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Timeline for delivery of FDI
While Ofgem forges ahead with an examination of industry codes and regulatory arrangements to assess their limiting effects on demand-side flexibility it also has other major questions to address. Who should be appointed to act as a neutral market facilitator for flexibility? What should the responsibilities of such an entity be? And what should a Flexibility Digital Infrastructure (FDI) look like?
Answering these questions will help address the Tower of Babel which has been created in the industry through the ad hoc introduction and adoption of different rules, standards and processes to allow for the immediate needs of market pioneers, but which are now severely impacting the accessibility of flexibility markets to a new generation of participants.
Ofgem is hoping a newly defined FDI will especially address three of the four market failures it has identified - imperfect information, limited oligopsony market co-ordination, and a structural lack of trust.
Earlier this year it consulted on three potential archetypes for an FDI. A "thin" archetype would be a directory that lists market operators and flexibility providers. The "medium" archetype would be an exchange platform that hosts multiple markets. The "thick" archetype would be a central platform that contains multiple markets, undertaking every step of their process and co-optimising across them.
Ofgem’s Marzia Zafar says that, at the very least, the FDI will be some form of asset register so that the market will be able to identify what is coming into the system. One consideration is whether the use of such a register should be mandated with many in the industry in favour.
Ofgem is hoping that a proactive party in the industry will then take the initiative and build a “Deliveroo-style” app for flexibility opportunities, rather being forced to develop and implement something of this nature itself.
Flexitricity’s Alastair Martin says most voices in the industry are in favour of a medium solution. “If Ofgem can keep the ambition to the practical level, then pushing forward with a form of the medium paradigm could move the dial in a way that is achievable and establish some processes that are a workable compromise between transformative and radical on the one hand, and practical and deliverable on the other.” he says.
However, concerns have been raised over the time such a solution would take to implement, and over whether Ofgem’s involvement would result in a hiatus in work that is already underway. The Association for Decentralised Energy (ADE), which represents flexibility aggregators, responded to Ofgem’s plans by saying the regulator would need to show “strong leadership” if the FDI was to be in place by 2027, when other important programmes of work – including MHHS – are due to complete.
Ofgem is due to consult again on its plan in the spring – a step which in itself postpones any real action. One expert commentator reflects: “It is likely to take Ofgem at least three years, but more likely five, to get all of the digital infrastructure necessary to support the flexibility market in place. So losing another 12 months to consultations before starting the process is only going to increase the challenge and risk.”
But Zafar says the consultation process is essential. “We have to also bring everybody with us, if we do it on our own then there will be a line of protest saying Ofgem is doing things on its own without consulting stakeholders, this stuff just takes time unfortunately. Anything that we do will take months to design and bring forwards.”
Like other frustrated parties in industry, Ovo’s Elizabeth Allkins believes Ofgem could be moving faster on key issues such as the network charging code review. But she also acknowledges that Ofgem is tackling difficult problems which will need some thought to solve.
Notwithstanding this, she adds that one area which could be easily improved is internal alignment. “It’s definitely something for Ofgem to do to get more aligned within itself on where it sees the future of domestic flexibility – what’s the North Star that they are aiming for? – then we can be moving quickly on these incremental decisions in the context of that.”
Asset registration
Ofgem has suggested that the FDI will, as a minimum, provide some kind of asset register function for GB flexibility markets – and industry has called for mandated asset registration. This supports the longstanding recognition that an ever smarter energy system, with ubiquitous intelligent devices and assets capable of turning demand up or down in response to signals, must come with a comprehensive approach to registration of those assets.
Back in 2019, coordination of asset registration was a key recommendation of the Energy Data Taskforce in its seminal report A strategy for a modern digitised energy system. The Taskforce said there was a clear need for a strategic approach to coordinated, simple and user-friendly registration of energy assets, which would support compliance and boost the accuracy of system data. This, it said, is a fundamental for a system in which demand—side participation in system operations is expected to become the norm.
Two years after the Taskforce made its recommendations, a £65m Flexibility Innovation Programme from government saw the birth of the Automatic Asset Registration (AAR) Programme, a competition to help generate solutions for the automated registration of energy assets, addressing the failings of what is still a patchy and predominantly manual process.
An AAR solution developed via the above programme is expected to progress into pilot testing in 2024.
The onus is not all on Ofgem though. As an organisation with a key role to play in unblocking the flexibility market, the ESO’s Du says her organisation is very aware of the need to increase its own pace. “We are looking at how we can improve the way that we make decisions in terms of pace and working with other organisations to be more agile in the way we design products and make decisions around policies.”
Viewpoint
Richard Hampshire, vice president digital utilities, CGI UK
“In its Call for Input, Ofgem recognised the need for urgency, stating that, ‘an organic solution might take 5-10 years to develop’, putting delivery of a decarbonised power system at risk.
“The good news is that, as a sector, we are not starting from a blank sheet of paper. The investment made through various Ofgem, BEIS and now DESNZ innovation funds has already delivered an evidential base that can inform decisions and accelerate progress.
“But, even with strong intervention, there is a critical path to developing fit-for-purpose market arrangements. Time is of the essence and Utility Week’s Flexibility Forum can play a vital role in supporting Ofgem deliver the necessary consensus.”
Viewpoint
Richard Hampshire, vice president digital utilities, CGI UK
“In its Call for Input, Ofgem recognised the need for urgency, stating that, ‘an organic solution might take 5-10 years to develop’, putting delivery of a decarbonised power system at risk.
“The good news is that, as a sector, we are not starting from a blank sheet of paper. The investment made through various Ofgem, BEIS and now DESNZ innovation funds has already delivered an evidential base that can inform decisions and accelerate progress.
“But, even with strong intervention, there is a critical path to developing fit-for-purpose market arrangements. Time is of the essence and Utility Week’s Flexibility Forum can play a vital role in supporting Ofgem deliver the necessary consensus.”
The market facilitator
Shing the light back on the regulator, another thing Ofgem needs to make a decision on is who will take on the role of the market facilitator, which will lead, coordinate and monitor the development of local and national flexibility markets.
Ofgem will need to make the casting vote as opinions in industry are split between which of the two contenders in the ring – Future System Operator and Elexon – should win out.
Showing her hand, Zafar comments: “Wouldn’t it be nice if the system operator was the champion of small-scale flexibility? Somebody has to convince us that this championing of small-scale flexibility has to be done by somebody else.”
Unsurprisingly, the ESO's Yujia Du is also pro-FSO as a solution to the market facilitator questions and insists the role would not affect its integrity. “The integrity of the market facilitator role is really important. We want to make sure that an independent organisation like the FSO can make impartial decisions across the ESO and DSO markets in an informed way, and in a way that ultimately delivers consumer benefits.”
However, some in the industry are concerned about how much independence between the two roles can be achieved, how much the FSO can feasibly take on.
Ben Godfrey, director of the distribution system operator function at National Grid Electricity Distribution (NGED) comments: “We have seen that the ESO naturally has a tendency to think from a centralised, keeping the lights on perspective and its really important as DSOs that we get a fair access to the market.
“We are concerned that if the ESO was the market facilitator that there wouldn’t be enough cultural change to be able to enact the independence, but it would be possible with the right level of governance.”
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