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United Kingdom

Signs of major shift in regulatory approach -- Calls for removal of market barriers now heeded in Britain too

Britain's energy regulatory body appears to have joined its American counterpart in calling for the removal of market barriers preventing the greater use of wind power. Callum McCarthy, who heads the UK Office of Gas and Electricity Markets (Ofgem), surprised and delighted renewable energy commentators last month by calling on operators of local electricity distribution networks for a total rethink of their transmission and distribution activities to allow for large numbers of distributed generators -- particularly renewables and combined heat and power (CHP).

McCarthy's apparent warming to renewables follows proposals by the chairman of the United States Federal Energy Regulatory Commission, Pat Wood, to end discriminatory rules against independent generators, including those hindering wind's access to the electricity network (Windpower Monthly, September 2002). The competitive energy markets of Britain and the United States are regarded as energy policy trend setters.

According to McCarthy, by 2010 a British distribution network operator (DNO) could have 300 "embedded" or distributed generators connected to every substation on its network, compared to 300 over the whole network as at present. The electricity industry is facing a time of unparalleled change, driven by government ambitions for renewables and CHP, he explained. UK government targets could lead to some 8000 MW of new renewables capacity -- perhaps some 3000 installations -- and 5000 MW of CHP at 1000 plants.

Right incentives

This new capacity will mean generation in very different parts of the country than at present and will require changes in the transmission system. It will also change the nature of DNOs, he said. They will have to manage their networks more actively and look again at their approach to investment.

Recognising that changes will be needed to the regulatory regime, McCarthy said that regulatory body Ofgem will do more than simply adopt a "slogan" policy where it agrees to any increase in investment, as a change to an existing price control, just because that investment is described as a move towards distributed generation. "We need the right incentives, not the issuing of blank cheques," he said. The right incentives to encourage distributed generation could include a move to shallow charging for connections to the local network. The generator would pay only the cost of the local connection, and not the deeper system reinforcements.

McCarthy also pointed out that in some cases distributed generation can provide an alternative to system reinforcement. A way needs to be found, he said, of moving away from the present system which rewards DNOs for building up their assets through investing in reinforcement, towards providing them with incentives to contract with distributed generators.

The regulator's speech, at a London conference on CHP, renewables and electricity distribution networks, signals a marked shift in his thinking about renewables, which until now, many commentators feel, he has appeared to treat as an unwelcome impediment to Ofgem's key priority of driving down power prices. His words echoed a number of the recommendations of the embedded generation working group -- such as a move towards shallow charging.

"He suddenly gave a talk I could have written. I felt like getting up and cheering," says group member Catherine Mitchell of Warwick Business School. "It marks a step change in his verbal utterances about distributed generation." She feels there is an emerging understanding in at least some corridors of Ofgem about new technologies and the role of distribution networks.

Not convinced

The British Wind Energy Association's technical adviser, David Milborrow, is not won over, however. He accuses McCarthy of exaggerating the effects that 10% of electricity from renewables will have on the network and disputes the number of connections into local distribution grids. Overstating the problems caused by larger amounts of renewables merely plays into the hands of renewables' detractors, says Milborrow.

The regulator overlooks the fact that nearly all offshore wind, most CHP by capacity -- unless present day trends radically change -- and most energy from waste will be connected to the transmission system, not the low voltage local network, he says. "There may be some load flow issues in some areas," he concedes. "But a bit of negative load on a DNO should not cause massive upset, as McCarthy implies, unless it is highly concentrated. The system will be hardly aware of it," he says. "Denmark is way beyond our puny 10% target, without massive trauma," adds Milborrow. "What's more, it has far more renewable energy connections than we ever will."

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