How to allow third party access for private wires

The electricity market allows for exemptions from the requirements to hold generation, transmission, distribution and supply licenses.  Sale of electricity to end consumers by an unlicensed supply company through an unlicensed distribution network is known as “private wire”.  On these networks customers are unable to change supplier and government is considering amending the regulations to require third party access.

In practice, until the Department for Energy & Climate Change (DECC) decides whether to change the regulations and a revised exemption order, possibly not until 2010 or beyond, what can developments do to ensure that they are able to offer third party access if required?  What is necessary?  Does it just mean ensuring that electricity meters that are installed within the private wires meet the technical standards of the licensed distribution networks and the electricity market?

A bit about the electricity settlement system

Unfortunately, the answer is not that simple and it comes back to the structure of the trading arrangements for electricity.  Electricity trading arrangements are governed by the Balancing and Settlement Code (BSC).  Under the BSC all meters, which are connected to the licensed distribution networks (including the boundary meter for private wires but not the meters within the private wire network) are registered in the industry wide settlement systems.  The supplier submits meter readings to the settlement systems and each are allocated a unique meter number known as an MPAN (meter point administration number).  For half hourly metered customers, consumption data is submitted to the settlement systems daily for each half hour.  Non-half hourly customers have a meter which is an advance meter i.e. it records total consumption, but not the time at which it is consumed.  Suppliers must submit information at least once a year for these non-half hour meters.  As a result, the deemed consumption for each customer is determined according to a “profile” and there are 8 different profile classes for non-half hour customers.  Aggregated over large portfolios, the inaccuracy in the allocation of electricity volumes evens out, but is more significant with a small number of customers.  Settlement takes 18 months to complete with a number of settlement runs of increasing accuracy.

The reason that a customer cannot change supplier is not because it is blocked by the private wires operator, but because the meter is not recognised by settlement and so there is no forum for settlement to occur and therefore to supply that customer.

To provide third party access on a private network, the private wire operator must put in place arrangements which allow suppliers settle the electricity volumes and to distribute electricity across the private wire network.  We have identified two possible options, both of these options give residual risk to the private wire operator.

Physical settlement on a private wire network

It is possible to implement a “meter volume reallocation” at the boundary meter. This allows some of the volume registered by the boundary meter to be allocated to a different supplier and transferred away.  In this case, you would register the customer who has changed supplier’s meter into settlement with an MPAN and you take their metered energy volume off the boundary meter total through a “meter reallocation”  The customer then is “supplied” by the third party and the private wire party has a reduced volume at the boundary meter for which it contracts with its top-up supplier (this may nominally increase recorded outflows even though physical network flows have not changed).

In addition, the private wire operator must develop a “network code” (rules for using the network) and price tariffs for using their network as they are allowing a third party to supply.  The private wire operator will charge the third party supplier for using the distribution network in accordance with the price tariff it sets.

The physical settlement method outlined works reasonably well for a half-hourly customer who changes supplier.  In this case, there is no volume risk as the customer’s actual consumption is transferred to the new supplier.  For a non-half hourly customer who changes supplier there is a residual volume risk.  This arises because the boundary meter is settled half hourly on actual metered data whilst the non-half hourly customer is settled based on a profile of consumption.  In practice, there will be differences between actual consumption and the profile giving a mismatch on a half hourly basis between actual energy consumed and the boundary meter reading less the profile consumption of the non-half hourly customer.

Financial settlement on a private wire network

With the difficulties for non-half hourly customers with a physical meter reallocation, it is possible to offer financial settlement instead.  In this case the private wire operator will continue to physically supply the customer with power and there is no change in metering or the boundary meter.  However, the private wire operator charges the third party supplier for the energy consumed and also for use of its distribution network.

The price at which the energy is charged could be set against a wholesale market index, of which there are a number to choose from.  In addition, the private wire operator will charge for the use of its network.  The third party supplier will remain liable for other supply costs such as transmission and the renewable obligation etc.  The private wire operator will have to provide a “network code” and distribution price tariffs.

Unlike the meter reallocation option, this requires a direct relationship with the supplier and also gives some residual price risk of the difference between own generation costs and the wholesale market rate.  But there is no volume risk and this is advantageous with non-half hour customers and also where there is substantial onsite generation (to avoid settlement values of export from the site when in fact all the energy is actually consumed on site).

So where next?

Unfortunately, offering third party access is not just a register a meter or pay-a-fee solution, nor is there total certainty on what DECC will allow in the proposed changes to the regulations.  Clarity is unlikely before 2010, but so far DECC have indicated that they are minded to have a “light touch” approach to third party access.

Both options described above are technically possible: one with residual volume risk and one with residual price risk.  It is important to understand these risks in view of the customer types connected to the network.  Regardless, both options require a transparent tariff structure for any third party to use the network and standard terms for usage so that third party access is applied consistently to all suppliers who wish to supply customers on the private network.