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Policy and Regulatory Barriers to Lems in GB. March 2018

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Policy and Regulatory Barriers to Lems in GB. March 2018 POLICY AND REGULATORY BARRIERS TO LOCAL ENERGY MARKETS IN GREAT BRITAIN Report to Centrica March 2018 Rachel Bray, Bridget Woodman and Peter Connor Disclaimer This report contains the views of the University of Exeter working as a project partner on the Cornwall LEM Project and does not in any way represent the views of Centrica plc The Cornwall Local Energy Market is part-funded by the European Regional Development Fund under the European Structural and Investment Funds Programme 2014-2020 2 CONTENTS Executive Summary ............................................................................................................................................... 6 Document Roadmap .............................................................................................................................................. 8 1. Introduction – The Cornwall Local Energy Market Project .............................................................................. 9 PART 1 CURRENT MARKET DESIGN 2. GB Electricity Systems are Changing ........................................................................................................... 12 2.1 Changing The Supplier Hub Model ...................................................................................................... 13 3. Regulatory Barriers in Existing Markets ....................................................................................................... 15 3.1 GB Markets and Technologies ............................................................................................................. 15 3.2 Ancillary Services ................................................................................................................................. 17 3.3 Wholesale Market ............................................................................................................................... 19 3.4 Balancing Market ................................................................................................................................ 21 3.5 Capacity Market .................................................................................................................................. 22 4. Changing Roles of Network Operators ......................................................................................................... 26 4.1 The Transmission System Operator .................................................................................................... 26 4.2 The Distribution Network Operators ................................................................................................... 28 5. Changes to Network Charges and Access Rights ......................................................................................... 40 PART 2 POSSIBLE MARKET CHANGES 6. Opening up New Flexibility Markets ............................................................................................................ 46 6.1 The Role of Smart Meters .................................................................................................................... 47 6.2 The Role of Demand Side Response .................................................................................................... 48 6.3 The Role of Independent Aggregators ................................................................................................. 56 6.4 The Role of Storage ............................................................................................................................. 58 6.5 The Role of Peer-to-Peer Trading ........................................................................................................ 65 6.6 The Role of Locational Marginal Pricing .............................................................................................. 72 PART 3 CORNWALL LEM USE CASES 7. Developing a New Local Energy Market Model ............................................................................................ 75 7.1 Theme 1 - Integrated Network Services Platform ................................................................................ 76 7.2 Theme 2 - Peer-to-Peer Trading .......................................................................................................... 83 7.3 Theme 3 - Locational Pricing Trial ....................................................................................................... 87 7.4 Theme 4 - Imbalance ........................................................................................................................... 89 7.5 Theme 5 - Wholesale Market ............................................................................................................... 90 3 8. Conclusion ................................................................................................................................................... 92 9. Appendix 1 - Table of Regulatory and Market Barriers ................................................................................. 95 10. References ............................................................................................................................................ 105 11. Acronyms ............................................................................................................................................... 115 TABLES Table 1 GB Markets & Technologies ..................................................................................................................... 16 Table 2 Barriers to Existing Markets ..................................................................................................................... 24 Table 3 ENA’s 6 Models for coordinating DER ...................................................................................................... 30 Table 4 Network Barriers to LEMS ....................................................................................................................... 36 Table 5 Residual Charging Mechanism Proposals ................................................................................................. 41 Table 6 Changes to Network Charging ................................................................................................................. 45 Table 7 Issues with Smart Meter Rollout Programme ........................................................................................... 47 Table 8 Barriers to DSR ........................................................................................................................................ 50 Table 9 DSR Lessons from New York and California ............................................................................................. 53 Table 10 Barriers for Aggregators......................................................................................................................... 57 Table 11 Barriers to Storage ................................................................................................................................. 61 Table 12 Barriers to P2P Trading .......................................................................................................................... 70 Table 13 Barriers to LMP ....................................................................................................................................... 73 Table 14 Barriers to Theme 1 ................................................................................................................................ 79 Table 15 Barriers to Theme 2 ................................................................................................................................ 84 Table 16 Barriers to Theme 3 ................................................................................................................................ 88 Table 17 Barriers to Theme 4 ................................................................................................................................ 89 Table 18 Barriers to Theme 5 ................................................................................................................................ 91 Table 19 Regulatory and Market Barriers ............................................................................................................. 95 FIGURES Figure 1 Creating the UKs First Local Energy Market ............................................................................................ 11 Figure 2 Current Supplier Role ............................................................................................................................. 14 Figure 3 Market shares of wholesale supply (2016) ............................................................................................... 19 Figure 4 Open Networks Workstreams ................................................................................................................ 30 Figure 5 The ENA’s DSO Roadmap to 2030 .......................................................................................................... 32 Figure 6 The Smart Systems and Flexibility Plan Actions ...................................................................................... 46 Figure 7 Explicit DSR in Europe (2017) .................................................................................................................. 49 4 Figure 8 Benefits of energy storage ...................................................................................................................... 59 Figure 9 Current Battery Revenue Streams
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