are planned and operated, the
recommendations focus on changes that
would facilitate the connection of embedded
generation. There are also recommendations
on regulatory, transparency and charging
issues as well as the wider questions
of appropriate incentives and how network operators
will achieve their new Utilities Act
duty to facilitate competition. However, it may be
that the removal of barriers by itself
may not encourage the scale of embedded generation
implicit in the Government’s targets
for renewables and CHP.
The Group’s role and its approach to
its objectives have been unique. Its membership
comes from a wide range of stakeholders
including Government (DTI, DETR and other
agencies), the regulator, Ofgem, and
the industry. The Scottish Executive attended the
meetings as an observer. Industry members
include representatives of different types and
sizes of generators; transmission and
distribution companies; suppliers; and large and
small customers. The Group agreed at
the outset to make its work as clear and readily
available as possible. Notes of its
meetings and reports have been published on the DTI
website to enable all interested parties
to see and contribute to the Group’s thinking.
One of the most striking features of
the Group has been the open, frank and constructive
approach of all its members. Despite
their different institutional and commercial
backgrounds and drivers, each of them
has contributed in a positive way. Many mutual
misunderstandings amongst stakeholders
have been dispelled. And most importantly,
members have found it possible to reach
consensus views on most of the issues under
consideration.
Many of the Group’s initial recommendations
concern the legislative and regulatory
framework for embedded generators and
network operators. It will be for the bodies with
relevant responsibilities and powers
to consider and implement change where
appropriate. The Group will have met
its objectives when this happens. Its final report
and recommendations will be a catalyst
for action and a means of tracking progress
against the challenging objectives
it will set.
The Issues
If Government’s targets for higher levels of
CHP and renewable plant by 2010 are to
be achieved, distribution networks
will have to be capable of accommodating far more
generators connected directly to their
networks than we have now. (These are known as
‘embedded’ generators). Additionally,
under the Utilities Act 2000, there is a new duty
on distribution businesses to facilitate
competition in generation and supply. Present
regulatory framework, financial incentives
and network design approaches are not
conducive to all of the above.
Much of
the distribution network was developed pre privatisation to meet the growing
network demand. More recently, network
development has been strongly influenced by
the incentives and risk exposures that
the Distribution Network Operator's (DNO) current
regulatory environment provides. As
a result of both of these factors, there are several
technical and practical limitations
to expanding levels of embedded generation:
· network capacity restrictions in rural
areas which limit connection of generators,
including renewables such as wind,
· Fault levels restrictions in urban
areas which limit connection of generators such as CHP,
· Design standards which prevent the
variable nature of loads, generation and network
capability being fully recognised.
There are also charging and transparency
issues:
· Embedded generators are charged for
the full reinforcement costs which result from
their connection. While these ‘deep’
connection charges provide a strong locational
signal, they also represent a financial
barrier to new plants. If a major reinforcement is
triggered, there is no mechanism for
sharing the costs of the reinforcement with
subsequent connectees. Other charging
approaches may retain sufficient locational
signals, but provide more flexibility
for sharing the cost of reinforcements between
those parties who benefit from them,
· DNOs have no further revenue stream
from embedded plant because such plant pays
no distribution ‘Use of System’ (DUoS)
charges. Other incentives on DNOs to
connect embedded plant are weak,
· Lack of published information about
the best locations for embedded generation
means that potential generators have
difficulty in determining charges and the best (or
worst) places to connect to the network.
Without significant changes to many
or all of the above, the development of
and CHP plant envisaged in the Government’s environmental targets could be
restricted. The full potential for
embedded generation will only be realised if incentives
for all the key stakeholders are aligned
to create the right commercial environment which
will enable embedded generation to
contribute to a stable and secure network whilst
ensuring a diversity of fuel supplies
in a more environmentally sustainable manner.
Recommendations
The joint
Government/Industry Working Group on Embedded Generation Network
Access Issues (the Group) has identified
a wide range of design, operational, charging
and disclosure issues where changes
may be appropriate. In some areas, short-term action
is a real possibility. Many others
require changes to the regulatory regime, design and
operational codes and procedures, and
some aspects of the law. Many recommendations
will require significant changes in
approach from DNOs, Ofgem and embedded
generators themselves.
The Group
has two key recommendations.
Recommendation 1
Ofgem should review the structure of regulatory incentives on
DNOs in the light of the new statutory
duty on DNOs to facilitate competition, - in
particular to assess the effect this
new framework will have on all the stakeholders
including DNOs, Generators, Customers
and Suppliers.
It is likely that such a fundamental
review would only be practicable at the next price
control review. Some changes are possible
within the framework of the present price
control structure. Given the above,
a co-ordinated and managed programme of work
needs to start now under OFGEM leadership
to:
· Establish a charging regime for
embedded generators that reflects the DNOs
duty to facilitate competition in generation
as well as in supply. Ofgem, DNOs
and embedded generators should all
discuss the scope for addressing the financial
implications of adopting a shallower
form of charging principle for generator
connections in advance of the next
price control review. This work should be
carried out in the context of a wider
review of all entry and exit charges for
distribution networks.
· Review and prepare guidance that will
allow DNOs to interpret design and
operational codes in such a way as
to allow the contribution of embedded
generation to network performance to be taken fully into account. A review
of
the codes themselves and of the governance
arrangements for distribution
networks should follow.
· Establish more transparent and consistent
arrangements for the provision of
information by DNOs to developers of embedded generation
and demand and in
particular ensuring that the requirements
of a proposed distribution licence
condition for a Long Term Development
Statement are implemented to achieve
this goal.
Recommendation 2
A Group should be established under
Government leadership to
co-ordinate and take forward the implementation
of the present Group’s
recommendations for the longer term.
Work needs to start now if changes
to the way DNOs design and operate their networks
are to be achieved in the longer term.
This will need to complement the considerable
other work which has begun elsewhere
(summarised in Appendix A).
Without the changes recommended in this report,
it is unlikely that the level of
embedded generation envisaged by the
Government will be accommodated on
distribution networks. In reviewing
these matters, solutions should be sought which are
equitable to all players, which do
not impose excessive costs on customers and which
preserve security of supplies.
The rolle of OFGEM (Office of Gas and Electricity Markets )
Ofgem is the Office of the Gas and Electricity Markets, regulating the
gas and electricity
industries in Great Britain. Ofgem's aim is to bring choice and value to all
gas and electricity
customers by promoting competition and regulating monopolies.Ofgem is governed
by an
authority and its powers are provided for under the Gas Act 1986, the Electricity
Act 1989 and the Utilities Act 2000.
The obstacles facing distributed generation
·
Today’s distribution networks have been built
to deliver power from the national
transmission
network to the end customer. Distributed generation, however,
requires
more active distribution networks which allow electricity to flow in two
directions
– to the electricity user for consumption in homes or businesses, and
on
to the network when the user is exporting excess generation capacity.
·
Under the current arrangements, smaller renewable
generators have found it
difficult
and expensive to connect to the distribution networks.
Ofgem’s role in helping remove these obstacles
Ofgem
is addressing the issues facing distributed generation to ensure that its
development
is not unfairly treated by the way in which networks are currently
operated
and regulated.
Following
a consultation in September 2001, Ofgem is now proposing some
initial
measures to embrace technological developments and provide a fair and
transparent
regime for distributed generation, so it can establish itself in the UK’s
electricity
market. Ofgem has also identified further changes that should be
actively
considered over the coming months.
In
looking at these issues, Ofgem’s overriding aim is to ensure that any future
changes
continue to deliver to electricity customers a safe and secure,
good
quality electricity supply at a fair price.
Ofgem’s proposals
These proposals are aimed at helping remove obstacles which might unfairly
prevent development of distributed
generation by looking at
a) what should be done to change the regulatory
regime in the short term
• allowing generators
the option of spreading the cost of connecting to the distribution network
• making it easier
for domestic Combined Heat and Power generators (customers who have heating
systems which
can generate electricity) to connect to the networks by establishing a standard connections procedure
• reimbursing distributed
generators some of the initial connection fee when another generator connects
to the
same part of the network, which they have already paid
for.
Network issues
• clear information
from distributors on preparation of quotations for connections to the network
• clarify the technical
and commercial benefits of distributed generation.
Metering
• look at the best
way to record and meter the amount of electricity that is used against the
amount that is put back
onto the distribution network by a home with domestic
CHP – and consequently how their bills should be
calculated to reflect it. This will make it easier for
people to have domestic CHP in their homes.
b) what
should be considered in the next distribution price control review, which
is due to start this year.
• developing appropriate incentives in the
price control for distributors to connect distributed generation to
their systems
• setting out more clearly the difference between
the amount that generators are charged for connecting to the
system and the amount they pay to put electricity on to the network more
clearly
• how distributed generation should be taken
account of within the distribution price control process.
A brief history …….
