8. ELECTRICITY

arrangements are still complex and are around 20 days and can lead to delays, errors, and costs. Ofgem initiatives to deliver a faster, more reliable switching for consumers are very promising. In fact, the recent switching rates of 20% are relatively high by international comparison.

The transition towards a smart and flexible power system

The benefits of a smart and flexible energy system are expected to amount to GBP 1740 billion by 2050 (Carbon Trust/Imperial College London, 2016), thanks to the avoided or deferred network reinforcements and generation build, avoided curtailment of lowcarbon generation, and greater efficiency in system usage.

The UK power system has addressed well the challenges of wind integration into the system and is actively working to support the integration of solar PV, batteries, and EVs, as the next frontier. Although wind curtailments have increased during the past five years, the reform of the balancing code and the investment in the north-south network expansion in 2018, which better integrates Scottish wind farms, helped to reduce curtailments.

However, the United Kingdom has a large amount of ancillary services, still largely supplier-based regulation, and non-cost-reflective network pricing. There is a need to move towards more cost-reflective network pricing (to end the freeride of embedded generation that avoids network charges) and improved open access arrangements. This will remove barriers to the efficient development and uptake of new technologies and business models, especially the more distributed technologies. Removing market barriers is a strong driver to improve market entry and contestability. The role of Ofgem is critical and the rules currently under discussion to ensure its independence, resources, and more proactive role to advise government on competition and retail markets are a welcome development. Ofgem is conducting a review into the future of network charging, a very important assessment to ensure the recovery of fixed costs in the energy system amid rising shares of demand-side technologies (solar PV, battery storage, or EVs).

The United Kingdom is taking leading steps to develop markets for flexibility, notably through a wider range of black start services, the redefinition of parameters for frequency response participation, and the consultation on exclusivity clauses and principles for revenue stacking. This gives clarity to the market.

Demand response is expanding in the United Kingdom. Given the saturation in the frequency response and reserve markets and the freeze in the CM, new avenues could be explored for its participation in the wholesale market. Battery storage can deliver demand response services and can contribute to increasing liquidity in the balancing market and reduce the overall balancing cost. Ofgem and the Government are placing focus on electricity storage. Ofgem is going to publish a modified generation licence for storage, which will include a definition. The Government has committed to defining storage in legislation, once parliamentary time allows. However, current efforts fall short of addressing issues around self-consumption and other storage types, which include heat storage. Given the United Kingdom’s goal to electrify heat (besides transport), heat storage is becoming increasingly important.

Locational aspects of flexibility markets will be critical. These markets are always local or regional in a sense that the market is cleared taking into account bids from a specific geographic region. However, many market players are active across several regional

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