Electricity Network Innovation Strategy

Electricity Network Innovation Strategy 17 th November 2017 Document Ref: XX-XXX-XX Restriction: None

Document Control Version Control Version Issue Date Author Comments 1 6 th November 2017 Navigant Consulting First draft 2 17 th November 2017 Navigant Consulting Addressing the comments of ENA and R&D managers following the first draft T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page i

Table of Contents Document Control... i Table of Contents... ii Glossary of Acronyms... i 1 Introduction... 6 1.1 Electricity industry innovation context... 8 Shifting power-generating sources... 8 Customer choice and changing energy demands... 8 Policy Drivers... 8 The smart, flexible energy system and the DSO transition... 9 Uncertainty and choices for the electricity network companies... 10 1.2 Strategy development process... 11 2 Innovation Challenges for Network Licensees... 12 2.1 Innovation themes... 12 2.2 Challenge categories... 13 2.3 Overview of innovation challenges... 14 2.4 Public stakeholder consultations... 15 3 Current Level of Innovation and Gaps... 18 3.1 Introduction to network innovation... 18 3.2 Analysis of innovation projects conducted to date... 19 3.3 Observations from innovation projects to date... 24 4 Innovation Strategy and Roadmap... 25 4.1 Evaluating innovation priorities... 25 4.2 Our strategy for each innovation theme... 26 4.3 Areas of focus for future innovation projects... 37 5 Delivering benefits from innovation... 39 5.1 Improving the transfer of innovation into BaU... 39 5.2 Realising the full value of previous innovation expenditure... 39 5.3 Improving methods of managing risk... 40 5.4 Facilitating an innovation pipeline to ensure early identification of useful innovations... 40 5.5 Increase access for non-regulated businesses to innovation funding... 41 6 Collaborative Innovation... 42 6.1.1 Smarter Networks Portal... 42 T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page ii

6.1.2 ENA Working Groups... 43 6.1.3 Dissemination Events... 43 6.2.1 Cross-Vector Collaboration... 45 6.2.2 Network Innovation Collaboration Portal... 45 6.2.3 Open Networks Project... 45 6.2.4 Getting Involved... 46 Appendix A. Full list of innovation challenges... 47 Appendix B. Breakdown of projects conducted under each innovation category... 51 Appendix C. Detailed analysis of innovation challenges... 56 T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page iii

Glossary of Acronyms ANM Active Network Management BAU Business As Usual BEIS Department for Business, Energy and Industrial Strategy CBA Cost Benefit Assessment CCS Carbon Capture and Storage CEP Collaborative Energy Portfolio CUE Computer-Using Educators DC Direct Current DER Distributed Energy Resources DG Distributed Generation DNO Distributed Network Operator DSO Distributed System Operator ED1 Electricity Distribution Price Control 1 ED2 Electricity Distribution Price Control 2 EIC Energy Innovation Centre ENA ENFG Electricity Networks Futures Group ENW Electricity North West EU European Union EV Electric Vehicle GB Great Britain GT Gas Transportation HV High Voltage IDNO Independent Distribution Network Operator IRM Innovation Rollout Mechanism LCNF Low Carbon Networks Fund LCT Low Carbon Technology LiDAR Light Detection And Ranging LNO Licensed Network Operator LV Low Voltage NIA Network Innovation Allowance NIC Network Innovation Competition NPG Northern Powergrid O&M Operation & Maintenance R&D Research & Development RIG Regulatory Instructions and Guidance RIIO Revenue = Incentives + Innovation + Outputs SO System Operator SPEN SP Energy Networks SSEN Scottish & Southern Electricity Networks T1 Transmission Price Control 1 T2 Transmission Price Control 2 TNO Transmission Network Operator TRL Technology Readiness Level UK United Kingdom UKERC UK Energy Research Centre UKPN UK Power Networks WPD Western Power Distribution T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page i

Executive Summary Innovation is a key element of the UK regulatory arrangements for electricity networks, which include funding and incentives provided to help us to innovate for customer benefit, as well as long term network value. Since network innovation arrangements began in 2010, we have delivered more than 700 projects and we will continue to deliver a significant level of benefit from innovation for our customers. This Electricity Network Innovation Strategy has been developed to set out a jointly agreed roadmap which demonstrates how ongoing innovation can best accommodate the future requirements of the whole energy system, can lead to effective delivery of benefits and can be achieved in a collaborative way that achieves more collective benefit for less cost. A rapidly changing market environment requires new innovative approaches from all participants, including fundamentally different approaches to business and to serving customers, embracing a range of technical and commercial innovations to do so effectively. Key market trends in this context include: shifting power generation sources; changes for customers in terms of choice and demand; policy drivers related to decarbonization and a cleaner environment; and regulatory trends to ensure a smart, flexible system with greater local system operation responsibilities for Distribution Network Operators (DNOs). These macro trends will give rise to the need for further innovation from us, the network companies, and will simultaneously pose a number of challenges, which we have synthesised into five themes as shown below in Figure 1. Figure 1: Innovation themes based on industry trends and challenges Within these five innovation themes we have identified 31 challenge categories with 178 specific challenge topics a level below these. The following table summarises these challenge categories by innovation theme and highlights the level of innovation activity to date, the future opportunity for innovation, the required innovation effort and the priority in terms of timing. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page ii

Innovation theme #1 Network improvements and System Operability #2 Transition to a low-carbon future #3 New technologies and commercial evolution Categories 1.1. Improve network resilience to avoid unplanned power outages (particularly when moving towards the low carbon world); 1.2. Improve demand and generation forecasting, and network planning processes; 1.3. Improve asset management processes; 1.4. Maximise the value and capacity of existing assets; 1.5. Improve network visibility and controllability; 1.6. Optimise cross-sector coordination between DNOs, TNOs, and SO, as well as licensees from other sectors (e.g., gas) and other countries. 2.1. Create value from the introduction of smart meters and work collectively to deliver the wider public policy and public interest benefits from data; 2.2. Efficiently facilitate the adoption of low carbon technologies supporting the electrification of heat and transport; 2.3. Enable flexibility in the GB low carbon transition (e.g., increasing role of demand side response); 2.4. Facilitate the transition from DNO to DSO, enabling the provision of new platforms, market participants and value streams; 2.5. Develop advanced whole energy system planning and forecasting methodologies. 3.1. Extract value from continued growth in web-based, digitalenabled services and new and improved sources of data; 3.2. Maximise cybersecurity and data protection in respect of privacy and commercial sensitivity; 3.3. Maximise benefits provided by new technologies, with particular focus on network services provided by electric vehicles and energy storage; 3.4. Facilitate the adoption of commercial business models that leverage low carbon technologies; 3.5. Shape and comply with evolving regulations and standards; Level of innovation activity to date Future innovation opportunity Required innovation effort High Medium High High Medium Medium Low Medium Low High Medium High Low High Medium High Medium High Low Low Low Low High High High High Medium High Low High Low Medium Priority Timeline Short/ Medium Term Medium Term Medium Term Medium Term Short/ Medium Term Long Term Medium Term Short/ Medium Term Short/ Medium Term Medium Term Medium Term Medium/ Long Term Short Term Short/ Medium Term Short/ Medium Term Short-Long Term T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page iii

#4 Customer and stakeholder focus #5 Safety, health and environment 3.6. Inform the development and ensure compliance with new markets and structures that allow greater competition in the energy markets; 3.7. Facilitate sharing of services and business functions between DNOs, TNOs, and SO; 3.8. Leverage cross-sector "smart technology" benefits and lessons. 4.1 Improve the understanding of changing customer needs, particularly in regard to the electrification of heat and transport; 4.2 Improve involvement of customers in the delivery of the innovation work; 4.3 Continuously improve customer experience and affordability, and support the fuel-poor; Medium Medium Medium Low Low High High High 4.4 Enable customer choice; Low High 4.5 Maximise the transparency of information and the quality of accessible data; 4.6 Improve employee skills and resources; Short-Long Term Short-Long Term Short-Long Term Short Term Medium Medium Short Term Medium Medium Short Term Medium Medium Short Term Short/ Medium Term Medium Medium Short Term 4.7 Facilitate community energy; Medium High 4.8 Actively seek collaboration with stakeholders and partners; 4.9 Facilitate behavioural change initiatives to promote energy conservation and sustainability. 5.1 Continuously improve safety and reduce impact on the environment; 5.2 Protect the safety of the public, staff and contractors; 5.3 Reduce the visual and noise impacts of assets. Short Term Medium Medium Short Term Medium High Short Term High Medium Short Term Low Medium Medium Low Short/ Medium Term Medium/ Long Term Table 1: Summary - Electricity Network Innovation Strategic Focus For description of innovation criteria see Figure 14. Strategic Focus #1 - It is notable from this summary that there is significant potential for further innovation but the benefits are not easily achieved 14 of the 31 categories (45%) demonstrate a high future innovation potential combined with a high or relatively high level of innovation effort. In these categories, the benefits of working together should be most evident. Strategic Focus #2 Where the innovation opportunity is high and the priority timeline short to medium term, there is a clear call to action. Examples of this include: 1.5 - improve network visibility and controllability; 2.2 - efficiently facilitate the adoption of low carbon technologies supporting the electrification of heat and transport; 2.3 - enable flexibility in the low carbon transition; 3.2 - maximise cyber-security and data protection T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page iv

3.3 - maximise benefits provided by new technologies, with particular focus on network services provided by electric vehicles and energy storage 3.4. - facilitate the adoption of commercial business models that leverage low carbon technologies 5.0. - improve the understanding of changing customer needs, particularly in regard to the electrification of heat and transport 5.3. - enable customer choice 5.8 - facilitate behavioural change initiatives to promote energy conservation and sustainability Strategic Focus #3 Emphasise delivery of benefits from innovation to effectively operationalize innovation for each network company. Beyond the importance of having a clear focus and collective set of innovation priorities, it is equally critical that we continue to make progress in delivering benefits from innovation within our businesses for our customers. Examples of this being achieved include improvements in the transfer of innovation into business-as-usual, a commitment to realising the full value of previous innovation as innovation initiatives build on each other, and improvements in methods of managing risk. We have also introduced novel ways of identifying an optimal innovation pipeline so we start with a well-informed view. Going forward, noting the nature of the challenges identified, effective delivery of benefits from innovation will require a combination of investment, new capability development and cultural change as well as ongoing measurement to track benefit delivery. Strategic Focus #4 Take strategic collaboration in innovation to a higher level, including additional degrees of project partnership, coordination of information sharing and knowledge dissemination via the ENA, and even more effective use of industry forums. There will be renewed emphasis on the need for and benefits of collaboration in developing and deploying innovation. This is not just across the electricity network companies, but also cross-sector with gas networks and with third-parties who have innovation as their raison d être. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page v

1 Introduction This joint innovation strategy has been produced by The (ENA) and the Electricity Network companies. The Electricity Network companies include all of the Distribution Network Operators (DNOs), the Transmission Network Operators (TOs) and the System Operator (SO) in Great Britain. The ENA is the voice of the networks, representing the wires and pipes transmission and distribution network operators for gas and electricity in the UK and Ireland (known as Member Companies). Figure 2: Electricity Network Licence Holders Innovation is a key element of the RIIO regulatory arrangements, which includes funding and incentives provided to help us to innovate for customer benefit, as well as long term network value. Since network innovation arrangements began in 2010, we have delivered more than 700 projects and we will continue to deliver a significant level of benefit for our customers. In 2016, Ofgem commissioned an independent evaluation of the Low Carbon Networks Fund (LCNF) the forerunner of the current more comprehensive Network Innovation package. This study was positive about the role and impact of the LCNF, however made recommendations to achieve further improvements, including: Ofgem should continue to fund network operator innovation with consideration, given as to how support for network innovation can best accommodate the future requirements of the whole, low carbon, energy system; We, the network companies, should be required to jointly develop and publish an innovation roadmap ; There should be greater focus on the sharing of project knowledge and learning (including that from unsuccessful projects) to maximise the benefits and value of LCNF initiatives and innovation; T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 6

Reporting requirements associated with any future innovation funding should be reviewed to facilitate the future assessment of quantitative benefits. Following this, in June 2017 Ofgem issued a Direction notice to modify the standard conditions of the electricity transmission and distribution licensees. These modifications require that we consult with stakeholders and work together to develop and publish an Electricity Network Innovation Strategy by the end of March 2018. The ENA are coordinating the development of this Electricity Network Innovation Strategy and the associated plan. They will ensure that all the relevant network licensees work together in relation to innovation, which will result in coordinated action on priority areas such as reducing cost to the customer, making our service more reliable and supporting the low carbon economy. This strategy will also have implications for the Distribution System Operator (DSO) 1 Transition, which is the subject of the Open Networks project, also being led by the ENA on behalf of the GB network operators. As per section B16.3 and 48A.3 of Licence Conditions, the electricity distribution and transmission network companies have agreed to make all reasonable endeavours to cooperate in the development and maintenance of the Electricity Network Innovation Strategy. This includes a review every two years and an update where necessary, as per sections B16.5 and 48A.5 2 of the relevant license conditions. 1 As defined in the Open Networks initiative, a Distribution System Operator (DSO) securely operates and develops an active distribution system comprising networks, demand, generation and other flexible distributed energy resources (DER). As a neutral facilitator of an open and accessible market it will enable competitive access to markets and the optimal use of DER in distribution networks to deliver security, sustainability and affordability in the support of whole system optimisation. A DSO enables customers to be both producers and consumers; enabling customer access to networks and markets, customer choice and great customer service. 2 DNO license conditions: https://www.ofgem.gov.uk/system/files/docs/2017/06/direction_notice_to_modify_the_electricity_distribution_licence_f or_the_electricity_network_innovation_strategy.pdf T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 7

1.1 Electricity industry innovation context The key drivers for innovation are aligned with the energy trilemma, which aims to maintain reliability, minimise cost impact and facilitate transition to low carbon economy. Traditional network management solutions such as ongoing network reinforcement are in isolation considered to be non-optimal economically. A rapidly changing market environment requires new innovative approaches from all participants, including fundamentally different approaches to business and to serving customers, embracing a range of technical and commercial innovations to do so effectively Each of the following trends are changing the way we produce and use power, requiring all entities operating in the energy value chain to review and change how they invest and operate. Shifting power-generating sources For the first time since the 1880 s, coal, once the mainstay of our generation sector, was absent from GB s operating electricity generation mix on 21 st April 2017. A month later, on 26 th May, solar generation was meeting nearly a quarter of all electricity demand in GB. New capacity comes from renewables, mainly wind and solar. There is still no effective utility-scale solution to the inherent intermittency in renewable generation, with storage solutions and grid interconnection/active management still requiring deployment at scale. We, the network companies, will need new tools and resources to deploy and optimise flexible response via more active network control. Cross-sector energy management and planning will be required to efficiently manage interactions between electricity, gas and heat networks. There will also be changes at transmission level, with the System Operator being expected to deliver innovation in commercial areas such as ancillary services and price volatility Customer choice and changing energy demands Through the deployment of a variety of new technology enablers, customers are increasingly able to control their electricity usage and spend, as well the type of power they buy and when they use it. Some customers want the ability to self-generate and sell that power back to the grid. Energy demand is also changing, particularly with the growth in electric vehicles and the decarbonization of heat. Without intervention, the combined effect of the electrification of transport and heat could result in peak time electricity demand in a prosperous economy growing by as much as 1GW per year post 2030. We will require new commercial models and technical solutions. We will need to be proactive and facilitate these to ensure best value and high ongoing levels of service for our consumers. Policy Drivers In addition to the Climate Change Act, whereby the government has committed to reduce greenhouse gas emissions by at least 80% of 1990 levels by 2050, the Paris Climate Agreement will have a significant long-term impact upon energy networks. This agreement, which has been ratified by the UK government, focuses on limiting global warming to below 2 C by the year 2100. Decarbonisation of electricity generation, heat and transport are all crucial components. Other recent policy announcements include plans announced by the government to ban the sale of new petrol and diesel cars in Britain by 2040. This will clearly impact the growth of electric vehicle sales. We are moving forward to facilitate these ambitions and manage customer impacts through innovation and whole energy system thinking. We recognise that energy, environment and transport policy are very closely linked. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 8

The smart, flexible energy system and the DSO transition The trend towards a cleaner, distributed (flexible), and smarter energy infrastructure, known as the Smart, Flexible Energy System is now becoming very evident. Fuelled by significant increases in Distributed Energy Resources (DER) and storage, these changes will affect policy and regulation, business models, and the way the grid is operated in the UK. Traditional one-way power system The emerging Smart, Flexible Energy system Figure 3: Example of evolution from traditional electricity system to a Smart, Flexible Energy System Ofgem s and BEIS recent consultation and call for evidence on the Smart, Flexible Energy System 3 includes a discussion on the future role for DNOs. It suggests that they will on one hand continue to be responsible for the efficient and economic operation of distribution networks, but will also have an increased role in the delivery of an efficient, economical and co-ordinated wider system. To achieve this, DNOs must transition to become Distribution System Operators (DSOs), and are expected to demonstrate capability that includes wider active management of the network and increased communication and cooperation with the System Operator and the Transmission Operators. The DNOs are already investing in preparing for a future DSO role. The Open Networks project has been established to enable industry leadership of the specifics of this transition, managed by the ENA on behalf of its Members. One element of this is the role of innovation in making this transition, evidenced by recent Network Innovation Competition (NIC) funded projects such as Power Potential which have future DSO arrangements as a clear focus. Further DSO-based projects have been proposed for the 2017 NIC competition. 3 https://www.ofgem.gov.uk/publications-and-updates/smart-flexible-energy-system-call-evidence T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 9

Uncertainty and choices for the electricity network companies As highlighted in Ofgem s call for evidence on the Smart, Flexible Energy System, there are many different paths that the network companies could take as their roles evolve. The uncertainty is particularly prevalent for DNOs, who need to make significant investment decisions and could evolve in different directions, which may be as far ranging as: Gradual evolution to incorporate more smart solutions to improve efficiency; Fundamental change including becoming a full platform and neutral market facilitator with some SO capabilities - able to manage and provide value-added services for distributed generators, EV owners, storage owners, microgrids peer-to-peer traders and demand response providers. Whilst the transition to DSO has the potential to bring many benefits for customers, this is not a given, hence the importance of us having a clear plan and a roadmap for the future. This includes innovation that supports the need to act differently and seeks new customer solutions, embracing the changing circumstances to set a positive course for the energy sector in Great Britain one that continues our country s role as a global leader in energy and benefits a range of stakeholders, including customers, investors and our wider industry. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 10

1.2 Strategy development process We have identified a list of sector trends and innovation themes as a starting point for the Electricity Networks Innovation Strategy. Following this, we have derived potential gaps on the basis of current project activity by the licensees and set out a comprehensive roadmap to address those gaps. To establish the overall innovation strategy, we have used the following methodology: 1. Perform a wider sector review, based on review of market trends and a synthesis of the innovation activities in the UK electricity sector and from other global jurisdictions; 2. Analyse individual network innovation strategies, to draw out six high-level themes which were split out into key challenges associated with them; 3. Refine the themes and challenges with input from senior innovation team members from each of our companies; 4. Publish a first public consultation to obtain feedback on the draft list of themes and categories; 5. Identify any gaps in the innovation themes by cross-referencing the portfolio of LCNF, NIA, NIC projects conducted between 2015 and 2017 onto the emerging challenges; 6. Hold two stakeholder workshops (in London and Glasgow) to obtain feedback on the draft strategy, including potential gaps. 7. Publish an innovation strategy and roadmap based on synthesis and integration of this feedback. The roadmap can be fed into the individual innovation strategies of the electricity network companies. Figure 4: The process of developing the innovation strategy T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 11

2 Innovation Challenges for Network Licensees 2.1 Innovation themes The macro trends identified in the previous section will give rise to the need for further innovation, and will simultaneously pose several challenges. The development of this Electricity Networks Innovation Strategy identifies those challenges and presents a vision for addressing those that have not been completely met by innovation projects to-date. Figure 5: Process of selecting innovation themes T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 12

2.2 Challenge categories This section gives an overview of the categories of challenges identified. The five innovation themes have been synthesized from the network companies individual Innovation Strategy documents. We have grouped and categorized the individual challenges in the table below, according to the innovation themes. Innovation theme #1 Network improvements and System Operability #2 Transition to a lowcarbon future #3 New technologies and commercial evolution Categories 1.1. Improve network resilience to avoid unplanned power outages (particularly when moving towards the low carbon world); 1.2. Improve demand and generation forecasting, and network planning processes; 1.3. Improve asset management processes; 1.4. Maximise the value and capacity of existing assets; 1.5. Improve network visibility and controllability; 1.6. Optimise cross-sector coordination between DNOs, TNOs, and SO, as well as licensees from other sectors (e.g., gas) and other countries. 2.1 Create value from the introduction of smart meters and work collectively to deliver the wider public policy and public interest benefits from data; 2.2 Efficiently facilitate the adoption of low carbon technologies supporting the electrification of heat and transport; 2.3 Enable flexibility in the GB low carbon transition (e.g., increasing role of demand side response); 2.4 Facilitate the transition from DNO to DSO, enabling the provision of new platforms, market participants and value streams; 2.5 Develop advanced whole energy system planning and forecasting methodologies. 3.0. Extract value from continued growth in web-based, digitalenabled services and new and improved sources of data; 3.1. Maximise cybersecurity and data protection in respect of privacy and commercial sensitivity; 3.2. Maximise benefits provided by new technologies, with particular focus on network services provided by electric vehicles and energy storage; 3.3. Facilitate the adoption of commercial business models that leverage low carbon technologies; 3.4. Shape and comply with evolving regulations and standards; 3.5. Inform the development and ensure compliance with new markets and structures that allow greater competition in the energy markets; 3.6. Facilitate sharing of services and business functions between DNOs, TNOs, and SO; 3.7. Leverage cross-sector "smart technology" benefits and lessons. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 13

#4 Customer and stakeholder focus #5 Safety, health and environment 4.1 Improve the understanding of changing customer needs, particularly in regard to the electrification of heat and transport; 4.2 Improve involvement of customers in the delivery of the innovation work; 4.3 Continuously improve customer experience and affordability, and support the fuel-poor; 4.4 Enable customer choice; 4.5 Maximise the transparency of information and the quality of accessible data; 4.6 Improve employee skills and resources; 4.7 Facilitate community energy; 4.8 Actively seek collaboration with stakeholders and partners; 4.9 Facilitate behavioural change initiatives to promote energy conservation and sustainability. 5.1 Continuously improve safety and reduce impact on the environment; 5.2 Protect the safety of the public, staff and contractors; 5.3 Reduce the visual and noise impacts of assets. Table 2: Key innovation themes 2.3 Overview of innovation challenges As described in the methodology in Section 1.2, following the identification of 5 key trends and achieving an industry-wide consensus on the 31 challenge categories, 178 specific innovation challenges were identified. For the full list of these, please refer to Appendix A. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 14

2.4 Public stakeholder consultations Figure 6 below shows how the first consultation supported the categorization of challenges, which have been compiled from our individual strategies and the wider trends affecting the GB energy industry. Stakeholder workshops in London and Glasgow then provide more in-depth opinion to further improve the draft strategy and roadmap. Figure 6: Context for the stakeholder consultations The first consultation was structured as an online questionnaire, which contained a narrative to explain the market issues and challenges faced by the electricity industry and outlines a summary of the challenges as documented by the licensees. The consultation contained structured questions as well as an opportunity for broader comment on the challenges put forward. Figure 7: Stakeholder consultation survey statistics As shown on the figure below, a majority (76%) of stakeholders agreed with the innovation themes proposed in this strategy. Further suggestions that emerged from the consultation included: Consider rephrasing the innovation themes to reflect the range of key challenge; Specifically mention penetration of DER and electrification of transport and heat; Facilitating the transition from DNO to DSO should be the main theme of the strategy; Make sure the underlying principle of maintaining security of supply is not forgotten. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 15

Figure 8: Stakeholder consultation results on the innovation themes Innovation theme Agreement Timing Key learning #1 Network improvements 54% 4 Mediumterm Value of existing assets has been defined more clearly. The wording of Demand and generation forecasting and network planning has been updated so this challenge category is not as broad. We have addressed broader aspects of reliability and power quality as well as flexibility should be addressed. #2 Transition into a low-carbon future 59% Mediumterm We have included the facilitation of new markets and structures that allow greater competition. We have highlighted the importance of communication between the SO and DSOs. We have broadened the transport challenges beyond electric vehicles. We have placed a greater emphasis on energy storage and CCS. #3 New technologies & commercial evolution 69% Mediumterm We have improved the wording of the cyber security challenges. We have emphasised that regulatory support is important to scale-up innovations. We have included transparent data availability. #4 Delivering benefits from Innovation 5 69% Mediumterm Most important is how to integrate innovation in BAU situation. We have highlighted the importance of collaboration. We have highlighted the importance of building upon learnings of previous projects. 4 Due to the sequential nature of the consultation, some respondents noted that their level of agreement should have been higher as some of their additional points had been captured elsewhere, hence these figures are conservative 5 Note that based on the first consultation feedback, Theme 4 Delivering Benefits from Innovation has been separated out as an area of separate strategic focus as it relates to all of the other five themes T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 16

#5 Customer and stakeholder focus 80% Shortterm We have added a challenge on improving consumers understanding of the value proposition. We have included the link between the heat, gas and power network. We have included the beyond the meter solutions and impacts on customers, systems, markets and DSO business models. #6 Safety, health, and environment 69% Short/ mediumterm Safety and environment have been split into two separate challenges. We have improved the wording on the audio and visual impact challenge. Education is required to understand the value of sustainability. Table 3: Public consultation feedback on individual themes T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 17

3 Current Level of Innovation and Gaps 3.1 Introduction to network innovation The Network Innovation Competition (NIC) and Network Innovation Allowance (NIA) funding incentives were set-up by Ofgem to fund new technical, commercial, or operational projects that have the potential to deliver a range of benefits to the us and our customers. Innovation projects must have the potential to have direct impact on our networks or the operations of the SO and involve the research, development, or demonstration of at least one of the following: A specific piece of new (i.e. unproven in GB) equipment (including control and communications systems and software); A specific novel arrangement or application of existing electricity transmission and/or electricity distribution equipment (including control and/or communications systems and/or software); A specific novel operational practice directly related to the operation of the GB Transmission System and/or the GB Distribution System; A specific novel commercial arrangement. The following categories of innovation areas typically fall outside of the eligibility criteria defined by Ofgem, so are out of scope of the of the NIA and NIC Projects, however the Electricity Networks Innovation Strategy will ensure that the potential interaction between innovation and these areas are carefully considered. smart metering hardware; new means of electricity generation; development of industry codes or standards; funding university research programmes. Within the GB energy industry, there are a range of other bodies and funding platforms that are heavily involved in energy industry innovation. These bodies are funding, planning, developing and rolling out innovation projects, and it is critical that the Electricity Network Innovation Strategy consider these and align strategies as much as possible. These bodies include Innovate UK 6, Energy Systems Catapult 7 and the Industrial Strategy Fund 8. 6 https://www.gov.uk/government/organisations/innovate-uk 7 https://es.catapult.org.uk/ 8 https://www.gov.uk/government/collections/industrial-strategy-challenge-fund-joint-research-andinnovation T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 18

3.2 Analysis of innovation projects conducted to date Our analysis focused on innovation projects delivered via NIA, NIC and LCN funding mechanisms because they are the main source of funding for our innovation projects. Other funding sources for innovation exist and we fund some innovation activities from our own budgets. For this strategy, projects have been grouped per innovation theme based on their total number and total value. Figure 9 shows that the majority of projects were conducted in the Network Improvements domain. This reflects the fact that today we are essentially asset management businesses. There is a robust and wellestablished supply chain for this area, which has been able to bring best practice from other geographies to the UK. When the innovation funding started there was not as much available in the other categories. This has changed over time as understanding of our requirements has improved. Furthermore, the bulk of our income is based on the management of our network, and therefore this is the area which is likely to produce most benefits for our consumers and should remain as a focus of our attention. Transition into a low-carbon future has also received significant attention. This reflects the emphasis that we have placed on innovation that has helped us adapt to changing customer needs. Much focus was also put on the Safety, Health and Environment, which are critical to our businesses and to our customers. Out of all the categories, least number of projects was conducted around the Customer and Stakeholder focus. Although we have delivered some interesting projects under this innovation theme, we see this as an area that may benefit from a greater focus in the future. Figure 9: Number of NIA, NIC and LCN projects delivered across the 6 innovation themes It should be noted that whilst Figure 9 shows that the majority of innovation has been under Network Improvements innovation theme, it would be wrong to infer that innovation should stop in this area. There is still scope to build on the benefits achieved from previous innovation projects under all of the innovation themes and new innovation opportunities will arise as technology evolves and tipping points are reached that affect our industry. Furthermore, a review funded by HubNet and UKERC, and written by the University of Strathclyde's Damien Frame, Keith Bell and Stephen McArthur, shows that the learning from the innovation projects is impacting on our business as usual activities in a positive way, which is helping to facilitate the Low Carbon transition. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 19

Figure 10: Value of NIA, NIC and LCN projects delivered across the 6 innovation themes T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 20

Figure 11: Number of NIA, NIC and LCN projects delivered across the 6 innovation themes T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 21

Figure 12: Value of NIA, NIC and LCN projects delivered across the 6 innovation themes T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 22

Figure 13: Summary of innovation projects addressing categories and challenges The analysis has shown that challenges relating to asset management, improving network resilience, improving forecasting and maximising the value of existing assets have been the subject of several NIA and NIC projects. This is because we have been able to demonstrate that projects that address these challenges deliver significant benefits to us and our customers. Challenges relating to Health, safety and environment are being addressed by innovation projects. Projects related to overall safety of the public and staff, design standards and environmental protection show a high proportion in the overall volume of projects. We note however that some innovation challenges come out as important in the overall analysis of industry trends, but tend to be under represented in the overall pool of projects. Those areas include: o o o o Creating value from the introduction of smart meters; Efficiently facilitating the electrification of heat; Facilitating the transition from DNO to DSO; Efficiently facilitating the electrification of transport. We also note that many of these areas were listed as high-priority challenges in the responses to the public consultation. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 23

3.3 Observations from innovation projects to date Based on the analysis of our past innovation projects, and the feedback from the online stakeholder consultation, we have made the following observations: Projects often do not align to only one theme. While the main focus may be one theme many projects impact some or all of the others, so there may be multiple themes per project and multiple projects per theme in practice. Due to the structure of the governance all projects should have a customer benefit the projects currently listed under customer focus are pure customer projects Customer and commercial themes were a priority area in the stakeholder consultation and may benefit from increased innovation activity; New Technologies and commercial evolution has had a relatively low representation in innovation projects so may also benefit from increased innovation focus. Projects categorised under the Network Improvements and Transitioning to a Low Carbon Future themes will still play an important role, despite the increasing emphasis on customer and commercial themes. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 24

4 Innovation Strategy and Roadmap 4.1 Evaluating innovation priorities The stakeholder consultation process had revealed that stakeholders view the innovation challenge themes in the following order of priority: 1. Customer and Stakeholder Focus (80% agreement) 2= New technologies & commercial evolution (69% agreement) 2= Safety, health, and environment (69% agreement) 3. Transition into a low-carbon future (59% agreement) 4. Network improvements (54% agreement) Historically, innovation project spending has prioritised Network Improvements and Transition into a lowcarbon future (as shown in Figure 9) for the reasons described in Chapter 3.2. Customer and Stakeholder Consultation and New technologies & commercial evolution have been the focus of relatively few innovation projects, which may explain interest in these themes going forward. On this basis, and based on the industry context described in Chapter 1.1, we have made the following observations on the innovation project coverage with respect to the innovation challenge themes: Project areas where coverage seems low: The utilisation of data from smart meters has become a more prevalent innovation subject, however this depends on the individual approach to LV monitoring. There seems to be more effort directed towards the DNO to DSO transition, which addresses one of the gaps; Enabling customer choice has been the focus of very few innovation projects; There has been relatively little activity in understanding changing customer needs and improving affordability for customers; There has been relatively little activity in shaping and complying with evolving regulations and standards There has been relatively little activity in using new technology to develop and optimize commercial business models Project areas where more innovation may be needed: Cyber security is becoming an increasingly important issue and more focus may be required in future innovation projects. Given the global trends, predictions and the rapid emergence of electric vehicles, the number of projects addressing their dispatch and charging represent a very small proportion of the overall innovation efforts; The electrification of heat is an under-represented topic in terms of practical activities; T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 25

4.2 Our strategy for each innovation theme Our strategy for each innovation theme is outlined within the following five sections. For each innovation theme, we have: 1. Included a description of the key issues for each theme; 2. Highlighted current innovation activity, and shown the relative potential for innovation projects of each of the challenge categories; and 3. Provided a roadmap to show when innovation will be required as a priority for each of the challenge categories Note that a Low innovation potential does not mean that s its innovation is not necessary; it shows that a comparatively low amount effort needs to be put into innovation in this challenge category relative to the other challenges. Further detail is available in Appendix B. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 26

Our strategy across the 5 themes is qualified according to the format below: Assessment Methodology The categories reflect the list from Section 2.2 and the individual challenges were mapped onto the delivered NIA, NIC and LCNF projects. On that basis, the level of innovation was assessed: Current level of Innovation Low Medium High 1 project conducted or less Up to 3 projects conducted More than 3 projects conducted Future innovation is a qualitative assessment based on industry trends identified in Section 1, the stakeholder consultation and the analysis of gaps in Section 3. Future innovation opportunity Low Medium High The category does Category fits in the Crucial element of not come through as future industry trends the future of the a significant Highlighted by industry; component of the stakeholders Significant focus future trends; Current level of from the Current level of innovation likely to stakeholders; innovation is be medium/high. Particularly important medium/high; if the current level of No significant innovation is low and innovation gaps if gaps were identified. identified. Low priority Challenge well addressed Relatively few opportunites for innovation Timeline Medium priority Challenge reasonably addressed Some opportunity for innovation High priority Challenge reasonably addressed Many opportunities for innovation Top priority Many opportunities for innovation The high-level timeline was structured such that short-term projects are the ones that should be conducted immediately and adequate resources exist to launch them, medium-term include projects that should be planned for completion until the end of ED1/T1 and long-term mean plans for ED2/T2 price period. Timeline Short Medium Long Now until 2019 2019-2022/2023 2022/2023 onwards Figure 14: Assessment criteria T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 27

#1: Network improvements and system operability The first theme focuses on how to achieve a reliable, dynamic and adaptable network to support future electricity demand and generation requirements, and the resulting volatility in energy flows. The theme encompasses maximising existing capacity by increased utilisation of the network and network visibility and control. The goal of innovation in this area is also to further develop asset management strategies to minimise the costs of managing ageing assets and network risk. Significant challenges lie in the activities of the System Operator. As networks become more highlyutilised and capacity headroom decreases, it will become increasingly important to share network information between our companies for maintenance and construction purposes. Furthermore, to improve the time required to connect new assets, the System Operator will need to develop active management of generation output around network constraints. To achieve this, real-time information for wide area monitoring is required. This can be provided by advanced monitoring devices, computing processes and communications infrastructure. The visibility of transmission network at the GB level requires a review of control algorithms that had been designed based on a centralised approach. Highlights of current innovation projects Project title Network Equilibrium Project title Smart Street First real-time control of LV network Licensee WPD Licensee ENWL The focus of Network Equilibrium is to balance voltages and power flows across the distribution system, using three methods to better configure the network, helping to integrate additional distributed generation within electricity networks more efficiently and deliver major benefits to distribution customers. By combining innovative technology with existing assets, Smart Street aims to make networks and customers appliances perform more efficiently and make it easier to adopt low carbon technologies onto the electricity network. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 28

Innovation potential Innovation theme #1 Network improvements and System Operability Categories 1.1. Improve network resilience to avoid unplanned power outages (particularly when moving towards the low carbon world); 1.2. Improve demand and generation forecasting, and network planning processes; 1.3. Improve asset management processes; 1.4. Maximise the value and capacity of existing assets; 1.5. Improve network visibility and controllability; 1.6. Optimise cross-sector coordination between DNOs, TNOs, and SO, as well as licensees from other sectors (e.g., gas) and other countries. Level of innovation activity to date Future innovation opportunity Required innovation effort High Medium High High Medium Medium Low Medium Low High Medium High Innovation Roadmap Innovation theme #1 Network improvements and System Operability Short term Medium-term (2017-2019) (2019-2023) 1.1 Improve network resilience to avoid unplanned power outages (particularly when moving towards the low carbon world); 1.5 Improve network visibility and controllability; 1.2 Improve demand and generation forecasting, and network planning processes; 1.3 Improve asset management processes; 1.4 Maximise the value and capacity of existing assets; Long-term (2023+) 1.6 Optimise cross-sector coordination between DNOs, TNOs, and SO, as well as licensees from other sectors (e.g., gas) and other countries. Stakeholder input Input will be collected during the stakeholder workshops T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 29

#2: Transition to a low-carbon future The requirement to connect more low-carbon technology and distributed generation will necessitate a more active network and providing network access without resorting to overbuilding assets. Innovation is aimed to provide essential flexibility in preparing our networks for the low carbon transition. One of the main elements of providing flexibility is the demonstration of demand side response solutions to assist in allowing for faster network connections. Low carbon technology will require an active role in the operation of our networks, which will can be achieve via facilitating DNOs in becoming DSOs. Future DSOs will be expected to bring access to new information about the network performance close to real time, allowing whole-system optimisation and establishing an interface between the distribution and transmission. This can be achieved through developing new techniques and utilising enhanced data for more dynamic network control (which includes the data from smart meters). The result will provide customers with new services, respond to outages quicker and plan the network more intelligently. Crucial element in supporting future electricity demand and generation requirements will be to develop whole system planning and forecasting methodologies. Highlights of current innovation projects Project title LV Connect and Manage Project title New Thames Valley Vision Licensee WPD Licensee SSEN This project will demonstrate and prove that LV ANM can be used as a short-term measure, whilst network reinforcement takes place, to facilitate the timely connection of customers. The solution can then be re-deployed to another area when the need case arises. Thames Valley Vision is a low carbon project trialling smart grid solutions, smart meters, in home displays, and renewable energy generation technologies. T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 30

Innovation potential Innovation theme #2 Transition to a lowcarbon future Categories 1.1. Create value from the introduction of smart meters and work collectively to deliver the wider public policy and public interest benefits from data; 1.2. Efficiently facilitate the adoption of low carbon technologies supporting the electrification of heat and transport; 1.3. Enable flexibility in the GB low carbon transition (e.g., increasing role of demand side response); 1.4. Facilitate the transition from DNO to DSO, enabling the provision of new platforms, market participants and value streams; 1.5. Develop advanced whole energy system planning and forecasting methodologies. Level of innovation activity to date Low Future innovation opportunity High Required innovation effort Medium High Medium High Low Low High High Innovation roadmap Innovation theme #2 Transition to a low-carbon future Short term (2017-2019) Medium-term (2019-2023) 2.1 Create value from the introduction of smart meters and work collectively to deliver the wider public policy and public interest benefits from data; 2.2 Efficiently facilitate the adoption of low carbon technologies supporting the electrification of heat and transport; 2.3 Enable flexibility in the GB low carbon transition (e.g., increasing role of demand side response); 2.4 Facilitate the transition from DNO to DSO, enabling the provision of new platforms, market participants and value streams; 2.5 Develop advanced whole energy system planning and forecasting methodologies. Long-term (2023+) Stakeholder input Input will be collected during the stakeholder workshops T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 31

#3: New technologies and commercial evolution The future electricity network will be reliant on commercial arrangements with network users, as there are close linkages with many of the technology solutions. The variety of new technologies deployed on the network will require to be interoperable such that new solutions can be readily integrated. New automation schemes on the LV network will allow to restore customers faster using embedded intelligence. Leveraging new technologies will require new commercial models, including flexible tariffs, new methods for settlement and market structures. All those activities will multiply the amount of processed data leading to the need for increased cybersecurity. Finally, innovation will focus on a better processes, equipment and technology that will ensure continued efficiency and performance in the new realm. Highlights of current innovation projects Project title ENTIRE Project title Customer Load Active System Services (CLASS) Licensee WPD Licensee ENWL Project ENTIRE is a four-year project that will be building on the lessons learned from the commercial trials within Project FALCON. The project is seeking to address the conflicts between a DNO and National Grid contractual requirements. CLASS seeked to demonstrate an innovative, easily implemented solution to enable DNOs to cost-effectively accommodate LCTs and the changing patterns of demand on their networks. The goal was to demonstrate that demand for electricity can be reduced, without customers noticing a difference to their supply. Innovation potential Innovation theme #3 New technologies and commercial evolution Categories 3.1. Extract value from continued growth in web-based, digitalenabled services and new and improved sources of data; 3.2. Maximise cybersecurity and data protection in respect of privacy and commercial sensitivity; 3.3. Maximise benefits provided by new technologies, with particular focus on network services provided by electric vehicles and energy storage; 3.4. Facilitate the adoption of commercial business models that leverage low carbon technologies; 3.5. Shape and comply with evolving regulations and standards; 3.6. Inform the development and ensure compliance with new markets and structures that allow greater competition in the energy markets; Level of innovation activity to date Low Low Future innovation opportunity High High Required innovation effort Medium High Low High Low Medium Medium Medium T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 32

3.7. Facilitate sharing of services and business functions between DNOs, TNOs, and SO; 3.8. Leverage cross-sector smart technology benefits and lessons. Medium Low High High Innovation roadmap Innovation theme #3 New technologies and commercial evolution Short term (2017-2019) 3.2 Maximise cybersecurity and data protection in respect of privacy and commercial sensitivity; 3.3 Maximise benefits provided by new technologies, with particular focus on network services provided by electric vehicles and energy storage; 3.4 Facilitate the adoption of commercial business models that leverage low carbon technologies; 3.5 Shape and comply with evolving regulations and standards; Medium-term Long-term (2019-2023) (2023+) 3.1 Extract value from continued growth in web-based, digital-enabled services and new and improved sources of data; 3.6 Inform the development and ensure compliance with new markets and structures that allow greater competition in the energy markets; 3.7 Facilitate sharing of services and business functions between DNOs, TNOs, and SO; 3.8 Leverage cross-sector smart technology benefits and lessons. Stakeholder input Input will be collected during the stakeholder workshops T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 33

#4: Customer and stakeholder focus Providing outstanding customer experience is a focal point for of our businesses. This also extends to our relationships with stakeholders. Our goal is to deliver the plan in the most economic and efficient manner whilst operating the network in a safe and reliable way. Innovation allows us to explore ways to provide services at a lower cost, improving customer experience as well as enabling choice by offering new services. Development of various online services facilitates customer engagement through increasing the transparency of operations. Innovation will also enable us to identify and address the threats and opportunities facing the network, enabling us to maintain and improve on our historic efficiency levels, whilst avoiding potential disadvantages, thereby improving service and reliability to stakeholders. One of the key enablers to build an interface between customers and stakeholders are smart meters. They have a large potential to provide communities with information and incentives to change their energy consumption behaviour and to benefit the networks we operate. They can also provide improve information regarding what is happening on our networks, which will be particularly important during fault conditions. Highlights of current innovation projects Project title Power Saver Challenge Project title EnergyWise Licensee ENWL Licensee UKPN Electricity North West's Power Saver Challenge encouraged customers to reduce their household energy consumption, helping families save money on their bills and making the company s infrastructure upgrades more sustainable in the long term. Energywise is a partnership between ten organisations, led by UK Power Networks, and with funding from Ofgem. The aim of energywise is to investigate how to plan for our future energy needs. It s one of the first research projects of its kind and it s happening in Tower Hamlets. Innovation potential Innovation theme #4 Customer and stakeholder focus Categories 4.1 Improve the understanding of changing customer needs, particularly in regard to the electrification of heat and transport; 4.2 Improve involvement of customers in the delivery of the innovation work; 4.3 Continuously improve customer experience and affordability, and support the fuel-poor; Level of innovation activity to date Low Future innovation opportunity High Required innovation effort Medium Medium Medium Medium 4.4 Enable customer choice; Low High 4.5 Maximise the transparency of information and the quality of accessible data; Medium Medium T +44 (0) 20 7706 5100 W www.energynetworks.org.uk E info@energynetworks.org Page 34