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As Great Britain’s Electricity System Operator (ESO) we are at the heart of the nation’s energy system. We make sure that the electricity network operates safely and efficiently around the clock, so that homes, businesses and industry always have the power they need.

We’re also helping to tackle one of the biggest challenges facing society: how to create a sustainable, low-carbon electricity system for the future that will help the UK meet its net-zero commitments. Innovation plays a vital role in this effort, which is why we’re working with partners from the energy industry and beyond to harness new technologies, markets and ways of working to support the energy transition.

This refresh of our ESO Innovation Strategy sets out our innovation priorities for the first year of our RIIO-2 regulatory period. Introduction Contents Introduction Stakeholder engagement Stakeholder of change drivers the ahead: Looking Foreword and the wider industry ESO work across existing on Building team the meet Working together: RIIO-2 in Innovation Analysis Portfolio for 2021/22 Priorities Innovation ESO

03 08 05 34 33 35 16 12 14 Innovation Strategy 2021 / Foreword 05 Foreword have this year. with dealt adversity (GB). of Britain proud howGreat immensely I am we beyondand to of keep the call duty the lights for on the industry,ESO across that and have above gone a HUGE thanks to of all the key workers, both in globally. Iwould like to give to take this opportunity the rolling and out of vaccinations restrictions lifting like towhat with seems aroadmap in sight, end an lockdown.national the first A later,year havewe year’s Innovation Strategy, we entered just had system, we but for of When all last us. published difficult year, forget –avery not electricity just thefor look back at a yearand that none of will us ever However,what ahead. comes we take must a breath we filled with naturally period, are excitement about weAs enter of newyear our the first regulatory ayear back like at Looking other no Head of InnovationHead Strategy Carolina Tortora 2021/22 ESO Innovation Strategy. delightedI am to introduce the

actions we to needed take. –theperiod conditions we faced and the fascinating study case of aday during this a Operability Strategy includes report on May– 46 gCO2/kWh 24. Our recent intensitycarbon ever on the seen system intensity 143 gCO2/kWh) and the lowest greenest month on record (average carbon 181 gCO2/kWh. May 2020 saw both the intensitycarbon reaching anew low of Britain’s system, electricity with average 2020 was the greenest year on record for a fantastic acceleration in decarbonisation. Whilst challenging, it has been we have seen not expect to for see several more years. brought on system conditions that we did (at times, 20% below expected levels) have Exceptionallystark. low levels of demand COVID-19 on the system electricity has been Beyond lives, our personal the impact of

now and in the future. lowest possible cost to consumers, transition to operation zero-carbon at the to make sure that we manage the safe nowneeded more than ever, saying without that innovationIt goes is Flexibility Management). called ODFMservice (Optional Downward a new downward temporary flexibility extremely low demand, we rapidly created manage frequency during periods of than ever before. For example, to help and we have had to innovate more quickly us ataste of what the future will look like, resultingThe operability have issues given

05 Foreword / 2021 Strategy Innovation Innovation Strategy 2021 / Foreword 06 Foreword • • • • There are many highlights from this year, but to name afew: year of the Highlights Digitalisation Strategy Digitalisation develop advanced models for system planning under uncertainty. Have a look at our through our Control Room systems; we have worked with the University of Melbourne to Control REACT is mapping and quantifying the it as impacts permeates of uncertainty We took great strides in progressing our journey towards our digital transformation. work on this topic in the coming year. of long-term energy storage solutions to solve transmission constraints. much more Expect Southern Electricity Networks (SSEN), and we worked with Form Energy to the potential assess we explored the use of electric heat to absorb excess wind in Scotland with Scottish and We to started look more seriously at novel ways to manage rising constraint costs: in 4D Heat flexibility with WPD services in Centrica’s Local Energy Market. optimal design of Active Network Management; and we trialled coordinated procurement of Networks (SPEN) respectively; we worked with Western Power Distribution (WPD) to explore Potential and Distributed projects with Restart UK Power Networks (UKPN) and SP Energy solutions to whole system operability issues: real-world in trials both started our Power We worked closely with our Distribution Network Operator (DNO) colleagues to find market Networks Innovation Conference, held 2020. in December engage with stakeholders, and we even held our 100% first conference virtual –the Energy We embraced digital ways and virtual of working, not just to run projects, but to run workshops,

Action Plan Action for and more information.

06 Foreword / 2021 Strategy Innovation Innovation Strategy 2021 / Foreword 07 Foreword getting ready to this ready challenge. meet getting and have spending been the last few months 2years.after We welcome this recognition period, with option an to increase this further Innovation Allowance to £23m for the RIIO-2 – they have shown this by raising our Network be faced by ourselves and the broader industry recognisesOfgem the scale of the challenge to innovation that we required. know is and forge ahead with the and right level type of we capitalise on these learning experiences, challenges we expect to face. It is crucial that taste early an of some of the operability especially following a2020 which gave us system. This is ambitious an commitment, to beable to operate electricity azero-carbon us to 2025, the year when we have committed period, RIIO-2. This price control will bring April 2021 usenter sees our new regulatory to RIIO-2 ahead Looking launch happens. launch list up to our mailing top innovation Make you sure priorities. sign Innovationour Open first call, to focus on our increase this year. We will soon belaunching This is why our focus on open innovation will the toughest problems we face industry. an as to solve will the effort who lead organisation that it will bethe innovators outside our centre of the system, electricity we realise While we have aunique position at the system.innovation energy the whole across Ultimately, we aim to enabler bean of and creates afair deal for consumers. energy system, that recovery green supports overarching strategy that aims to transform the Plan has given –an star the its industry north Paper and the Prime Minister’s Ten Point publicationThe of the Government’s White pointstarting for the next stage to net-zero. RIIO-2 that makes this moment feel like a It is not just the fact that we are about to enter to be informed when this that our top for four this priorities year are: our collective for innovation. priorities We have agreed We have worked to with closely stakeholders identify This document is our ‘call to sectors. all arms’ across

Whole Energy Systems Energy Whole Constraint Management Future Markets TransformationDigital

07 Foreword / 2021 Strategy Innovation Innovation Strategy 2021 / Looking ahead: the drivers of change 08 Looking ahead: the drivers of change drivers the ahead: Looking the next 10 years. This largely non-synchronous capacity least 40GW of new low-carbon has capacity to connect in are negative by 2033. implications The of this are huge –at net-zero scenarios, net emissions from the power sector 2020The Future Energy Scenarios (FES) shows that, in all system transition. is ultimately what is driving the energy Achieving anet-zero economy by 2050

O N on impact on the power system is going to behuge. technology, behaviour. consumer markets and knock- The sectors is goingtransport to require acomplete revolution in power is just the step first –decarbonising the heat and occurringprices during times of high renewable output. And also seeing ahuge impact, with negative wholesale power Pathfinders have exploring been how to do this. Markets are must procure stability from elsewhere, and our Stability system –the resulting drop in system means we inertia brings with it ahost of operability for issues the power Decentralisation, Digitalisation and Democratisation. Democratisation. and Digitalisation Decentralisation, driven by the four of trends macro Decarbonisation, The evolution system of the energy continues at pace,

between now and 2050. showing electricity demand could double is expected to reverse, with BEIS analysis sectors decarbonise this and electrify trend from 377 to 324.8 TWh other As TWh. generation has fallen by 13.8% since 2000 youDid know: Annual UK electricity

2021 Strategy Innovation change of drivers the ahead: Looking / 08 Innovation Strategy 2021 / Looking ahead: the drivers of change 09 Looking ahead: the drivers of change of drivers ahead: the Looking much more actively engaged with the system. sector electrified,and transport becoming and consumers consumed, or used, we as large see swathes of the heat be vast. We will atransformation also see in how energy is by 2050 –the number of individual units this represents will Up to 42% of GB generation will capacity bedecentralised of amount A huge the system will transition be driven from the distribution network. DECENTRAL SATION if we are to deliver asafe and economic system transition. rethink the various roles and responsibilities in the market System Operators (DSOs), and we to need fundamentally We are already seeing emergence an of Distribution

connected generation assets under 5MW. of distribution- cumulative capacity ofas Q1 2020 there was 6.35 GW youDid know: BEIS have that reported

2021 Strategy Innovation change of drivers the ahead: Looking / 09 Innovation Strategy 2021 / Looking ahead: the drivers of change 10 Looking ahead: the drivers of change of drivers ahead: the Looking achieve net-zero. are key to the whole system thinking required to levels of interdependence. data Open and digitalisation otheras sectors, energy and non-energy have increased underpin it. layers Different of the power system, well as complexity of the energy system, and the markets that There is also aproportional increase in the underlying market system and data. with explosion it an in the of amount players and brings market participants exponentialThe in of the number rise

DIGITALI

ATION c) b) a) There is urgent an to: need be produced and collected across the energy system. to unlock the full value of the vast amount of data that will change in the evolution to atruly digitally-driven ESO, system modelling have the potential to drive astep- of advanced (ML) Machine and Learning emergence transforming our ways of working and culture. rapid The energy system, through advanced models and analytics gain understanding amuch deeper of the whole platforming of data, and shared and the system standardisation through across co-optimisation drive and coordination

homes and businesses in Great Britain. and advancedsmart meters operating in youDid know: There are over 18 million

2021 Strategy Innovation change of drivers the ahead: Looking / 10 Innovation Strategy 2021 / Looking ahead: the drivers of change 11 Looking ahead: the drivers of change of drivers ahead: the Looking • lots of evidence of this, including: role in energy system operation. Since then, we have seen playing central more much a consumers communities and What we mean by Democratisation is amove towards system transition. energy the driving the 4th as trend Democratisation macro year,Last ESO Innovation added their vehicles.their negative wholesale power to prices get paid to charge price)electricity took advantage of aforementioned (atariff time that of tracks use tariff the wholesale Electric Vehicle drivers on Octopus Energy’s (EV) Agile DEMOCRATISATION participation in energy markets. energy in participation projects, but looking closely at how to facilitate consumer not just ensuring delivery of robust consumer benefits from innovation of its forward, going the heart at the consumer trendThis important means that we will continue putting • • to the owners’ homes. Octopus Energy to get the from electricity the wind farm wind Energy farm in with the and partnering UK, Co-Op ‘consumer-owned’ the first launched Energy Ripple response. side trading, vehicle-to-grid, time-of-use and demand tariffs enableran of innovations such peer-to-peer as energy Mandatory Half-Hourly (MHH) settlement, which will be consulted how to on when Ofgem implement and

(by 6.5%) from switching levels in 2019. switched supplier in 2020 this is down customers youDid know: millions 5.95

2021 Strategy Innovation change of drivers the ahead: Looking / 11 Innovation Strategy 2021 / Stakeholder engagement 12 Stakeholder engagement from third parties. parties. third from that many and answers, of the mostdisruptive innovations will come that we We our expertise. do notand have understand also the all to access our systems through our markets, our data, opportunities onour innovation depends industry wider The to unlock innovation system to for the electricity GB is essential decarbonise. We our key recognise position in the that market, open and undertook someundertook in-depth stakeholder interviews, some of these views are provided here. Networks Innovation Conference. We consulted widely to inform this strategy refresh, and embraced the meeting, virtual and we our ran every 100% first conference virtual -the Energy Innovation team at dozens members of events industry throughout the year. This year, we just to maintain our close connection with stakeholders. In previous years, you would ESO see Stakeholder engagement this year was more challenging, we had to put in additional effort importantly to how understand we are doing and what we improve can on. usto needs industry focus on, what ideas are out there to solve system challenges, and both existing and potential partners new ones. We want to what understand it is that the Stakeholder engagement is fundamental to what we do. We are always talking to innovators, - Alex Schoch, Octopus Energy resort.” last the be curtailment generation, to solar it comes wind and When customers. domestic from for potential market participation particularly crucial, absolutely will be areas these consumption, and generation decentralised forecasting for investmentMy top priorities would digital be transformation, - Alexi Reynolds, Smith Institute how work around systems interact…”particular in and system isatop priority I would say energy whole also it to use and day-to-day inform data to extract operations…. and… to at ESO improve to make infrastructure it easier data the I would like to investment transformation more see in digital future markets future and . As we. As move towards more must must

Innovation Strategy 2021 Strategy Innovation Stakeholder engagement Stakeholder / 12 Stakeholder engagement

I agree with the priorities. I think digital transformation would Digital transformation sounds great on paper, but ESO needs Innovation Strategy 2021 benefit from further investment as it’s also a high priority for the software which can make that a reality. The current IT structure 13 TOs and DNOs. ESO could be doing more in this area currently is slower and less agile than it needs to be, and it can’t handle and is really only at the beginning of the journey. Big Data so further investment in IT and software would assist I’d like to see more emphasis in future markets on bringing more digital transformation considerably. It would also improve ESO’s small generation and residential participants into the market. interactions with external agencies and researchers as it makes Currently, there is limited incentive to participate.” the exchange of data much easier.” / Stakeholder Stakeholder engagement - Anna Ferguson, WSP - Jack Kelly, Open Climate Fix Stakeholder engagement Stakeholder /

I think the priorities are not independent but interwoven, and this needs to be considered when making decisions. For example, ZER ET O digital transformation is key to solving all the other problems, N so perhaps should not be considered in isolation.” 13

Innovation Strategy 2021 Strategy Innovation C

N R - Jamie Taylor and Alastair Buckley, Sheffield University O B Innovation Strategy 2021 / Building on existing work across ESO and the wider industry 14 Building on existing work across ESO and the wider industry Climate of Committee. Some Change the key examples of this work signposted below: are is drivenrefresh by work ESO done being across by the and and BEIS, from strategic Ofgem recommendations of well much As this driven being strategy ESO as and by experts, stakeholders our conversations with industry benefits for consumers. benefits energy landscape whilst maximising meet the challenges of the changing andperiod how we plan to evolve to Detailing our activities for the RIIO-2 Plan Business RIIO-2 are addressing them. addressing are system,electricity and how we face in maintaining operable an Insight into the challenges we Operability Strategy driven network operation. driven network for increasingly digital and data digitalisation and how we will prepare Setting out our ambitious plans for Strategy Digitalisation

the 2050 net-zero target. energy system we as strive towards credible ways to decarbonise our Presenting arange of different, Future Energy Scenarios (FES)

Continued

2021 Strategy Innovation industry wider the and ESO across work existing on Building / 14 Innovation Strategy 2021 / Building on existing work across ESO and the wider industry 15 Building on existing work across ESO and the wider industry target bringing together a wide range of together bringing stakeholders. awide range target to to done be theneeds reach UK’s 2050 net-zero at what look acloser taking programme ongoing An to net-zero gap the Bridging FES: to net-zero meeting by 2050. the on UK’s2020 report progress ClimateThe Committee’s Change Parliament to Report Progress Emissions: UK Reducing power flows and areas where network reinforcements are needed. are reinforcements power network where flows areas and in system, future transmission highlighting uncertainties electricity of of the GB’s future requirements latest our assessment Share Ten (ETYS) YearElectricity Statement reach net-zeroreach by 2050. emissions system up itsenergy and clean BEIS how out the setting UK will Energy White Paper

our pathour to net-zero. accelerate jobs, and green support toapproach build back better, the out UKSets Government’s RevolutionIndustrial Ten aGreen for Plan Point by 2050.consumers at the lowesteconomy to cost contribute to delivering anet-zero sector, and protect consumers, innovationcompetition and in the will takeOfgem to enable steps the out practical Laying 20/21 Programme Work Ofgem’s Forward

2021 Strategy Innovation industry wider the and ESO across work existing on Building / 15 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 16 2. 2. 1. Our top four priorities for this year are: work over year, the past we have our innovation refreshed for 2021/22. priorities our evolvedGovernment and Ofgem, onour and of based issues understanding onour extensiveBased from recommendations consultations with stakeholders, ESO Innovation for Priorities 2021/22 industry withindustry open data and collaborative innovation. facilitateas the digital transformation of the wider energy to significantly step up our capabilities in this space, well as be able to operate system azero-carbon by 2025, we need weeverything do is driven by data and modelling. If we are to of the other priorities have on this transformation. Almost top this priority year due to the critical dependency many internal subject matter we experts, decided to make this our we have received from our stakeholders well as our as Transformation:Digital and ancillary services markets. services and ancillary We to need work with balancing levels wholesale, in of volatility costs high and into the future, and this year we have worrying seen world. Low demand due to COVID-19 has given usaglimpse market structures are not yet fully fit for purpose in anet-zero Future Markets: it is becoming increasingly clear that current that current clear increasingly becoming is it given the huge amount of feedback 4. 4. 3. journey. If we are to get to net-zero, taking awhole system sector, stepelectricity the on the easiest arguably whichis net-zero economy by 2050. This way goes beyond the the UK has committed to System: a Energy Whole boundary reinforcements. boundary that aim to reduce the congestion costs ahead of the new to introducestart new mechanisms, markets or approaches explore ways over the next regulatory that period we can was 50% higher than the in period same 2019. We want to we had to turn down to resolve constraints in summer 2020 considerably this in priority year. volume The of generation Constraint Management: level for new the players. playing field net-zero, while continuing to evolve current markets to stakeholders to design the optimal market reforms for this issue has increased

needs toneeds accelerate. for hydrogen, and the decarbonisation of heat and transport TenThe Point Plan has clearly stated ambitious an target signals from and Ofgem BEIS that this should beafocus. system innovation in the energy industry, despite strong approach is crucial. However, there limited has been whole

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 16 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 17 last yearlast with studies. case wellas illustrating as someof the work done wewhere dive into abit deeper priority, each is givenprioritisation in the following pages, this year. for rationale this detailed Amore to concentrating our us innovation see focus for 2021/22,priorities you where expect can our strategic innovation summaries This table ESO Innovation 2021/22 for Priorities Key:

Priority level unchanged Priority inDecrease priority Increase in priority 8 7 6 5 4 3 2 1 No System Restoration System Electricity Whole and Demand Forecasting of Supply Stability System Whole Energy System Constraint Management Future Markets Digital Transformation 2021/22 Priority (v last year) (v last

Distributed Restart is tackling the critical innovation the istackling critical in Black Start. required Restart Distributed Transmission (T&D). Distribution and across toWork co-optimised be how /markets on focus needs can products tools/capabilities to the realise full value of this work. in priority,Slight to decrease lots develop of need work but ongoing here digital our existing and innovation.through pathfinders Still modelling system and work to stability, doin understanding done lots but being heating, Capture technologies. home Storage Carbon Use and (CCUS) smart and of ambitions, lots one core our ofRemains work to hydrogen, doacross transport, to market-led find need to Urgent constrained. be solutions. needs excess generation COVID-19 from Low demand gave aglimpse us into of amounts the large future where in Ofgem’s to deliver need Urgent full flexibility –apriority chain Plan. Forward of amount Huge work to doto facilitate ‘competition everywhere’, net-zero. enable and Twin, capability. (ML), Intelligence &Machine Learning (AI) &analytics data and Artificial of Digital for in other innovation, areas enabler Critical needed of amount huge progress Rationale forRationale relative priority

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 17 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 18 • • Drivers 2021/22. in priority top our be will this why way, is the to lead us on which relying are stakeholders our We that know great. is industry, the across and The scaletransition. of challenge, the both internally energy the leading while ambitions our of all almost tackling us of success the underpins Transformation Digital Digital TransformationDigital progresses towards net-zero. to ensure that choices efficient are made the as system also increasing which will result in agreater for need data is decisions design network of energy the complexity With the number of energy participants rapidly increasing, system. the whole across digitalisation driving is and greater transparency and presumed is crucial open access is rapidly increasing. democratisation The of data, through becoming more integrated and the number of new players energyThe sector is moving away from being siloed, • • • • economic decisions quickly enough. quickly decisions economic to the process amount of data required to make the most needed is learning Machine decision-making. faster much A more complex, faster-moving system electricity needs a faster response to such attacks greater. becomes aging technologies, the risk of cyber-attacks and the for need theAs networks electricity more become reliant on data and mix. by generation created troughs renewables-dominated a relycan on this flexibility in order to overcome the peaks and value from flexibility, and to create confidence that the system require large volumes of open data to both extract the most inconsumers anet-zero economy. Cost effectiveness will Flexibility akey as is seen component for delivering value for systems that are simple to interact with. insights their that decision support making and will demand theycase will belooking to the for energy industry data and in achieving net-zero through changing behaviours in which system operation. will Consumers have expanding an role pathways whole decarbonisation options for efficient and Consumer choices today and in the future will influence • • Key Developments –External

meet the needs of consumers. the needs meet improvementsservice are well planned and best available on the energy system and that upcoming is transparency about the that digital are services and Action Plan guidance to help ensure that there of Digitalisation draft early an issued Ofgem Strategy work together to improve data and openness visibility. to needs industry that the energy recommendations EnergyThe Data Taskforce made clear

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 18 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 19 Digital TransformationDigital • • • • • Key Developments –within the ESO Platform programme. flexibility assets across T&D. learnings The are now being fed into our Data &Analytics We finalised our RecorDER project, which created ablockchain-based register for We continued to develop our Data Portal, acentralised repository for all published data. publishing to and efficiently. new quickly and add datasets will allow real-time to access all our operational data, allowing usto automate data We set the foundations building to start acentral Platform, Data and Analytics which in forecasts (seeuncertainty study). case to better system understand characteristics, or to bebetter prepared to deal with ESO Innovation invested heavily in this space, largely in advanced modelling projects We have published our new Digitalisation Strategy and Action Plan. • • • • • for InnovationOpportunities

volumes of data which drives our work? How we can utilise self-cleaning data techniques to help usmanage the increasing withengineers all the information they in manner? efficient an need We will work on the Control Room of the Future –how we can provide our control systemas continue characteristics to complex? increasingly get How we can continue to enhance our power system modelling capabilities, in the Control Room?decision-making all of our activities, from long-term network planning, to market operation, to real-time Where the can application of AIand machine learning techniques contribute across tostarting pull together the enduring system. This will bealarge programme of work, researching and testing different elements before Our ultimate goal is to build aDigital Twin of both the power system, well as markets. as

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 19 Digital Transformation

Case study: Control REACT Innovation Strategy 2021Innovation Strategy 20 Control REACT is a project exploring The Control REACT project team are developing a tool that By analysing control room information, we can how advanced data analytics and insights utilises large amounts of operational data from the control create fine, granular data sets for use across room. This historic information is extracted into a programme ESO to inform the running of the network.” can be used by our control room to that can visualise, query and analyse forecasting errors to - Gabriel Griffin-Booth, identify forecast errors and uncertainties, help engineers improve future forecasting and planning to Senior Analyst, Commercial Development.

understand their cost impacts, and balance the system more effectively. National Grid ESO / 2021/22 for ESO Innovation Priorities ultimately make informed decisions to The next step in the project is to add associated costs to improve the operational efficiency of forecasting errors, so control room operators can ensure the decisions they make are the most cost efficient, benefiting

Priorities Innovation ESO for 2021/22 the electricity system.

/ both ourselves and consumers. Control REACT is focused on the priority area of Once the project completes, the learnings from Control ‘Digital Transformation’ and how Big Data can be used REACT will feed into the development of an advanced to develop decision-making tools for the control room. probabilistic forecasting tool, allowing engineers to see These tools are increasingly important as the GB network and react to uncertainties in real time.

moves towards a low carbon future. Weather uncertainties 20 StrategyInnovation 2021 and poor visibility of embedded generation can create errors in forecasting and planning, making it harder to accurately predict supply and demand. Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 21 for net-zero. for market reforms that will facilitate this change we as strive function, and we to need and test understand the different of these changes have impact adeep on how markets distribute electricity; our relationship with the EU. All that of the companies models the business participants; transmission system; the number and makeup of market that generate and use electricity; the characteristics of the stakeholders changing: and is the technologies Everything Drivers solutions. system whole optimal the to find stakeholders and customers our work with and market design, for options long-term the understand We must with. we interact that markets capacity and energy wider the but markets our just not net-zero for – optimal always not are market designs current that us showed feedback, stakeholder as well Again, ascarbon operation. system in conditions 2020, zero- and everywhere’ ‘competition of ambitions our underpins purpose for fit are that markets Designing Future Markets net-zero ambitions. with their energy network is critical to achieving GB’s engagement and participation consumer increasing how we facilitate best can their participation in our markets; players of the system too. It that is important we identify won’t just passively use power –they active become can In addition, technologies smart mean many consumers • • • • Key Developments –External cross-border trade electricity to bedetermined. Cooperation Agreement, with many details on the UKThe EU left and entered anew Trade and toneed keep pushing for closer-to-real-time markets. Lower system inertia means things happen faster – distributed flexibility markets. ofBurst activity and innovation happening in spreads. high offer with bid and negative prices markets, balancing volatile and wholesale very in resulted renewable high and generation Low demand

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 21 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 22 Future Markets • • • Key Developments –within the ESO markets through Frequency Auction Trial. Response Continued investment in closer-to-real-time market. stability a ESO Innovation investigating is of the design services. response for day-ahead procurement of frequency launchSuccessful soft of Dynamic Containment Opportunities for InnovationOpportunities • • • • • •

entry conditions?entry there? What are their technical characteristics and What new potential consumer markets are out interactions? and designs capabilities we can use to future assess market What effective new market modelling tools and this?enable participate in our markets and how we further can To what extent highly can distributed small assets market, the on consumers? network, pricing and What are the potential impacts of locational marginal for smaller participants and new technology types? How to remove to barriers new and existing markets developed?and How could astability market bestructured

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 22 Future Markets

Case study: Frequency Response Auction Trial Innovation Strategy 2021Innovation Strategy 23 This project is trialling an innovative weekly The Frequency Response Auction trial also explores how to The weekly auction trial has given us format for the procurement of frequency make pricing consistent and competitive – trialling ‘pay as bid’ confidence that with the right internal systems and ‘pay as clear’ methods – to reduce the cost of operating in place, we can move to day-ahead (real time) balancing services, which will lay the the system, to benefit both ourselves and the consumer. procurement by 2023 for even greater cost groundwork for us to move to real time efficiencies and market participation.” To date, the project has explored and tested solutions

procurement in the future. - Yingyi Wang, /

for various user requirements from an auction platform. 2021/22 for ESO Innovation Priorities Balancing Markets Development Officer, It has also learned about participant bidding strategies and Addressing the priority area of ‘future markets’, the Frequency Electricity Market Change Delivery, National Grid ESO behaviours, as well as what internal systems and tools we Response Auction trial explores the feasibility of moving our must develop to transition from the weekly auction platform Priorities Innovation ESO for 2021/22 procurement of balancing services from a monthly tender / to a daily procurement option. process to a more inclusive and competitive weekly format, using an online auction platform.

Open to energy providers and consumers of all sizes, the weekly format encourages new supply and demand-side participation. Services are required for shorter term periods so more demand-side and renewable energy providers 23 StrategyInnovation 2021 can participate. Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 24 was 50% higher than the in period same 2019. we had to turn down to resolve constraints in summer 2020 expect to until see the mid 2020’s. volume The of generation toand higher North South power flows; something we didn’t operating the transmission system with lower levels of demand 2020 gave usaunique insight into some of the challenges of Drivers area. this in technologies and solutions market-led ofinnovative avariety to test looking weso are solution for best or for the environment, consumers, the economic most the always not is system the flows on peak to meet capacity network distribution and transmission new Building grows. capacity interconnection and wind GB’s as offshore significantly to increase expected are costs these and consumers, on impact have alarge constraints system transmission to manage costs The Constraint Management Constraint Key Developments –External • • •

constraints onshore.constraints will impact interconnectors Planned constraints in 2020 than previous years. Low demand resulted in much higher levels of Government’s plans for 40GW wind offshore by 2030. constraints, this is set to continue with the Greater renewable generation causing more

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 24 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 25 Constraint Management Constraint • • • • • • Key Developments –within the ESO rising the fastest. the rising to south transfer of power they as are the biggest and plan which focuses initially on the with issues the north We have published a5-point constraint management fully dedicated to it. management issue by creating internal an task force We are looking at aggressively tackling the constraint of voltage and thermal constraints. Invested in innovation looking at improving forecasting Pennines areas. for managing constraints in the Mersey and ConstraintsLaunched Pathfinders to solutions seek heating demand response in Scotland. novel solution for reducing constraints via domestic 4D innovation Heat a at completed, looking project boundaries. transmission increase significantly due to high flows across the showedETYS that constraint costs are expected to • • • for InnovationOpportunities

increase boundaries? increase automated response to asystem condition to increase transfer initially, or provide fast acting, How we can use data and new technologies to either sited at advantageous locations to reduce constraints? Can low-carbon hydrogen production beappropriately thermal, or mechanical) reduce year-round constraints? How long-term can energy storage (electrochemical,

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 25 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 26 (e.g. heat, power, industry). transport, and the multiple gas types) and the sectors this supports system awhole, as across multiple vectors (i.e. electricity present uswith to acrucial opportunity consider the energy the on distribution networks), for flexibilitygas (particularly systems’ with electricity on combined reliance transport, and of heat the decarbonisation around conversation ongoing The Drivers technologies. smart-home and heating, transport, hydrogen, of areas the in particularly period, regulatory next our in space this in effort invest significant will and industry, the in position unique our We recognise transition. energy to the approach whole-system holistic, a delivering in role aleading to taking We committed are Whole Energy System Energy Whole • • • Key Developments –Internal • • Key Developments –External • heating could solve could systemheating constraints. whole network Completed the 4D Heat project, looking at how electric decarbonisation. of heat System Gas Grid Operator looking at modelling the future We have innovation an with National launched project evolve to demand. manage uncertain looking atreport, how the whole energy system must working second its on work theBridging gap programme Hydrogen is akey in the priority Prime Minister’s 10-Point Plan with ambition an for 5GW of H Strong signals from for the BEIS Department and that Ofgem energy transition holistic needs and collaborative approach. installations annually by 2028, and aban on new petrol/diesel vehicle by sales 2030. Electrification of also played heat and transport role important an in the 10-Point Plan, with atarget of 600,000 heat pump • • • for InnovationOpportunities electricity networkelectricity other as sectors decarbonise? What flexibility becreated can for services the modelling. and studies, feasibility Hydrogen assessment, impacts (NOA), Competition? Early and work with FES, Network Operability Assessment across all sectors and incorporate this into our How we can model the whole energy system

capacity by 2030. capacity

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 26 Whole Energy System

Case study: 4D Heat Innovation Strategy 2021Innovation Strategy 27 The 4D Heat project has delivered Using an off-gas grid area in Skye and extrapolating it As part of a wider combination of activities, a feasibility study to explore how to analyse the potential for 50-100k off-gas households residential heating demand can be used as a tool in Scotland, the 4D Heat project team looked at whether to manage constraints on the transmission network off-mains gas homes in Scotland could residential heating demand could be used to absorb excess in Scotland and help ESO to use more of the power use wind power for domestic heating to power generated by wind turbines, rather than paying generated from wind turbines while lowering energy costs for consumers.” ease constraint and congestion issues providers to stop producing electricity. / 2021/22 for ESO Innovation Priorities - Sean Williams and Thomas Petty, on the network. The 4D Heat project concluded that with a collaborative Economics Engineers, Network Development. approach to market reform, the installation of smart controls National Grid ESO 4D Heat looks at the priority of Constraint Management, and the introduction of new market tariffs, residential Priorities Innovation ESO for 2021/22

/ specifically in Scotland where there are notable transmission demand could become a potential market participant to constraints as well as issues relating to the cost and ease constraint issues in Scotland and help us move inefficiency of wind generation curtailment. to a decarbonised electricity system. The team’s analysis also used a Whole Energy System approach, looking at how to use residential heating to solve a transmission constraint issue, without increasing costs for 27

StrategyInnovation 2021 ourselves, DSOs or end users. Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 28 generators to operate safely. it more difficult for both synchronous and non-synchronous voltage fault stability, and ride-through less changes, makes and is becoming stable. less This results in faster system frequency synchronous generation is capacity decreasing, and the system weAs transform to system, electricity azero-carbon Synchronous generation the stability supports of the system. Drivers system. electricity to azero-carbon we transform as investment of area asignificant remain will it and still done to be more is ESO, there but across area this in made been has progress significant that we feel and years two past the for priority top our been has Stability System System Stability • • • • for InnovationOpportunities • • Key Developments –External further support system support further operation? What kind of data, or metadata can system?inertia or automate them in order to keep up with alower How we can up some speed of our processes, in adecarbonised network? What tools we can develop to our systems support system?non-synchronous How we can model best stability in increasingly an generation records broken. records generation with new renewable decarbonise GB system has continued to rapidly generation. non-synchronous operating the network with ahigher of proportion us aunique insight into some of the challenges of lowThe demands experienced this year have given • • • • • Key Developments –Internal

Machines, to provide stability solutions. of innovative technologies, e.g. Synchronous Virtual complex systemunderstanding behaviour ability and Continued investment heavy in innovation into systems. monitoring inertia Currently in the of process developing the real-time first live reactive commercial power markets. eight-week technical trial and a12-week trial of the Power Potential project’s live trials were launched; an a broader range of providers. development of phase two which will to open the service Building on the launch of the Stability Pathfinder with the of 10,700MW of distributed generation. approved applications for capacity works combined a on AcceleratedThe Loss of Mains Change Programme has

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 28 System Stability

Case study: DETECTS & Totem Innovation Strategy 2021Innovation Strategy 29 The DETECTS & Totem projects are EMT studies require the collation of detailed models from By better understanding the risks that converters investigating how we can identify and third-parties that fully represent the behaviour and operational present, we can proactively plan ways to keep performance of their equipment as well as the detailed the system stable while pushing forward with understand the stability risks associated modelling of every asset on the electricity system, from our strategy to get more renewable generation with low carbon generators being connected cables to generators. As these studies are complex and onto the network.”

to the transmission network. time-consuming to run, DETECTS is also exploring alternative - Djaved Rostom, / 2021/22 for ESO Innovation Priorities techniques that could simplify the analyses. Balancing Markets Development Officer, Addressing the priority area of ‘System Stability’, DETECTS is Electricity Market Change Delivery, National Grid ESO As more asset data is secured from third parties, DETECTS helping us to understand the risk to the network of a sudden will start running phased EMT analysis and experimenting with Priorities Innovation ESO for 2021/22 drop in frequency caused by converter-based equipment / generic models where specific data isn’t available. The project such as wind turbines, interconnectors, etc. interacting and will also be devising guidance notes on how and when to run tripping offline. analysis for optimum results. To analyse the likelihood of such an event, DETECTS will be running EMT (electromagnetic transients) studies on a test area of the network (SE England). In parallel, TOTEM is developing a complete GB network model, 29 StrategyInnovation 2021 giving ourselves and Transmission Operators (TOs) the capability to run EMT studies for all areas in the future. Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 30 These couldThese lead to dramatically different behaviours. end-user emerge. models business and new technologies as out supply and demand forecasting are becoming harder to carry Long-term difficult. increasingly demand and supply electricity complex usage patterns, makes short-term forecasting of with networks, more combined electricity on generation forecasting. lack The of visibility of intermittent, embedded both considers This priority short-term well as long-term as Drivers reliably. system the operate we can that to ensure up stepped be must area this in capabilities our demand, with the rise in variable, renewable generation and supply forecast to accurately ability our on based is real-time in system the Balancing processes. our into techniques data big and ML, AI, work to incorporate ongoing our with progress big making we are where area an is Demand and Supply of Forecasting Forecasting Demand and Supply • • • Key Developments –Internal • • Key Developments –External may have demand. and supply on profiles and the impacts that Vehicle to (V2G) Grid Completed aproject charging to EV understand techniques. data big of innovation projects incorporating AI, and ML, forecasting, solar, particularly realised through asuite Improvements short-term in renewable generation Roadmap. Strategic We published the Platform for Energy Forecasting we must this understand new of demand type and how it will impact on system operation. Increasing urgency for the electrification of sectors outlined heat and transport in the Energy White Paper means Renewable generation records continue to bebroken –forecasting wind and solar more becomes important. • • • • for InnovationOpportunities

techniques into our forecasting processes? How we integrate can further AI, and big ML, data into capabilities? our generation sources, such wind as and solar, How we can bring now-casting of weather-dependent on controlerror room actions? How we can better the understand impact of forecast like for different demographics?. operation? What do their demand profiles look electric heat) actually behave during normal How do of new consumer types demand (EVs,

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 30 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 31 those of emerging Distribution System Operators (DSOs). to us, increasing competition in our markets well as to as Many of these new resources provide can valuable services and transforming the role of Distribution Network Operators. distribution networks, turning them into active networks New decentralised energy resources are connecting to Drivers year. past overus the from efforts collaborative and investment significant seen has which area an distribution, and transmission across aligned be can practice best and markets, how on products, focuses System Electricity Whole Whole Electricity System Electricity Whole • • • • Key Developments –Internal • • Key Developments –External (TraDER, Piclo Flex Exchange). with BEISCollaboration FleX Competitionwinners to issues. solve location-specific Programmes around with GB DNO partners Continued work on Regional Development projects. demonstration DNO-led in participation dispatch, and procurement ESO-DSO Co-ordinated innovation e.g. Power Potential, RecorDER, system investmentSignificant electricity whole in (see WES Development paper). delivery of whole system electricity outcomes Widespread activity across ESO to support role for us in whole system whole in for us role coordination. publishedOfgem its Review of GB Energy System Operation –this sets out apotentially greater planning. system and operation ENA’s Networks Open project continues to develop frameworks for DSOs, well as for as whole electricity • • for InnovationOpportunities

which incorporate both ESO and DSO data? Can we build more complex whole system models Regional Development Programmes. though distribution networks and both transmission Joint innovation to affecting solve projects issues

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 31 Innovation Strategy 2021 / ESO Innovation Priorities for 2021/22 32 restore the system. the restore that we maintain, can and improve on our capability to thermal generation. New solutions to are needed ensure ofwill the away shift decrease part as from conventional availabilityThe of conventional providers service Black Start Drivers fromstart distributed energy resources (DER). black for barriers insurmountable no are there that shown has Restart Distributed project innovation ongoing our and for us RestorationSystem a remains responsibility vital System Restoration • • Key Developments –Internal Key Developments –External • of the 132kV/33kV network. 11kV an place, where part re-energised generator Distributed Restart’s successful live first trial taken process. procurement the Midlands,and following competitive a We awarded six contracts for SW England to provide services. Black Start Increasing focus on the climate agenda accelerates the to need find low-carbon alternatives • • for InnovationOpportunities

telecoms on the live power system. Testing automated end-to-end and controllers toissues beaddressed. Distributed trials may Restart uncover further

2021 Strategy Innovation 2021/22 for Priorities Innovation ESO / 32 Portfolio Analysis

In the 12 months, from April 2020 to March 2021, we have once again Figure 1.1

committed our full Network Innovation Allowance (NIA) funding to 2019/20 Portfolio Analysis NIA Spend (£m) Innovation Strategy 2021 tackling our strategic priorities. We’ve engaged with a wider range 0 0.5 1 1.5 2 33 of partners and delivered a balanced portfolio of projects from System Stability early-stage research through to demonstration. Whole Energy System Digital Transformation Our investment this year saw the completion of 10 projects, continued delivery of 20 and the start Future Markets

Portfolio Analysis Portfolio of 9 new projects that align to our innovation priorities. / / Forecasting Supply & Demand Portfolio Portfolio Analysis All of our projects address more than one priority area. Figure 1.1 indicates the level of effort Whole Electricity System and funding we are allocating against our priorities and shows that we are broadly following the Constraint Management prioritisation that we set out at the beginning of 2020/21. System Stability, our top priority for last year, and Digital Transformation both received the most direct attention. One significant outlier is System Restoration

that we are investing less heavily than we anticipated last year on Whole Energy System projects. 0 2 4 6 8 10 12 33 No. of Projects

Innovation Strategy 2021 Strategy Innovation This is something we aim to address in the next regulatory period. NIA Spend No. of Projects Innovation Strategy 2021 / Innovation in RIIO-2 34

Innovation in RIIO-2 Innovation in larger, projects. impact higher and risk, higher control will create in investment more certainty and allow usto collaborate with third on parties implemented into ongoing activities. Allowing these funds to flexibly beused throughout the price delivering the outcome best for while consumers increasing the number of solutions that be can This increased funding level will allow usto much more innovation support across the industry, to evaluate the work and to trigger the option to request additional funding in April 2023. the five-year of period RIIO-2. We will then revisit this amount in 2years, together with Ofgem, We agreed with that Ofgem our level of NIA funding should increase initially to £23m over to to in the past unlock the potential truly of our power system. we than have stakeholders able been industry and of suppliers range innovation more supporting in with collaboration awider projects, set up to deliver Put what is needed. simply, we of capable be must for structure ESO Innovationefficient RIIO-2in maketo sure are we is clear. We have to with Ofgem deliver worked an in partnership of to by scale The the challenge operation achieve 2025 zero-carbon

Innovation Strategy 2021 Strategy Innovation Innovation in RIIO-2 in Innovation / 34 Innovation Strategy 2021 / Working together: meet the team 35 Working together: meet the team details of our current innovation ofdetails our current portfolio. team would happy be to to speak you share and innovation works, process the ESO Innovation If you’d like toabout the find out more way our Manager Data & Digitalisation Head of Innovation Strategy Rhiannon Calado Carolina Tortora Manager Strategy & Stakeholder Cian McLeavey-RevilleCian Nicholas Bentley Bentley Nicholas Graduate Manager Pipeline Development Manager Portfolio Delivery Manager Portfolio Joshua Visser Geoff Down Geoff

increasingly complex challenges facing the energy industry and society. and industry facing complexincreasingly the energy challenges ones. All thesethird projects share acommon party goal: to solve the provides more information on how we lead innovation projects and support innovation projects too. Our publication ‘Innovating with the System Operator’ We’re always on the look-out for new ideas and opportunities toon partner

2021 Strategy Innovation team the meet together: Working / 35 Get in touch

Contact the team: box.SO.innovation@ nationalgrid.com

Visit our website: nationalgrideso.com/ innovation