Charles Hendry speech at SmartGrid GB event

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Thank you for the introduction. And thank you, Bill, for such a thought-provoking presentation and for Ernst & Young’s valuable contribution…

Thank you for the introduction. And thank you, Bill, for such a thought-provoking presentation and for Ernst & Young’s valuable contribution to this crucial policy area on behalf of SmartGrid GB.

In the ten months since I spoke at this group’s launch, it has grown to a membership of 23 companies from across the value chain, and developed a programme of work dedicated to informing the debate around the future of Britain’s energy networks.

SmartGrid GB is the only independent cross-industry group dedicated to informing the smart grid debate in Britain, and it is this quality that explains why DECC and Ofgem have been so keen to work with it.

Today I want to address some of Bill’s points in more detail and also spend some time updating you on current activities in my Department.

The report’s analysis of the broader economic impact of smart grid development will be useful to my Department, to Ofgem, and to others in the industry.

I am not aware of another report that has looked at the benefits of smart grid in Britain in this way before, and I welcome this report’s contribution to the overall debate.

The low carbon energy challenge

We all recognise the development of smarter electricity networks will be essential in helping to facilitate the country’s transition to a low carbon economy.

The future energy system will look very different from how it is today. The Carbon Plan, which my Department published last year, sets the direction for how we plan to meet our energy objectives over the coming decades. It shows that future electricity generation is likely to be more intermittent and less flexible, and that there will be an increasing amount of local level generation.

We also expect to see a considerable increase in electricity demand, mostly due to increased electrification of transport and heat.

These changes pose significant challenges for the electricity system, including electricity networks, which will need to connect up this new generation and demand in a way that maintains reliability but also keeps electricity affordable.

A key challenge facing network companies is to manage an uncertain future of when and where low carbon technologies will be connected, without over investing in new infrastructure which would increase costs to the consumers.

The benefits of smarter approaches

A smarter grid can help network companies better manage future demand fluctuations and peaks. With more information about how the network is being used, and more capability to control this use, network companies can divert power to where it is needed and away from constrained areas. It could also facilitate a more efficient use of intermittent sources of low carbon electricity.

This will involve deploying new and existing technologies. It would also seek to exploit opportunities offered by the expected take-up of electric vehicles and heat pumps, which could make demand profiles more flexible.

This should make for more efficient use of existing and new energy assets, and give greater value for money for consumers.

As well as these direct benefits, today’s report highlights the wider prize from the development of smart grids, and it articulates a compelling economic case.

Its central findings - that developing and deploying smart grid technologies could create 9,000 new jobs and up to £5 billion in exports - powerfully restates the need for this country to be a leader in this sector.

I welcome the claim that the UK is well placed to capture these benefits if we act in a timely manner.

What we are doing to promote the smart agenda

I am pleased that the report notes an overall positive outlook for smart grid development and a general confidence in Britain’s direction of travel. I would like to take this opportunity to set out the UK’s range of policies to deliver a smarter grid, and to ensure the UK is a first mover in this key sector.

Smart Meters

To provide a platform for a smart grid, we will roll-out Smart Meters. This is a key priority for the Coalition Government, to cut greenhouse gas emissions, decarbonise the economy and support the creation of new green jobs and technologies.

The Government’s vision is for every home in Great Britain to have smart electricity and gas meters with In-Home Displays.

In March 2011, the Government set out the overall strategy and timetable for the rollout of smart meters as well as the arrangements for establishing the data and communications services and the programme’s approach to consumer engagement and protection.

The response set out that we will bring forward the planned completion of the rollout to 2019; at least one year ahead of previously published plans.

The roll-out of smart meters is one of the largest and most complex engineering infrastructure projects within the EU. Smart meters in homes and small businesses will sit at the interface between energy supply and demand, acting as an enabler to a smarter Great Britain including facilitating smarter grids, smart appliances, electric vehicles, microgeneration and new markets in energy services, including Demand Side Response.

It will consist of the installation of about 53 million meters in Britain, involving visits to 27 million homes as well as a number of smaller and medium-sized businesses. But we are certain that the prize is not just in these benefits, but how smart meters react with a smart grid.

Smart investment through the price control review

To ensure the right smart investments are made by network companies, Ofgem is carefully considering the design of its next price control review for Electricity Distribution Network Operators (DNOs). Running from 2015 to 2023, this will clearly be a crucial opportunity to make sure the right investments are made to deliver and facilitate our low carbon goals.

I wrote to Ofgem to welcome their launch of this review, which places emphasis on requiring the network companies to develop, through stakeholder engagement and detailed analysis, well justified investment plans that allow them to deliver the outputs their customers most value.

It will be very important that the network companies place their customers at the heart of their operations, and ensure new demand and distributed generation is connected in a timely manner.

It will also be important that network companies innovate, and encourage the deployment of new technologies, approaches and business models to ensure the network companies are “smart” and reduce or defer the need for network reinforcement. If we can use these resources better, we can use those to remove some of the need entirely to build new plant.

I would also like to see wider synergies captured, and for the network companies to explore and maximise wider electricity system and environmental benefits to support wider government objectives and policies such as broadband rollout.

Technology funding

To help coordinate thinking and action across the sector, DECC has set up and co-chairs with Ofgem the Smart Grid Forum. This has bought together key opinion formers, experts and stakeholders in the development of GB smart grids to provide strategic input to help shape policy making and leadership in this area.

During the first year of the Smart Grid Forum real progress has been made.

A particular achievement has been the construction of a Smart Grid Evaluation Framework, which can help assess the value of smart grid technologies. This uses analysis of likely penetration of low carbon technologies consistent with meeting the 4th Carbon Budget, and will inform network investment decisions.

To create the electricity networks we need for the future it is important that the DNOs have the opportunity to demonstrate innovation on their networks. This innovation has been stimulated by Ofgem’s Low Carbon Networks Fund which has made available up to £500 million in the price control review period of 2010-2015.

What has characterised the value of the LCNF projects is the wide array of stakeholders participating and the wide span of technologies and commercial approaches they encompass.

You have already heard from UK Power Networks and Scottish Power about their LCNF projects. Another major project taking place is the Customer Led Networks Revolution being led by Northern Power Grids. This is exploring how networks can respond more flexibly to customers’ needs by using more advanced voltage control devices and energy storage. Partners in this project include Durham University, electricity retailers and the general public who after all will be the vital cog because without smart consumers, the grid will not be as smart as we want it.

International knowledge sharing

But this is a global challenge and other countries are also working hard to find solutions. My Department is therefore collaborating with our international partners to ensure best practice and knowledge is shared.
This week London is hosting the Clean Energy Ministerial and I am looking forward to participating. The UK was one of the founding members of the International Smart Grids Action Network - ISGAN - launched at the first Clean Energy Ministerial in July 2010, which promotes international cooperation in the development and deployment of smarter electric grid technologies and practices.

Since then, my Department, Ofgem and the ENA have been sharing UK best practice and knowledge with our partners. At its meeting last month in Mexico, ISGAN agreed to establish an international network of smart grid test laboratories and I am pleased that the Universities of Strathclyde and Manchester and the Durham Energy Institute have stepped forward to take part in this enterprise.

We are also working closely with the European Union through their European Electricity Grids Initiative which is developing future projects for the Framework 7 funding programme.

Closing remarks

I would like to thank Smart Grid GB for arranging this seminar and once again thank Ernst & Young for their report on the Economic Benefits of Smart Grids. My Department will continue to work closely with Smart Grid GB, whose work is a valuable contribution to the UK’s transition to a low carbon economy.