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10th January 2020

2019 power blackout puts focus on regulation of distributed generation

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On 3 January 2020, Ofgem announced that three electricity companies will between them pay £10.5 million into Ofgem’s voluntary redress fund, in connection with the power cuts of 9 August 2019 which caused disruption to more than one million consumers.

Ofgem found that the combined loss of two large generators, as well as the smaller loss of generation at a local level, together triggered the subsequent disconnection from the electricity system.

Ofgem concluded that two large power stations, Hornsea One Ltd (the offshore wind farm co-owned by Orsted and Global Infrastructure Partners), and Little Barford (operated by RWE) did not remain connected after the lightning strike. Hornsea One and Little Barford have each agreed to pay £4.5 million to Ofgem’s redress fund.

UK Power Networks, which owns local grid infrastructure in Britain, will pay £1.5 million, in recognition of a technical breach in reconnecting customers without being asked to by the Electricity System Operator (ESO).

The energy regulator said that its investigation had raised questions about how the ESO’s management of the electricity system is carried out, and that the incident underlined the importance of the ESO adapting to a complex and changing world. The concerns raised in its investigation will inform its already announced review into the structure and governance of the ESO, and it will consider a number of options for how the ESO is structured, governed and managed. A position paper on system governance is expected in 2020.

In its report into the August 2019 blackout, Ofgem also makes various recommendations for maintaining the resilience of the electricity system, a number of which relate to distributed generation. A particularly noteworthy recommendation is that consideration should be given to the licensing of smaller generators, which would require Government action. Currently, generators with a capacity below 50 MW are exempt from the licensing regime, which includes a large number of embedded generators and a substantial amount of recent renewable power generation. Any move to include sub-50 MW generation within the licensing regime, and the consequent burden of code compliance, could be significant.

Also on 3 January, the Government backed a separate report into the blackout by The Energy Emergencies Executive Committee (E3C). This report also contains plans to strengthen the country’s power network and make it more resilient to outages in the future. Amongst other suggested actions, It looks at distributed power generation and proposes that E3C should lead a review of the embedded generators’ understanding of and compliance with, the Distribution Code, and assess whether the current governance, monitoring and enforcement processes are fit for purpose.

It is unsurprising, given the ever-increasing amount of power being provided to the UK electricity system by distributed generation, that the Government and Ofgem should want to review the regulatory and compliance framework that applies to it. The huge amount of public attention received by the 9 August 2019 blackout, and the fact that it involved a large volume of distributed generation loss, and that some of this was unexpected, has naturally given significant impetus to the focus on the regulation of embedded generators. The planned review is also expected to include the consideration of options to improve the real-time visibility of distributed generation for DNOs and the ESO, which makes sense and could lead to positive change.

In addition, the extent to which the licensing regime might be extended to smaller generators will be an interesting area to watch. Care will be needed to avoid discouraging new distributed generation projects as we embark on the path to the net zero carbon goal of 2050.

For more information on the items discussed in this article please contact NIck Fothergill on 0207 400 5030 or click here to email Nick.