Utilities Attack Ofgem Over Smart Grid Investment

Arguments between government agencies and utilities over how to proceed with the roll-out of so-called smart electricity grids which will be able to cope with renewable energy sources and provide better usage metrics have boiled over again.

Following the publication by energy regulator Ofgem of its draft spending and revenue programme for electricity companies last week, utility company bosses have reacted angrily claiming the £6.5bn investment planned from 2010 to 2015 falls short of the funds need to overhaul power networks to cope with renewables such as wind and solar.

Ofgem, which recently underwent a significant reorganisation to better manage the impacts of climate change on its sector, is not expected to make a final decision on the investment until December.

But Nick Horler, chief executive of Scottish Power warned that he may be forced to take the issue to the Competition Commission unless Ofgem changes its spending programme. “Ofgem is playing yesterday’s game, which was sweating these assets and bringing costs down,” he told the Sunday Times. “We are at a point where we need to make big new investments. Ofgem has taken a very narrow view of economics and we may have no recourse but to go to the commission.”

For its part Ofgem argues that different utilities are providing very different estimates on how it will cost them to overhaul their networks to introduce ten.he sophistication necessary to qualify as smart grids. “We have 14 networks, and some of them say it is going to cost a lot more than others to do the same thing. So we have challenged that quite hard,” he told the Sunday Times. “If they disagree they can, of course, go to the commission as an independent referee.”

The spat between Ofgem and utility providers follows another ongoing disagreement over the technology to be used in smart grids. In August, the Local Government Association accused a coalition of power companies of lobbying the government to block the inclusion of wireless display units in the smart meter scheme. The LGA statement more or less accuses the Energy Retail Association of trying to snuff out the technology as it doesn’t want its customers to have a truly accurate picture of the energy they are using and difficult questions over pricing which might arise as a result.

Experts also argue that the intelligence embedded into smart grids – including home monitoring systems for consumers – could end up reducing the amount of power households and businesses use which will eat into electricity providers’ revenues.

“Smart grid is about improving the efficiency of the system and reducing consumption which by definition lowers revenue for you and it’s the utilities that have to do the investment if you want to have a smart grid becoming a reality,” Christian Feisst, director of Smart Grids at Cisco Internet Business Solutions Group, told eWeek Europe UK last week.

Legislation to mandate the use of smart grid technology is being led by European authorities. The EU energy package officially came into force on 3 September and consists of two Directives and three Regulations around energy efficiency. Both the gas and electricity directives stipulate that the Member States ensure the implementation of ‘intelligent metering systems that shall assist the active participation of consumers’ in the gas and electricity supply markets respectively. The electricity Directive sets a timeline of 80 percent coverage by 2020 and every European household equipped with smart meters by 2022. For its part, the UK government has committed to roll out smart meters to every household by 2020.