Abstract
Today’s electricity networks were created to serve the mix of demand and generation patterns of present and past decades. Efforts to reduce the carbon emissions associated with the energy system are changing those demand and generation patterns, particularly to add renewable and low-carbon generators onto the regional electricity distribution networks. Distribution networks in Great Britain are provided by licensed Distribution Network Operator (DNO) companies under a price-control regulatory regime set by the industry regulator, Ofgem. The research investigated the physical and financial implications for the DNOs of serving a lower-carbon energy system under the regulatory regime for 2005-10 (DPCR4). Detailed scenarios were created of the future mix of generation connections and their physical impacts. Changes in DNOs’ costs and revenues were analysed in relation to changing demand and generation patterns. The research considered whether these patterns would lead to net financial impacts on DNOs (positive or negative), and the opportunities for regulation and DNOs to change. Using a project-level model of the regulatory system, the research showed that serving a lower-carbon energy system would have a negative financial impact on a DNO under the DPCR4 framework. Perverse incentives were demonstrated in relation to income from the volume of energy distributed by the network, the regulatory incentive to reduce distribution losses, and the regulatory framework for connecting electricity generators. The research also considered specific choices open to DNOs, and their regulatory implications. These included demand-side-management to reduce distribution losses, and new roles for investment in low-carbon infrastructure beyond the distribution networks. This analysis contributed suggestions for resetting the electricity distribution price control for 2010-15 (DPCR5), and has identified areas requiring further regulatory reform. With Ofgem beginning to develop its future policy on network regulation (the RPI-X 20 project), such research has ongoing relevance.