What’s electricity really worth?

The charges levied for access to the electricity grid can be confusing.

SR held a CPD-accredited seminar, titled Introduction to the Electricity Network:

Charging & Regulation, on August 30 to provide an overview of the arrangements in place to govern the ownership, operation and regulation of the electricity network.

Here, Senior Policy Manager Michael Rieley blogs about the value placed on our most ubiquitous utility.

A flight delay which began with less than 10% phone battery recently underlined to me modern life’s dependence on electricity – and how that dependence is increasing.

Of course access to power means more than just staving off a couple of hours’ boredom at the airport. As a country we place a high value on electricity.

Decarbonising our system, and the ongoing electrification of transport and heat, means making sure we have access as and when we need it will only become more important.

Good news, then, that today the UK has one of the most resilient networks in Europe

Regulator Ofgem has set a target that a maximum of 661MWh can be lost as a result of faults or failures across the whole of the GB transmission network in any one year.

In 2015/16 that figure was just 18.4MWh, or 2.7% of the maximum.

Even on the distribution network, where smaller local substations and pylons can face damage from flooding and storms, all network operator groups were well within their targets for customer interruptions and minutes lost in 2015/16.

These are impressive figures that reflect decades of careful investment, rigorous engineering standards and regulations which work together to ensure the network can do the job of getting power from A to B.

However, the tools available to the network companies to do that job are changing.

Recently, regulators, network companies and market players have begun to think more about how the system will work in the future.

They’re questioning how we recover the cost of our existing system while at the same time considering if advances in technology could change the way that we do so in future.

Some of the questions under consideration:

• Will we still expect to get power from the grid at the flick of a switch?
• Will we continue to value the resilience of our network in the same way in future?
• Will we become more self-sufficient, with batteries in our own homes which can step in when the grid isn’t available?
• Could more consumers live ‘off grid’, meeting their own power needs at a more local level?

In order to understand how to shape the system of the future it’s important to understand the origins of the system we have today.

It’s probably not surprising that the complexity of today’s electricity network was far from the minds of the Central Electricity Board when they first strung wires across the country to create a ‘National Gridiron’ in 1925.

The BBC explains:

“Until then, electricity had been the luxury of a privileged few. Provided by small number of private companies spread across the country, the cost of running five light bulbs for a day was equivalent to a week’s wages.

“However, the electricity system of the last century was not without its problems. The efficiencies derived from a national network allowed everyone to put the lights on. Soon after, thanks to the roll out of ‘plug sockets’, the first appliance to capture the hearts and minds of the British consumer was the electric iron.

“The peaks and troughs of demand and supply were dictated by sunlight and wash days. In between, the country had a very expensive network that wasn’t being used. The solution was for the electricity boards to promote new appliances like cookers and emersion heaters that could be used to fill the gaps, drawing power and presumably contributing to the cost of building the network in the first place.”

Today, the heart of the conundrum we all face lays in the same fact that we tackled all those years ago: the vast majority of our electricity network costs are ‘sunk’, meaning we’re currently paying for improvements which were made many years ago.

Similarly, as infrastructure can be expected to last many decades, customers in future will enjoy the benefits of investments made today.

The network provides us with a range of important services: not just the electrical energy we draw from it, but the security of knowing it will be available when needed.

Even the most tech-savvy of households, loaded with smart meters, solar panels and batteries, will want to be able to draw power from the network at night when their battery has been drained and they want to watch TV.

No matter how far technology takes us it appears unlikely (at least in the immediate future) that the need for that ‘national gridiron’ will ever go away.

So ensuring that the costs of the network are spread fairly and in a way that enables investment is essential.

The problem – or at least the beginning of the problem – is that the system which governs who pays what and why is far from straight forward.

A number of reviews of the existing arrangements are underway.

• Ofgem recently sought industry comment on its proposal to launch a significant code review to tackle issues arising from residual charging and storage.
• At the same time one element of the Energy Networks Associations TSO – DSO project will consider the charging requirements of enduring electricity transmission/distribution systems.
• National Grid has also been mulling the concept of a fundamental review of charging arrangements for a while now.

Change is on the horizon.

In an ever-shifting market, understanding the potential impacts of any alterations is increasingly important, and navigating these issues will be at the heart of a Scottish Renewables seminar on August 30 in Glasgow.

The event – titled An Introduction to the Electricity Network: Charging & Regulation – will provide delegates with a valuable overview of the arrangements in place to govern the ownership, operation and regulation of the electricity network.

Our speakers (from National Grid, ScottishPower Energy Networks and the University of Strathclyde) will provide those attending with the confidence and knowledge necessary to navigate this complex subject.