Energy Networks Association. Electricity Demand Side Response Working Group. Demand Side Response Shared Services Framework Concept Paper

Energy Networks Association Electricity Demand Side Response Working Group Demand Side Response Shared Services Framework Concept Paper For Industry Consultation

Contents Executive Summary 3 1 Demand Side Response 7 1.1 Introduction 7 1.2 Definition of demand side response 7 1.3 Document, objective, aim and scope 8 1.4 Your views 9 1.5 Structure of the document 10 2 Demand Side Response Value Chain 11 2.1 Introduction 11 2.2 Demand side response value chain 11 3 Demand Side Response Shared Service Framework 15 3.1 Introduction 15 3.2 DSR sources 15 3.3 DSR shared service framework: principle 15 3.4 DSR shared service framework: pathway concept 16 3.5 DSR shared service framework: the alignment path 17 3.6 DSR shared service framework: the asset sharing path 19 3.7 DSR shared service framework: summary 20 3.8 DSR shared service framework: context 21 4 Way Forward 22 4.1 Next steps 22 4.2 Your views 23 Appendices A.1 ENA Electricity Demand Side Response Shared Services Group Terms of Reference 24 A.2 Low Carbon Network Fund 26 A.3 Energy Networks Association 28 A.4 Future DSR Utilisation Strawmen 29 A.5 Glossary 35 Contents Page 2

Executive Summary Introduction The electricity sector is undergoing significant change as a key facilitator in the transition to a low carbon economy. The sector, and in particular the Distribution and Transmission network companies, are having to rethink how they intend to build, operate and maintain the electricity networks. An area of significant interest to the network companies is Demand Side Response (DSR) whereby customers choose to respond to a signal to change the amount of energy they consume from the electricity network at a particular time. DSR has the potential to contribute significantly in support of the transition to a low carbon economy. It has the potential to enhance security of supply, contribute to sustainable energy development through facilitating the low carbon technology roll out and can have a positive (reduction) impact on consumer bills (if managed/designed appropriately for consumers). Aim and scope The Energy Networks Association (ENA) Electricity Demand Side Response Shared Services group was established to provide an electricity network operator (distribution, transmission and system) perspective of how DSR could be utilised by different parties. It sets out a potential sharing framework under which the electricity network operators are able to jointly access DSR resources, describing the associated benefits and areas for further consideration. The framework focuses on how network companies can maximise the DSR value chain within the price control periods for RIIO-T1 and RIIO- ED1, with particular emphasis on Distribution Network Operators (DNO) and National Electricity Transmission System Operator (NETSO). The group acknowledges that there is significant debate and focus on DSR through various industry forum and consultation. The group s work provides a network perspective on how to realise the value of DSR across multiple contractual parties which adds to and informs the industry discussions on DSR. Given the existing market arrangements, the pending introduction of the domestic smart meters and remit of the network companies price control, the scope of the shared services framework is focused on network companies developing DSR services to the Industrial and Commercial consumers. Demand side response value chain The concept of DSR is not a new one, as consumers have always had the potential to shift their demand and have benefited from doing so. This potential is now increasing for a number of reasons as set out below: impact of heat and transport electrification; impact of variable electricity supply from renewable generation; impact of an increase in locally connected generation; innovation in DSR technologies and sources; changing electricity use; and introduction of smart meters. DSR encompasses many types of changes in energy consumption with the value it can provide divided between the different parties in the supply chain. From an electricity network owner and system operator perspective, DSR is a tool which has the potential of being more widely used to assist in: balancing supply and demand in electricity networks; Executive Summary Page 3

deferring and/or avoiding network investment; facilitating earlier connection (of low carbon technologies); and addressing network constraint issues. From a wider market perspective, DSR is a tool which may be utilised by market participants to manage their contractual position as an alternative option or in conjunction with other commercial arrangements e.g. procuring electricity direct from power stations, in order to: minimise or hedge commercial exposure in the electricity market; and/or maximise commercial opportunities in the electricity market e.g. sell products or services to other market participants. Demand side response value chain barriers and conflicts Current potential issues which may hinder the true value of DSR being achieved across the entire value chain arise from the need to reflect the increased interest from different parties within the current DSR market; financial incentive differentials between the various DSR service procurers; service contractual and commercial misalignments; a variety of technical standards for metering, communications and auditing; and low customer awareness of the value and usage of DSR services. The proposed DSR shared services framework will facilitate multiple parties to access the DSR resource enabling the true value of the DSR to be realised and assist in the removal of the barriers currently experienced in the DSR market. Demand side response shared service framework The proposed shared service framework considers how Network Operators (NO) and the National Electricity Transmission System Operator (NETSO) could procure and utilise DSR services from the same DSR provider. The proposed framework is based on two key elements: when notification of the DSR service requirement is declared; and which party receives the benefit from the DSR service when utilised. When the benefit from the DSR service is exclusive to one party, the framework proposes that an Alignment Path is most appropriate. The circumstance when the alignment path may be utilised is outlined below: System Operator (SO) energy reserve products, Network Operator pre-fault service: the NO required the DSR resource to confirm their availability for pre fault conditions, DSR resource not available for selection by the SO. In circumstances when the DSR service has no detrimental impact on either party (NO or SO), the framework proposes that an Asset Sharing Path is most appropriate. The circumstance when the resource sharing path may be utilised is outlined below: System Operator energy reserve products, Network Operator post-fault service: both parties require access to the DSR resource with a single dispatch of the resource meeting both parties requirements; no detrimental impact. Executive Summary Page 4

Alignment and asset sharing paths The Alignment Path is considered in circumstances where the benefit of utilisation of the DSR is exclusive to one party i.e. there is only benefit to one party from the use of the DSR resource (e.g. for a defined time period). The proposal focuses on the alignment of the peripheral aspects of the shared service framework rather than the simultaneous accessing and/or utilisation of the DSR resource. In circumstances when the DSR services has no detrimental impact on either party (NO or SO), the framework proposes that an Asset Sharing Path is most appropriate. Both pathways, outlined by this proposed shared service framework, advocate freedom of commercial choice for the providers of DSR resources. The proposed framework is designed to facilitate greater opportunity for the DSR provider which in turn could bring greater choice and associated cost benefits to DSR service procurers and the end consumer. The proposals, irrespective of path, will enable increased market awareness and opportunity for service providers whilst maintaining commercial freedom for DSR service procurers given the individuality of DSR usage within their company. A summary of the proposed shared service framework and key aspects of the two paths is provided in the table below. DSR Shared Services Framework: Summary DSR Shared Service Framework Pathways Alignment Path Benefit to one party from the use of the DSR resource (for a defined period of time). Introduction of hierarchy of service usage with NO having first refusal of DSR resource. Possible regulatory implications of the SO potentially having to purchase and utilise additional, potentially, more expensive options. Asset Sharing Path Benefit to multiple parties by the simultaneous use of the DSR resource. Reduces the requirement for service provider to procure additional DSR services. Requirement for clearly defined monetary flows for the payment of the DSR service by the appropriate company Requirements for clearly defined data exchange arrangements between the network companies and the DSR service provider Requirement for clearly defined and complementary contractual arrangements between the NO, SO and the DSR service provider. Clarity as to when the market accounts for NO use of the DSR resources. Although there is a difference as to when and how the different paths are utilised, both of the options advocate consumer choice and provide increased value for money for end customers. The proposed DSR Shared Service Framework provides a pragmatic approach for developing the DSR market and ensuring that the value of DSR is accessible by the various market participants. DSR shared service framework context The proposed DSR shared service framework is a concept proposal, developed and published to facilitate wider industry debate in this key area. It is acknowledged that the proposed framework will required additional consideration, development and refinement if the concept was deem to be suitable and worthy of further, more detailed, deliberation by the relevant industry parties. The proposed framework pathways represents a starting for the next stage of development, when the practicality and feasibility of the proposals e.g. from a contractual, commercial data exchange Executive Summary Page 5

perspective, is further considered to ensure that proposals could be successful implemented within the current market arrangements. Way Forward The development of a shared services framework could result in tangible benefits to the electricity market place and ultimately the end consumer by: revealing the value of DSR from a network perspective; clarifying interaction between network companies; raising awareness of market opportunities to (new and existing) DSR providers; and facilitating increased accessibility of DSR resources to the electricity market. The proposed DSR shared service framework provides a pragmatic approach for developing the DSR market and ensuring that the value of DSR is accessible by the various market participants. We would like to hear the views of interested parties in relation to any of the work described in this document. We would especially welcome responses to the specific questions which we have set out at within the document. Responses should be received by Friday, 16 th May 2014 and should be sent to: anthony.bivens@energynetworks.org. Executive Summary Page 6

Chapter One Demand Side Response 1.1 Introduction The electricity sector is undergoing significant change as a key facilitator in the transition to a low carbon economy 1. The sector, and in particular the Distribution and Transmission network companies, are having to rethink how they intend to build, operate and maintain the electricity networks. An area of significant interest to the network companies is Demand Side Response (DSR) whereby customers choose to respond to a signal to change the amount of energy they consume from the electricity network at a particular time. DSR has the potential to contribute significantly in support of the transition to a low carbon economy. It has the potential to enhance security of supply, contribute to sustainable energy development through facilitating the low carbon technology roll out and can have a positive (reduction) impact on consumer bills (if managed/designed appropriately for consumers). The concept of DSR is not new, with some end customers, (particularly in the non-domestic sector), already benefiting from using DSR as part of their business activity (predominantly at TRIADS 2 on the National Electricity Transmission System (NETS) 3 ) and/or providing DSR services to a range of market participants, either directly or through aggregators acting as intermediaries 4. There are also a number of initiatives trials currently underway to explore further the benefits of DSR to a wider range of users and providers 5. These projects are outlined in Appendix 2 with additional information available on the ENA s Smarter Network Portal (further information is in Appendix 3). 1.2 Definition of demand side response There are many definitions of DSR depending on the context in which it is referred to. For the purpose of this document, DSR is defined as a deliberate and dynamic change in electrical power demand in response to a specific signal (by the user or 3 rd party) as seen by the electricity network (at 11kV and above) from the demand that would otherwise have been expected. This may be either a shift in demand from one time period to another or a permanent change of electrical power usage. Changes may be put into effect by either managing electrical load or by the self-supply of electrical load from local generation sources enabled by direct control and/or market signals. 1 http://ec.europa.eu/energy/renewables/index_en.htm http://www.theccc.org.uk/publications/ 2 The TRIAD refers to the three highest demand days that were experienced by the system during the previous winter, separated by ten days. National Grid uses the Triad to determine demand tariffs. http://www2.nationalgrid.com/uk/industry-information/system-charges/electricity-transmission/transmission-network-use-of- System-Charges/Tools-and-Data/ 3 http://www2.nationalgrid.com/uk/our-company/electricity/ 4 http://www.sustainabilityfirst.org.uk/docs/2012/sustainability%20first%20-%20gb%20electricity%20demand%20- %20Paper%204%20%20What%20demand%20side%20services%20can%20provide%20value%20to%20the%20electricity%2 0sector%20-June%202012.pdf 5 https://www.ofgem.gov.uk/network-regulation-%e2%80%93-riio-model/network-innovation Demand Side Response Page 7

Under this definition, DSR only occurs because the consumer has pro-actively chosen to take part in a DSR programme and does not include planned load shifting to avoid price differential periods such as those that would normally be associated with Time of Use tariffs 6. 1.3 Document objective, aim and scope 1.3.1 Objective 1.3.2 Aim The Electricity Networks Association (ENA) 7 Electricity Demand Side Response Shared Services group was established to provide an electricity network operator (distribution, transmission and system) perspective of how DSR could be utilised by different parties. The group has discussed: 1.3.3 Scope how DSR is currently utilised by network owners and operators; how it could be utilised in the future and the associated benefits; and how DSR resources could be shared by network owners predominately. The group s remit is under the governance of the ENA s Energy Networks Future Group 8. The group s terms of reference can be found in Appendix 1. This document gives an overview of how DSR is currently utilised by network operators and how the utilisation of DSR may develop in the future. It sets out a potential sharing framework under which the electricity network operators are able to jointly access DSR resources, describing the associated benefits and areas for further consideration. The proposed shared services framework is outlined in Chapter 3. The group acknowledges that there is significant debate and focus on DSR through various industry forums 9 (notably the Smart Grid Form 10 Work Stream 6 11 ) and consultation (Ofgem s consultation on creating the right environment for demand side response 12 ). The group s work provides a network perspective on how to realise the value of DSR across multiple contractual parties which adds to and informs the industry discussions on DSR. The aim of developing a shared service framework for DSR is to avoid unnecessary competition between electricity network operators for access to DSR participants. Competition for exclusive rights to a DSR resource may escalate costs associated with DSR services and limit the expansion of the DSR market, potentially resulting in the most cost effective solution not being implemented. The framework focuses on how network companies can maximise the DSR value chain within the price control periods for RIIO-T1 13 and RIIO-ED1 14, with particular emphasis on Distribution Network Operators (DNO) and National Electricity Transmission System Operator (NETSO). 6 http://www.which.co.uk/switch/energy-advice/energy-tariffs-explained 7 http://www.energynetworks.org/ 8 http://www.energynetworks.org/electricity/futures/smart-grids.html 9 http://www.energynetworks.org/modx/assets/files/news/publications/smart_demand_response_a_discussion_paper_july12.pdf 10 https://www.ofgem.gov.uk/electricity/distribution-networks/forums-seminars-and-working-groups/decc-and-ofgem-smart-gridforum 11 https://www.ofgem.gov.uk/electricity/distribution-networks/forums-seminars-and-working-groups/decc-ofgem-smart-gridforum/work-stream-six 12 https://www.ofgem.gov.uk/electricity/retail-market/market-review-and-reform/smarter-markets-programme/demand-sideresponse https://www.ofgem.gov.uk/publications-and-updates/creating-right-environment-demand-side-response https://www.ofgem.gov.uk/publications-and-updates/creating-right-environment-demand-side-response-next-steps 13 https://www.ofgem.gov.uk/network-regulation-%e2%80%93-riio-model/riio-t1-price-control 14 https://www.ofgem.gov.uk/network-regulation-%e2%80%93-riio-model/riio-ed1-price-control Demand Side Response Page 8

Given the existing market arrangements 15, the pending introduction of the domestic smart meters 16 and remit of the network companies price control, the scope of the shared services framework is focused on network companies developing DSR services to the Industrial and Commercial consumers. The group acknowledges that there are a number of regulatory, contractual and commercial issues that have to be considered and addressed before any proposed DSR shared service framework could be fully implemented. This requires further consideration and collaboration between the relevant parties. The group have also identified the following areas which do not form part of the group s remit and are therefore, out of scope of this document: Defining the future role of a Distribution System and Transmission System Operators 17. There needs to be a wider, broad ranging discussion on this topic requiring involvement of interested parties across the electricity market. Demand side response with domestic customers. There is vast potential for DSR at the domestic level through the pending roll out of residential smart meters 18 and the roll out of new electrical loads such as those for charging electric vehicles. This, however, will be more applicable in the latter part of these price control periods and the next price control period i.e. RIIO-T2 and RIIO-ED2 with any sharing arrangements developed having inherent flexibility to incorporate the domestic sector in the future. Interaction with other industry participants. This paper does not consider sharing of DSR between the network companies and suppliers although the group acknowledges this as a valid option which will require discussion and agreement with the wider industry. European Code changes. 1.4 Your views The group acknowledges that there is ongoing development of the European electricity industry codes which encompass DSR. This is an area which may require further consideration, depending on the final wording of the proposed code changes. The ENA Electricity Demand Side Response Shared Services group would like to hear the views of interested parties in relation to any of the work described in this document. The group would welcome responses to the specific questions which we have set out within the document, please refer to Chapter 4 for additional information on how to respond. 15 http://www2.nationalgrid.com/uk/services/balancing-services/ 16 https://www.ofgem.gov.uk/electricity/retail-market/metering/transition-smart-meters 17 https://www.ofgem.gov.uk/electricity/transmission-networks/integrated-transmission-planning-and-regulation 18 https://www.ofgem.gov.uk/electricity/retail-market/metering/transition-smart-meters Demand Side Response Page 9

1.5 Structure of the document The document is structured as follows: Chapter 2 explains value chain for DSR; Chapter 3 outlines the proposed shared services frameworks for DSR; Chapter 4 describes the proposed next steps for the group and how to provide views on the issues and proposals raised in this paper; Appendix 1 outlines the terms of reference of the ENA Electricity DSR Shared Service Group; Appendix 2 provides a summary of relevant Low Carbon Network (LCN) Fund projects; Appendix 3 provides an overview of the ENA s Smarter Networks Portal Appendix 4 includes straw men of how perspective parties may utilise DSR going forward; and Appendix 5 provides a glossary of the key terms uses in the report. Demand Side Response Page 10

Chapter 2 Demand Side Response Value Chain 2.1 Introduction The value (monetary and usage) of DSR is specific to the various parties utilising the DSR service. This section outlines the value of DSR to different parties, with particular focus on electricity network operators and suppliers. The section also highlights the existing barriers and conflicts of maximising the DSR value chain within the existing market structure. 2.2 Demand side response value chain The concept of DSR is not a new one, as consumers have always had the potential to shift their demand and have benefited from doing so. This potential is now increasing for a number of reasons as set out below: Impact of heat and transport electrification. Heat and transport electrification will increase peak and annual energy demand on the networks. Impact of variable electricity supply from renewable generation. Increases in the amount of variable electricity generated from renewable sources will change the pattern of demand and supply on the networks. Impact of an increase in locally connected generation. Locally connected generation requires the networks to cater for greater variation of power flows than those associated with demand. Innovation in DSR technologies and sources. This leads to improved functionality of DSR resources (control and dispatch). Changing electricity use. Consumers are changing the way in which the use electricity. Introduction of smart meters. This will open up opportunities for increased participation in DSR programmes by domestic and Small and Medium Enterprise (SME) site. 2.2.1 Demand side response value DSR encompasses many types of changes in energy consumption with the value it can provide divided between the different parties in the disaggregated supply chain (Figure 1). Figure 1: DSR value chain DSR value throughout the disaggregated supply chain Balancing Another flexible tool for balancing Capacity Another flexible form of providing adequacy Generation Reduction in average generation costs Networks A substitute for network assets Demand Side Response Value Chain Page 11

Networks From an electricity network owner and system operator perspective, DSR is a tool which has the potential of being more widely used to assist in: Balancing supply and demand in electricity networks. DSR can be used as a tool to balance power flows, other system dynamic parameters (e.g. frequency response, etc) and assist in emergency situations on the network which are likely to impact the system at localised points on the network. Deferring and/or avoiding network investment. The capability of DSR to reduce and/or shift demand may also defer investment on the electricity network by suppressing demand on the network from peak times or at times of network stress. Facilitating earlier connection (of low carbon technologies). DSR may be utilised to facilitate consumer connections to the network as a (short term) alternative to reinforcing the existing network infrastructure. Addressing network constraint issues. DSR can be utilised to reduce and/or shift demand on the electricity transmission and distribution networks. The utilisation of DSR in this matter could assist with the active management of constraints on the system (e.g. maintenance outage) at a local level (connection and/or boundary point) if designed and managed in an appropriate manner to avoid additional network constraints. Suppliers From a wider market perspective, DSR is a tool which may be utilised by market participants to manage their contractual position as an alternative option or in conjunction with other commercial arrangements e.g. procuring electricity direct from power stations, in order to: minimise or hedge commercial exposure in the electricity market; and/or maximise commercial opportunities in the electricity market e.g. sell products or services to other market participants. 2.2.2 Demand side response value summary Given that the value chain is divided between different parties, it is important to understand how DSR is currently utilised by parties and how this may change in the future as the electricity sector makes the transition to a low carbon economy: Table 1 provides a summary of the current use and value of DSR between the different industry parties. Table 2 provides further details and associated timescale of how DSR services may be use in practise by the different parties (Distributed Network Operator (DNO) and National Electricity Transmission System Operator (NETSO)). The information contained within Table 2 is for illustrative purposes only and should not be viewed as an exhaustive list. In addition, Appendix 4 provides a future perspective of how different parties (NETSO, DNO and Supplier) may use DSR going forward. Demand Side Response Value Chain Page 12

Table 1: Use and value of current DSR 19 Industry Party Use Value Supplier Balance energy position in market Value derived from DSR on a regular basis when suppliers needs to balance their energy portfolios System Operator Provision of balancing services Value derived from DSR on a regular basis. Value largely independent of location, except from some location specific constraint management purposes Transmission Owner Cost savings from reduced/deferred transmission network reinforcements and constraint management. Value derived from DSR infrequent. specific. Location Distribution Network Owner Cost savings from reduced/deferred distribution network reinforcements and constraint management. Value derived from DSR infrequent. specific. Location Table 2: DSR service requirements Energy Trading / Portfolio balancing Constraint management (system normal) Constraint management (system abnormal) Balancing Services Planning Time Contract Duration Energy Supplier Day ahead 1 year / fixed against supply contract DNO (pre-fault: static) Annual / long term 5yr Annual / long term 5 yr DNO (pre-fault : dynamic) Annual / long term 5yr Annual / long term 5yr DNO (post fault): instant Annual / long term 5yr Annual / long term 5yr DNO (post fault): planned Annual / long term 5yr Annual / long term 5yr NETSO 3 months 2 years 3 months 2 years Geo- Specific No Yes Yes Yes yes no Dispatch Notice Confirm Available 1 7 days Annual - quarterly ½ - 4 hours No notice ½ - 4 hours 6min 2 hours n/a As above 28 days + Annual Annual Week ahead Duration ½ - 2 hours 2 4 hours 2 4 hours <8 hours <8 hours ½ - 4 hour Penalty System pricing Yes Yes Yes Yes Yes Utilisation Availability & Availability Availability & Availability & Payment Utilisation only only Utilisation only Utilisation Utilisation Criticality Low Moderate Moderate High High High Driver Commercial Operational / commercial Operational / commercial Operational / Commercial Operational / Commercial Operational Although not explicitly included in Table 2, it is acknowledged that Transmission Network Owners (TOs) are considering how they could potentially utilise DSR in the future as low carbon and local generation become more prevalent 20. 19 Extract of Table 1 from Page 12 - https://www.ofgem.gov.uk/ofgem-publications/75245/creatingtherightenvironmentfordemandsideresponse.pdf 20 Chapter 4 Electricity Ten Year Statement: http://www.nationalgrid.com/nr/rdonlyres/df56dc3b-13d7-4b19-9dfb- 6E1B971C43F6/57770/10761_NG_ElectricityTenYearStatement_LR.pdf Demand Side Response Value Chain Page 13

2.2.3 Demand side response value chain barriers and conflicts Table 2 may assist with identifying potential operational conflicts between the various parties due to their differing functional requirements for DSR. Other current potential issues which may hinder the true value of DSR being achieved across the entire value chain arise from: the need to reflect the increased interest from different parties within the current DSR market; financial incentive differentials between the various DSR service procurers; service contractual and commercial misalignments; a variety of technical standards for metering, communications and auditing; and low customer awareness of the value and usage of DSR services. The proposed DSR shared services framework will facilitate multiple parties to access the DSR resource enabling the true value of the DSR to be realised and assist in the removal of the barriers currently experienced in the DSR market. Q1. Do you agree with the DSR service requirements for each potential industry parties? If 'no' please provide an alternative view including explanation. Q2. Do you agree that the electricity network operators should develop a shared services framework? Demand Side Response Value Chain Page 14

Chapter 3 Demand Side Response Shared Services Framework 3.1 Introduction This section considers a proposed shared service framework for DSR, the associated factors which are required to facilitate the framework. The degree to which these factors require deliberation will depend on the approach taken which is discussed in this section. 3.2 DSR sources The utilisation of DSR will require the owner and/or user of that DSR to change the way they operate and/or use the resource which will be providing the DSR service. A DSR resource may originate from a number of different sources e.g. alternative sources of generation to consumers changing their energy profile i.e. turning demand up or down. 3.3 DSR shared service framework: principles The DSR shared service framework incorporates a number of key principles which provides the baseline against which the proposed framework concept has been developed: Timeline The framework focuses on how network companies can maximise the DSR value chain within the price control periods for RIIO-T1 and RIIO-ED1, with particular emphasis on DNO and NETSO. It is acknowledged that the TOs are considering how they could potentially utilise DSR for their network requirements and may in the future take an active engagement and interest in DSR services. However given the associated time scales, the main focus of the framework is the interaction between the DNO and NETSO requirements and the DSR service provider in the immediate future. The term Network Operator (NO) and System Operator (SO) is used in the remainder of this document to represent a licensed network operator and the NETSO respectively. Volumes It is anticipated that in the short to medium term, the volumes and frequency of DSR used by the NOs will be small in comparison to that procured by the SO. If the volumes and frequency increased, the framework will be reviewed to ensure that it remain fits for purpose. Innovation The framework should facilitate innovation in how each party develops their DSR services given the individual specific requirements of the network companies (based on volumes and location). Multi Party Access and Interaction The framework considers the concept of more than one party (NO and SO perspective) accessing a resource which provides a DSR service. Consumer Choice DSR service providers should have the commercial freedom and final choice to participate in the provision of DSR services to as many network companies as they choose. Demand Side Response Shared Services Framework Page 15

3.4 DSR shared service framework: pathway concept The proposed shared service framework considers how NOs and the SO could procure and utilise DSR services from the same DSR provider. The proposed framework is based on two key elements: when notification of the DSR service requirement is declared; and which party receives the benefit from the DSR service when utilised. When the benefit from the DSR service is exclusive to one party (and precludes another party from using it), the framework proposes that an Alignment Path is most appropriate. In circumstances when the DSR service has no detrimental impact on either party (NO or SO), the framework proposes that an Asset Sharing Path is most appropriate. Figure 2 illustrates how the proposed shared service framework will differ from the current arrangements: Figure 2: DSR shared service framework current vs proposed arrangements Current arrangements Suppliers Energy Trading Network Operator Investment avoidance National Transmission System Operator Balancing services Portfolio balancing Constraint management Response Reserve Aggregator Proposed arrangements Suppliers Network Operator National Transmission System Operator Energy Trading Portfolio balancing Investment avoidance Constraint management Information sharing Balancing services Response Reserve Aggregator Demand Side Response Shared Services Framework Page 16

3.4.1 Alignment and asset sharing paths The Alignment Path is considered in circumstances where the benefit of using the DSR is exclusive to one party i.e. there is only benefit to one party from the use of the DSR resource (e.g. for a defined time period). The proposal focuses on the peripheral aspects of the shared services framework (e.g. procurement, contracting, consumer engagement) rather than answering the question of 'who benefits' from the use of the DSR resource. In circumstances when the DSR services has no detrimental impact on either party (NO or SO), the framework proposes that an Asset Sharing Path is most appropriate. Both pathways, outlined by this proposed shared service framework, advocate freedom of commercial choice for the providers of DSR resources. The proposed framework is designed to facilitate greater opportunity for the DSR provider which in turn could bring greater choice and associated cost benefits to DSR service procurers and the end consumer. 3.5 DSR shared service framework: the alignment path When the benefit from the DSR service is exclusive to one party, the Alignment Path is most appropriate. The benefit of the Alignment Path is in how procurement and utilisation of DSR services can be optimised to maximise the value of the DSR resources whilst acknowledging that parties (e.g. NO and SO) cannot simultaneously dispatch the resource to meet the requirements of the respective parties. A circumstance when the alignment path may be utilised is outlined below: System Operator energy reserve products, Network Operator pre-event service: the NO required the DSR resource to confirm their availability for pre fault conditions, DSR resource not available for selection by the SO. For example, in circumstances where a NO may wish to peak shave in the winter to avoid/defer network investment, they may wish to use DSR as a cost effective alternative. Here the NO has pre knowledge of the peak and can plan the necessary actions and 'reserve' the DSR for the pre-event (i.e the peak). In this situation, the DSR asset is locked out to the SO because of the known firm need of the NO. However during the summer, when the NO may not need the DSR service, it could be released for used by the SO and other parties. 3.5.1 Alignment path overview For the Alignment Path to be effectual, this pathway requires a hierarchy of service provision to be established for service procurers. The hierarchy will describe which party has preferential priority of access and usage of a DSR resource within a specific and pre-determined timeframe. Figure 3 provides an illustrative example of how the alignment path option may operate for network companies. The example outlines how the energy reserve products as procured by the SO and the network constraint products as required by a NO are mutually exclusive of each other (i.e. only benefit to one DSR user); with the NO requirements having precedence over the SO need. The hierarchy will enable the procurers of network services i.e. NOs to have first refusal of using the DSR resource (first order reservation proposed by the group to be a week ahead of DSR service utilisation). The SO would have option on the remaining DSR resources and/or the DSR resources option rights that have not been exercised by the NO (second order reservation) by the notification period. Demand Side Response Shared Services Framework Page 17

Service Requirement Figure 3: DSR shared service framework alignment pathway Month Ahead Week Ahead Day Ahead Within Day BM Gate Closure 1 st Order Hierarchy Network Services Selected Yes No 2 nd Order Hierarchy System Operator Services Selected Yes No For the Alignment Path to be effective there would need to be agreement on the timescales associated with the first and second order reservations. Issues that will potentially require additional consideration in order to agree on the notification timings are: Predictability of the advanced network requirements by the NO; and Risk of ineffectual use of DSR resources by the SO. The framework assumes that the SO products involving DSR can be firmed up closer to real time which is different from the current arrangements where the SO procures products in advance due to economic and security of supply reasons 21. For the Alignment Path to be effective, the SO must have confidence that it can procure the services required closer to real time. In addition consideration should be given when the network service is not exercised by the 1 st order reservation deadline and is subsequently required by the network for pre-fault actions which may impact the SO. Furthermore in circumstances when the 1 st order reservations for DSR resources are not (fully) utilised by the NO, consideration should be given as to how the resource may be made available for continued sharing (potentially through the 2 nd reservation route). The DSR providers will retain the option and choice of how they would operate within this proposed DSR shared service framework. The shared service framework and associated contractual agreements will appropriately address any shared access requirement to customer data and/or information (if appropriate and applicable). 3.5.2 Alignment path considerations The key benefit of this approach is the potential for increased procurement alignment which should enable the true economic costs of procuring DSR services to be reflected on the procuring party and facilitate the efficient procurement of the resources. From an end consumer perspective it will ensure the network companies to consider and utilise the most cost effective solution to their network/system issue. 21 http://www2.nationalgrid.com/uk/services/balancing-services/reserve-services/ Demand Side Response Shared Services Framework Page 18

The framework also proposes: separate contractual arrangements between the DSR service provider and the relevant network companies; separate procurement strategies for the procurement of DSR services by the network companies; separate dispatch mechanisms for utilisation of the DSR services by the network companies; clearly defined data exchange arrangements between the network companies and the DSR service provider; clearly defined and complementary contractual arrangements (inclusion of any data sharing requirements) between the NO, SO and the DSR service provider; and the network companies are not adversely affected (monetary or service requirements) by the proposal. 3.6 DSR shared service framework: the asset sharing path In circumstances when the DSR services has no detrimental impact on either party (NO or SO), the framework proposes that an Asset Sharing Path is most appropriate. A circumstance when the resource sharing path may be utilised is outlined below: System Operator energy reserve products, Network Operator post-event service: both parties require access to the DSR resource with a single dispatch of the resource meeting both parties requirements; no detrimental impact. In this situation the SO has a window of need (e.g. a balancing services window) but doesn't know when the need may occur. Likewise the NO knows there will be a need to use the DSR for a fault on the system but doesn't know when a fault may occur. Here there is no need for either party to hold the DSR from the other party as the DSR use could be mutually beneficial. 3.6.1 Asset sharing path considerations The key benefit of this approach is that the DSR resource is being used by multiple parties, negating the need for each service provider to procure additional DSR services and enabling more efficient use of the DSR resources providing increased value for money for end consumers. The framework also proposes: separate contractual arrangements between the DSR service provider and the relevant network companies; separate procurement strategies for the procurement of DSR services by the network companies; separate dispatch mechanisms for utilisation of the DSR services by the network companies; clearly defined data exchange arrangements between the NOs and the DSR service provider; clarity that the DSR resource is flexible and capable of fulfilling the contractual requirements of both the NO and SO; clearly defined and complementary contractual arrangements (inclusion of any data sharing requirements) between the NO, SO and the DSR service provider; Demand Side Response Shared Services Framework Page 19

clearly defined monetary flows for the payment of the DSR service by the appropriate network company; and clarity as to when the electricity market accounts for the NO use of the DSR resource. 3.7 DSR shared service framework: summary The proposals, irrespective of path, will enable increased market awareness and opportunity for service providers whilst maintaining commercial freedom for DSR service procurers given the individuality of DSR requirements within their company. Table 3 provides a summary of the proposed shared service framework and key aspects of the two pathways. Figure Table 3: DSR shared services framework: summary DSR Shared Service Framework Pathways Alignment Path Benefit to one party from the use of the DSR resource (for a defined period of time). Introduction of hierarchy of service usage with NO having first refusal of DSR resource. Possible regulatory implications of the SO potentially having to purchase and utilise additional, potentially, more expensive options. Asset Sharing Path Benefit to multiple parties by the simultaneous use of the DSR resource. Reduces the requirement for service provider to procure additional DSR services. Requirement for clearly defined monetary flows for the payment of the DSR service by the appropriate company Requirements for clearly defined data exchange arrangements between the network companies and the DSR service provider. Requirement for clearly defined and complementary contractual arrangements between the NO, SO and the DSR service provider. Clarity as to when the market accounts for NO use of the DSR resources. Although there is a difference as to when and how the different pathway are utilised, both of the options advocate consumer choice and provide increased value for money for end customers. The proposed DSR shared service framework provides a pragmatic approach for developing the DSR market and ensuring that the value of DSR is accessible by the various market participants. Q3. How do the pathway models interact with your understanding of how DSR is being proposed to be utilised by other parties such as suppliers, ESCOs, aggregators, 3 rd parties? Q4. How do the pathway models interact with other proposed DSR sharing frameworks that you may be aware of? Q5. Do you have a preferred option on the proposed paths as to how a shared services framework should be structured and operated? Please provide an explanation. Q6. From the point of view of the consumer, what do you see as the biggest barrier and the biggest incentive to participating in DSR programmes that adopt these models? (Please note the scope of the paths is limited to Industrial & Commercial consumers). Q7. How could the models be adapted to align with future DSR resources such as domestic consumers for example? Demand Side Response Shared Services Framework Page 20

Figure 4 provide a illustrative example of the how the two pathways may operate. Figure 4: DSR shared service framework flow diagram 3.8 DSR shared service framework: context The proposed DSR shared service framework is a concept proposal, developed and published to facilitate wider industry debate in this key area. It is acknowledged that the proposed framework will required additional consideration, development and refinement if the concept was deem to be suitable and worthy of further, more detailed, deliberation by the relevant industry parties. The proposed framework pathways represents a starting for the next stage of development, when the practicality and feasibility of the proposals e.g. from a contractual, commercial data exchange perspective, is further considered to ensure that proposals could be successful implemented within the current market arrangements. Demand Side Response Shared Services Framework Page 21

Chapter 4 Way Forward 4.1 Next steps The development of a shared services framework could result in tangible benefits to the electricity market place and ultimately the end consumer by: revealing the value of DSR from a network perspective; clarifying interaction between network companies; raising awareness of market opportunities to (new and existing) DSR providers; and facilitating increased accessibility of DSR resources to the electricity market. The proposed DSR shared service framework provides a pragmatic approach for developing the DSR market and ensuring that the value of DSR is accessible by the various market participants. This consultation aims to seek the views of stakeholders (industry and non industry) as to whether the ENA Electricity Demand Side Response Shared Services group has considered the issues and proposed pragmatic solutions to removing the current barriers to the multi-party use of a DSR resource. Any comments on the issues and proposals outlined in this document would be appreciated such that the proposals do not produce unintended consequences. The group will review the consultation responses and publish a next steps document in June 2014 taking into consideration the timelines and programmes of other groups looking into DSR. The group is minded to take some or all of the following steps, contingent upon whether significant issues are identified within the consultation responses or not: 1. Develop a common framework The group will consider whether to and/or how to combine the two shared service framework paths into a common framework. This could include, but not limited to, the following analysis: assess impact of DSR shared services framework patheways on existing processes; consider amendment options to existing contractual and commercial arrangements; clarify through desk top analysis the appropriate arrangements in the common framework. The group believes that this first step is readily achievable. 2. Understand the changes required to implement the proposed framework The group will develop a sensible delivery approach to implement the common framework taking into consideration how to engage with all stakeholders and embed the new arrangements. The group believes that this task is achievable. 3. Develop an implementation plan, potentially testing the proposed framework in the electricity market through a trial The group proposes to consider the development of a pilot study, potentially under an innovation funded project, which will test the delivery approach before developing a full deployment implementation plan. Q8. What would be the most effective method for the ENA to develop and test these proposed models? Next Steps Page 22

4.2 Your views The proposed DSR shared service framework provides two potential pathways by which multiple parties are able to access a DSR resource. The group is aware that a number of current and proposed forums/working groups are interested in the work of the ENA DSR Shared Services group. The group has provided regular internal updates to the Energy Networks Future Group, who oversee the work of the group, and externally to Workstream 6 of the Smart Grid Forum. We have also provided an ad-hoc report to the Smarter Demand Group within Ofgem and we expect that the proposed project to develop a DSR framework 22, led by Ofgem, will be keen to engage with the group. We would like to hear the views of interested parties in relation to any of the work described in this document. We would especially welcome responses to the specific questions which we have set out at within the document and which are replicated below. Q1. Do you agree with the DSR service requirements for each potential industry parties? If 'no' please provide an alternative view including explanation. Q2. Do you agree that the electricity network operators should develop a shared services framework? Q3. How do the pathway models interact with your understanding of how DSR is being proposed to be utilised by other parties such as suppliers, ESCOs, aggregators, 3 rd parties? Q4. How do the pathway models interact with other proposed DSR sharing frameworks that you may be aware of? Q5. Do you have a preferred option on the proposed paths as to how a shared services framework should be structured and operated? Please provide an explanation. Q6. From the point of view of the consumer, what do you see as the biggest barrier and the biggest incentive to participating in DSR programmes that adopt these pathway models? (Please note the scope of the paths is limited to Industrial and Commercial). Q7. How could the models be adapted to align with future DSR resource such as domestic for example? Q8. What would be the most effective method for the ENA to develop and test these proposed models? Responses should be received by Friday, 16 th anthony.bivens@energynetworks.org. May 2014 and should be sent to: Unless marked confidential, all responses will be published by placing them on the ENA website: www.energynetworks.org. Respondents who wish to have their responses remain confidential should clearly mark the document(s) to that effect and are asked to put any confidential material in the appendices to their responses. Any questions on this document should, in the first instance, be directed to: Anthony Bivens (Anthony.Bivens@energynetworks.org), Energy Networks Association, 6th Floor, Dean Bradley House, 52 Horseferry Road, London, SW1P 2AF. 22 The main proposal of the recently published consultation, Creating the right environment for demand-side response next steps December 2013. Next Steps Page 23

Appendices Appendix 1 Terms of Reference 1. Introduction Demand Side Response (DSR) is being activity discussed in many areas within the electricity market as a tool which may potentially be utilised by multiple parties to assist in: balancing energy portfolios; balancing supply and demand in electricity networks; deferring and/or avoiding network investment; and addressing network constraint issues. The Demand Side Response Shared Service Group will provide an electricity network operator (distribution, transmission and system operator) perspective of how DSR may be utilised by different parties and how DSR services could be developed in an inclusive manner that may potential allow multi-party use of a single DSR asset. 2. Purpose and Aim The purpose of the group is to gain an understanding of the potential synergies and conflicts regarding multi-party use of DSR resources. In particular the group will focus on gaining: An understanding about how DSR is currently utilised by the network owners and operators; An understanding about how DSR could be utilised (and the benefits to the different parties involved); and An understanding of how DSR resources can be shared. 3. Deliverables The group will have two key deliverables: i. Outputs The group will produce a report which will describe, from a networks perspective, how a DSR shared service model could potentially be developed. The report will provide: an overview of how DSR is currently being utilised by network operators and how the utilisation of DSR may potential develop in the future within the wide electricity market; a summary of a proposed shared service model (who uses it, when it is used and how is it used) along with the associated benefits, considerations and challenges; and a way forward identifying next steps in the initiative (including potential issues and challenges which would require resolution). The report will be externally published and will provide the platform from which to further the discussions on this topic with other relevant parties through the appropriate industry channel. ii. Reporting The group will report to the ENA Electricity Networks and Future Group (ENFG) and the Chair of the group will update the ENFG members at each meeting. Appendix 1 - Terms of Reference Page 24

The group will provide regular updates to DECC s and Ofgem s Smart Grid Forum Workstream 6, given the close interaction in topic area. 4. Membership and Logistics All ENA Electricity members, who have an interest in demand side response, will be invited to attend and actively participate in the group: Each ENA Electricity Member Company may appoint one or more representative(s) to sit on the group; The group will appoint an ENA Member Company representative to chair the group (nominally NGET representative); The secretariat for the Group will be provided by the ENA; Additionally the group may offer membership to external stakeholders (as and when appropriate). The group will meet on a regular basis and normally meetings will be held at the ENA Offices in London. Following each meeting, the ENA secretariat will ensure that a record of action notes is completed and where necessary documents are circulated and actions followed up. 5. Compliance The Group will at all times comply with the requirements of the 1998 Competition Act and will not deal with any matter which will or is likely to prevent, restrict or distort competition or constitute an abuse of a dominant position as construed within the Act. Appendix 1 - Terms of Reference Page 25

Appendix 2 Low Carbon Network Fund Table 4 provides a summary of Low Carbon Network Fund projects 23 that are considering demand-side response. Table 4: DSR LCN Fund Projects Project Name Project Description DNO Lead Customer-Led Network Revolution Low Carbon London SoLa BRISTOL Capacity to Customers Flexible Approaches for Low Carbon Optimised Networks Community Energy Action ECHO An integrated trial looking at how a combination of smart network technologies and flexible customer demand response can reduce the network costs associated with the mass take up of low carbon technologies. The project trials the impact of distribution use of system (DUoS) price signals on domestic and SME consumption through a number of innovative time of use, restricted hours and direct control trials, which are provided through suppliers. It also investigates the potential of industrial and commercial demand side response to reduce network costs. This project seeks to extract network learning from a variety of separate trials across the inner and outer London area. These include new commercial arrangements including time of use DUOS tariffs with domestic customers and demand response trials with industrial and commercial customers This trials the use of in-home battery storage to provide benefits to customers and aid the DNO with network management. The customer will be provided with a variable tariff to encourage electricity use at times of high PV generation and to use electricity stored by the battery when the network is heavily loaded. The DNO will be able to communicate with the battery to charge and discharge it to help with network management. This will develop and trial demand response contracts which will reduce the consumption of contracted customers on the relevant circuits following system faults, allowing the DNO to get all customers back online as quickly as possible. New connections customers will also be offered the option to sign up to a managed contract for a reduced connection charge. FALCON will trial a range of innovative solutions, including commercial agreements with industrial and commercial customers who agree to control of appreciable amounts of load in relatively short periods of time. The trials will identify market and commercial barriers to DNOs use of DSR and test the market for third party service providers. In particular the project is demonstrating options to address location specific constraint management. Outputs include bespoke contracts, back office systems and best practice guidelines. Working with five charitable energy agencies in different parts of England this project will test the effectiveness of different engagement techniques and interventions to reduce household energy demand through behaviour change. It adopts a community-based approach, monitoring impact on electricity consumption. This will be achieved through the collection and monitoring of local substation electricity demand data. A web portal will be available and a financial reward will be provided for each participating community, to help incentivise householders to take action. Working with the Energy Savings Trust, the project will utilise a number of off the shelf interactive plug in devices which enable the scheduling of loads for individual households. Financial incentives will be developed and sites monitored to gauge the uptake of demand response events. Each property will receive a number of devices which sit between the plug and the appliance to be controlled. The units will collect data on the appliances whilst allowing load control signals to be sent through a broadband link. A web portal will be available to customers to be able to monitor energy usage and manage appliances remotely. Northern Powergrid UK Power Networks Western Power Distribution ENWL Western Power Distribution Western Power Distribution Western Power Distribution 23 https://www.ofgem.gov.uk/electricity/distribution-networks/network-innovation/low-carbon-networks-fund https://www.ofgem.gov.uk/electricity/distribution-networks/network-innovation/low-carbon-networks-fund/second-tier-projects Appendix 2 Low Carbon Network Fund Page 26

New Thames Valley Vision My Electric Avenue CLASS This is a large project which is primarily focussed on developing a tool to help forecast where low carbon technologies might connect to the network. Amongst other things the project will investigate how automated demand response in commercial premises can provide network benefits This will trial automated control of electric vehicle charging, where a substation monitor will control active sockets in customer premises to ensure clusters of electric vehicles will not overload the network. This project aims to explore the relationship between voltage and demand. The project will seek to use existing network assets in an innovative way to vary the voltage on the network to alter the demand over a specific area. By reducing the voltage across the network, demand would be reduced. Reducing peak demand in this manner should make better use of existing network infrastructure, potentially avoiding or deferring network reinforcement. SSEPD SSEPD ENWL Appendix 2 Low Carbon Network Fund Page 27

Appendix 3 Energy Networks Association 24 Energy Networks Association (ENA) represents the wires and pipes transmission and distribution network operators for gas and electricity in the UK and Ireland. Its members control and maintain the critical national infrastructure that delivers these vital services into homes and businesses. ENA's overriding goals are to promote the UK and Ireland energy networks ensuring our networks are the safest, most reliable, most efficient and sustainable in the world. Smarter Networks Portal ENA s members and Ofgem requested that ENA develop a GB Smarter Networks Portal to act as a repository for innovative projects. It is initially focussing on the Low Carbon Networks Fund Tier 1 and Tier 2, Innovation Fund Incentive (IFI) and the Registered Power Zones (RPZ) projects, leading into RIIO. The Smarter Networks Portal: Provides an overview of the technical and commercial coverage of current smart grid projects in GB Identifies activity areas and gaps Informs ENA and other parties regarding demand response work Helps develop an understanding of likely sources of cost/benefit data Provides relevant information for future innovation funding bids Informs the Price Control Review processes Promotes the sharing of information and learning to help track progress and outcomes of projects 24 http://www.energynetworks.org/ Appendix 3 Page 28

Appendix 4 Future DSR Utilisation Strawmen Strawman - How the TSO May Utilise DSR Going Forward Appendix 4 Page 29

Appendix 4 Page 30

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Strawman - How the DNOs May Utilise DSR Going Forward Appendix 4 Page 32

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Strawman - How the Suppliers May Utilise DSR Going Forward Appendix 4 Page 34

Appendix 5 - Glossary Aggregator A third party intermediary specialising in coordinating or aggregating demand response from individual consumers to better meet industry parties technical requirements for specific routes to market. Balancing Services The NETSO supplements the Balancing Mechanism with forward contracts for a range of Balancing Services. The NETSO will enter into these agreements where it believes that it cannot source the service through the Balancing Mechanism, or it wished to reduce the costs of Balancing Mechanism actions by guaranteeing the available of certain units. Demand Side Response Actions by consumers to change the amount of electricity they take off the grid at particular times in response to a signal. Distributed Network Operator (DNO) A DNO is a company which operates the electricity distribution network which includes all parts of the network from 132kV down to 230V in England and Wales. In Scotland 132kV is considered to be a part of transmission rather than distribution so their operation is not included in the DNOs' activities. Gate Closure The point in time by which all Final Physical Notifications must be submitted for each settlement period. Parties should not change their positions other than through instruction by the SO after gate closure. It is currently set at one before the start of the relevant settlement period. Low Carbon Networks (LCN) Fund As part of the electricity distribution price control arrangements that run from 1 April 2010 to 31 March 2015, Ofgem established the Low Carbon Networks Fund. The Fund allows up to 500m support to projects sponsored by the DNOs to try out new technology, operating and commercial arrangements. The objective of the projects is to help all DNOs understand what they need to do to provide security of supply at value for money as Great Britain moves to a low-carbon economy. RIIO-ED1 The next electricity distribution price control which will set the outputs that the 14 electricity DNOs need to deliver for their consumers and the associated revenues they are allowed to collect for the eight-year period from 1 April 2015 to 31 March 2023. RIIO-TD1 The current electricity transmission price control which sets the outputs that the 3 electricity TOs need to deliver for their consumers and the associated revenues they are allowed to collect for the eight-year period from 1 April 2013 to 31 March 2021. Smart Grid Forum DECC/ Ofgem coordinated group which looks at the services and functionalities that networks will be required to offer as we move towards a low carbon energy sector. Work stream 6 of the Smart Grid Forum brings together stakeholders to investigate the commercial and regulatory challenges of implementing the smart grid solutions. System Operator (SO) The entity charged with operating the GB high voltage electricity transmission system, currently National Grid Electricity Transmission (NGET). Appendix 5 - Glossary Page 35