Dr Ronan Bolton1,2, Dr Helen Poulter1,2, Dr Graeme Hawker3,2, Professor Janette Webb1,2
1University of Edinburgh, Edinburgh, United Kingdom. 2UK Energy Research Centre, London, United Kingdom. 3University of Strathclyde, Glasgow, United Kingdom
In this paper we investigate the development and application of new modelling tools and scenario methodologies to create long-term projections of electricity demand under different assumptions around the uptake of low carbon technologies in Britain. The net zero transition is likely to involve significant investment in end-use technologies that enable the electrification of transportation and heating demands. Electric vehicles and heat pumps require connection to the low voltage networks, creating challenges for network operation, and most likely requiring significant investment in new network capacity at the distribution level. Therefore, our core research question asks: ‘How do distribution network operators (DNOs) and the regulator deal with the increasing uncertainty around future demand on the low voltage networks and what are the implications for long-term network planning?’
Britain’s electricity distribution networks are organised around fourteen regions and operated by six private DNOs. The DNOs hold licenses to own and operate the networks, and as natural monopolies, their businesses are regulated as part of multi-annual ‘price control reviews’. Under this regime the independent regulatory agency, Ofgem, caps their revenues ex-ante and incentivises them to operate their businesses efficiently. An important consideration in these regulatory reviews is each company’s business plan which sets out a DNO’s view of the expenditure on operations and capital investment required to deliver network services.
A new challenge in developing DNO business plans is uncertainty around the diffusion patterns of low carbon technologies, both in terms of the timing and geographical patterns of consumer uptake. This will be influenced by consumer preferences, government policy, economic growth, the rate of technological change, and a range of other variables. Moreover, due to the successive waves of pre- and post-war housing construction, available capacity on the low voltage networks is not uniform, and due to the limitations of IT monitoring systems, there is a general lack of knowledge about the state of the networks below the local substation level.
Based on semi-structured interviews with DNO actors, the consultants who they have hired to analyse future demands on their networks, and other industry and government professionals involved in developing business plans, we find that an important recent trend across the sector has been the development of Distribution Future Energy Scenarios (DFES), through which the DNOs ‘regionalise’ National Grid’s transmission-level FES scenarios. Through the interviews and document analysis, we track how the DFES scenarios are being developed in different ways by the individual companies, along with their use in broader business planning architectures.
We also analyse how the regulator perceives the DFES approach and how they intend to evaluate revenue allowance applications made by the companies which use the scenarios as evidence. We find that there is a patchwork of scenario planning practices across the sector and a lack of clarity on how the regulator will incorporate regionalism into the broader price control review framework. We propose that the robustness and validity of scenario methodologies for analysing future demand on the networks will become an important part of the political economy of network regulation as end-use sectors are progressively decarbonised over the coming decades.
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