EMEA: Innovation driving returns in electricity distribution

02 February 2018 - 12:00 am UTC

Against the backdrop of the vilification of infrastructure fund-backed utilities, a regional UK distributor, owned by First State and JP Morgan, is quietly implementing technology solutions to counter an expected surge in electricity demand. It is also making decent returns in the process. 

Electricity North West Limited (ENWL), owned by First State and JP Morgan, manages over 45,000 miles of cables, but one of its most prized assets are dozens of small black boxes. Roughly the size of a landline telephone, they are attached to 400 of the distribution network operator’s (DNO) substations across its operations in Greater Manchester, Lancashire and Cumbria.

At a flick of a switch, the boxes can decrease voltage – essentially the pressure in the electricity grid – and as a result reduce the power consumption of millions of small electrical appliances. Boiling a kettle takes eight seconds longer than usual, for example. In doing so, more electricity can be spread to a greater number of users.

Steve Cox, ENWL’s chief engineer, says the box’s function is analogous to reducing water flow in a house. “Imagine you are having a shower at home and then someone turns on the taps in the kitchen. The water system, [which is under pressure] self-regulates by reducing water flow in the shower,” he says.

Also known as Customer Load Active System Services (CLASS), the boxes have been introduced in order to cope with increased stress in the company’s networks, such as when a power station stops working or during sudden increased demand for electricity. Controlling voltage makes sense as the alternative would require upgrading the entire network.

CLASS is evidence of changing times for the UK’s distribution network operators. Ofgem made clear in its 2015-2023 price review that it wants DNOs to prioritise innovation, reducing their carbon footprint and cutting customers’ bills. CLASS ticks some of these boxes, and more.

It is also ENWL’s response to the expected seismic impact that up to around 250,000 electric vehicles on the streets of north west England will have on ENWL’s networks. The boxes will go some way to helping operators cope with a massive upsurge in demand as drivers charge up their cars, vans and lorries.

On paper, the scale of the impact of EVs is mindboggling. At present, at peak time, a single transformer feeds around 500KW of electricity to some 200 homes. If all 200 householders owned electric vehicles, and all charged them up at their homes at the same time, an extra 800KW of capacity would be needed from this one single transformer.

In reality, not everyone is likely to charge up their EVs at peak time. Many may use other charging points, such as at supermarkets, park and rides, and car parks. Therefore, Cox forecasts, each transformer will only need to relay an extra 100KW of capacity, rather than 800KW. But even 100KW will add significant extra strain to the network, hence the importance of the black box.

 

Bolstering returns

But for ENWL and its two shareholders, CLASS will not only ensure the company keeps the lights on when electricity demand rockets in the future, but also bolster its earnings.

The black box will save ENWL money on reinforcing its networks, which Cox defines as “making cables and transformers bigger”, to prepare for the future surge in demand. Through spending less, ENWL will be able to outperform the amount Ofgem forecasts the DNO will spend on grid reinforcements.

The returns to ENW for outperforming – or being more cost efficient – on these reinforcements could run into several millions of pounds. During 2015-2017, ENW spent GBP 40m less than the GBP 461m it was allowed by Ofgem under its totex spend, which includes operational and capital expenditure costs (ENWL kept GBP 23m of this GBP 40m while the rest was given to customers). According to Ofgem, one of the key areas it underspent on was reinforcement.

Its outperformance-related returns are likely to increase yet further in the future. At present, reinforcement is around 10% of the operator’s costs (and, hence, customers’ bills). This 10% figure is likely to rise sharply as EVs are introduced. With CLASS, ENWL is seemingly well positioned to outperform these increased costs.

Another potential gain is around the distribution of CLASS across other UK networks, and even potentially overseas. ENWL and its development partners, such as Belfast-based power technology specialist Kalvetec, involved in the development of the black box will also be able to sell CLASS to UK and overseas buyers, and keep all the proceeds. This would be potentially lucrative given the box could be adapted for use in grids worldwide.

This is not a bad deal for ENWL. Using money from customers’ electricity bills, Ofgem’s Low Carbon Networks Fund provided 90% of the development costs of the box, while ENWL and its development partners provided the remaining 10%. However, Ofgem requires ENWL to hand over free of charge to other DNOs information about how CLASS operates and its performance, such as how much voltage it reduced during peak demand.

But for ENWL, CLASS is just part of a plethora of innovations the DNO will have to make in response to the electric vehicle revolution. ENWL will also seek to financially incentivise drivers to recharge their EVs at night rather than at peak periods, in order to reduce the strain on its networks. An existing scheme, where companies are paid by ENWL not to use electricity at certain times of the day, is likely to be dramatically extended. Another tactic will be to increase the capacity of sub stations by using fans to cool them down. Storing electricity in batteries, and releasing it when demand rises, will also play a greater role.

CLASS could also have immense economic and environmental benefits. If rolled out across the UK, it could effectively provide 3,000MW of additional capacity, albeit for only 30 minutes. Therefore it could potentially provide back-up power if a nuclear power station, which has 2000MW capacity, suffers a black-out.

 

The innovation jigsaw

But CLASS is just one part of ENWL’s innovation jigsaw. Changing energy demands, regulatory pressures, the decarbonisation agenda have all forced ENWL further down the innovation route. Over the past decade it has built thousands of new connection points, one for each new solar panel and turbine built in north west England. Prior to this, it received electricity from just three, albeit large power stations.

ENWL has not been remunerated for this particularly generously. According to Cox, it earns a return of between 0-4% per connection. Other areas have been more remunerative, however, not least a project, introduced for the current price review, called the interruptions incentive scheme (IIS). This scheme allows ENWL to receive up to GBP 14m a year if it beats Ofgem’s targets number of customer interruptions and the length of time per interruption. The DNO has to pay up to GBP 14m to its customers if it fails to beat targets.

To date, ENWL has outperformed these targets. In 2016-2017, ENW reported 32.9 customer interruptions per 100 customers, beating Ofgem’s target of 48.03 interruptions. Also, its customers spent on average 33.71 minutes without power, outperforming the regulator’s 45.83 target. In return, it received GBP 12.7m in 2016-2017.

As with the black box, innovation has helped enable ENW to beat these IIS targets. Its various fault management devices can now remotely respond to faults replacing blown fuses and restoring power to customers. One of these “smart fuses” devices, called Bidoyng and developed alongside Kelvatec, can be activated in just seconds. Previously, customers could spend hours without electricity while ENWL dispatched an engineer at considerable cost to carry out the job.

Also, ENWL and a business partner have developed diagnostic software to identify potential cable faults long before they occur. This software and an associated remote monitoring technology, known collectively as Sapient, listens to the electrical signals in the cable and uses them to locate any emerging faults before they cause the main fuses on the cable to blow.

Potentially, ENWL is just at the beginning of innovation developments. An improved version of CLASS is now being rolled out across its 400 sub-stations. More are likely to be needed by the time EVs hit the roads en masse. Even more would potentially be required if electricity-powered heat pumps replace gas boilers in homes across the UK. Given it takes 28kW to heat a home, against 4kW to recharge an electric car, no wonder Cox believes “decarbonised heat could double demand by 2050.”

Other DNOs across the UK are also at various stages of developing innovative schemes, all largely funded by Ofgem’s low carbon network fund, aimed at coping with increased demand. Ofgem estimates these schemes, if all implemented, could create between GBP 4.8bn and GBP 8bn in customer savings through not having to reinforce the networks.

These statistics seemingly fly in the face of claims that electricity supply is not value for money. Customers appear also to be benefiting in other ways. In January, 900 homes in the small Lancashire town of Oswaldthistle lost their electricity supply from ENWL. However, most had their electricity supply restored within five minutes. Evidence, indeed, of the power of innovation.

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