EVALUATION

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AN INDEPENDENT <strong>EVALUATION</strong> OF THE LCNF partnering and international collaboration may act as a barrier to use of this scheme for funding innovation in UK distribution networks (due to the UK being an island nation). There are currently few linkages between the two programmes. This does raise the risk for duplication of effort. We consider that linkages and engagement between the two programmes could be improved, although the benefits of such linkages should first be considered. This could be achieved through improving links between DNOs and Innovate UK or by encouraging presentation of relevant Horizon 2020 projects at the LCNI conference. 6.3 Innovation in specific European countries The following section provides a brief outline of innovation incentives that have been implemented in other jurisdictions. 6.3.1 France In 2009, the French government launched the Investments for the Future programme, which is intended to support projects fostering innovation and the creation of nonrelocatable jobs in sectors with strong potential for the French economy. ‘Smart electricity grids’ is one of the four key areas under this programme. Over 20 demonstration projects in smart grids have been funded under this scheme 74 . Overall, France is one of the leading countries in Europe (along with the UK) in terms of investment in smart grids. 6.3.2 Denmark Denmark has a goal of achieving 100% of power from green sources by 2035 and aims to be fossil fuel free by 2050. The Danish energy system is therefore well-suited as a platform for development of future smart grid technologies. Denmark has practical experience in grid challenges that need to be solved, as well as expertise in energy storage technologies. A number of demonstration projects have been carried out in country including Energinet.dk’s cell project, the EV integration project EDISON and the EU-financed EcoGrid. 6.3.3 Germany DSOs can apply for the cost recognition of R&D projects. The National Regulatory Authority is allowed to approve revenue adjustments for projects that are considered to be innovative. Funding is available for 50% of the project with the DSO providing the remaining 50%. 6.3.4 Ireland The Smart Grid Innovation Hub (SGIH) in Ireland, established in 2012, is an advocacy network for both the Republic of Ireland and Northern Ireland, whose aim is to promote the development of innovative Smart Grid ideas and facilitate the delivery of a secure, affordable and sustainable energy infrastructure. It is a collaborative initiative between 74 Source:http://www.cleanenergyministerial.org/Portals/2/pdfs/GSCN_ADEME_Smart%20 Grids.pdf PÖYRY MANAGEMENT CONSULTING October 2016 713_Poyry_Report_Evaluation_of_the_LCNF_FINAL_Oct_2016_v700.docx 100
AN INDEPENDENT <strong>EVALUATION</strong> OF THE LCNF EirGrid, SONI 75 and the National Digital Research Centre (NDRC). It provides access to the people, systems and data necessary to test ideas and concepts and enable them to develop from ideas to reality. Support provided by SGIH is tailored for each specific project or company depending on its stage of development and/or specific support requirements. One of SGIH’s projects is the North Atlantic Green Zone (NAGZ) project, which is a cross border project in the north west of Ireland. The project will provide increased capacity, access and reliability of networks for all users and has been recognised by the Global Federation of Competitiveness Councils in the Best Practices in Competitiveness Strategy for Regional Innovation. 6.3.5 Finland Finland has in place a regulatory model that includes an innovation incentive allowing a proportion of research and development (R&D) costs to be passed through to customers. The network company still has to consider the balance between costs, benefits and risks before initiating a project. This is similar in structure to the LCNF in the GB market. However, in Finland, the use of replacement costs for investments when determining the remuneration on regulated assets serves as a disincentive to invest in developing technologies where costs are expected to reduce over time. 6.3.6 Italy Italy introduced a legislative decree from 2011 which introduced an extra-remuneration on the WACC for modernizing distribution networks in a ‘smart way’, i.e. deploying solutions such as control, regulation and management of load and generating units, including also EV charging systems. Moreover, demonstration projects can receive an extra remuneration on CAPEX. The extra WACC remuneration of +2% is allowed for 12 years on the part of the regulatory asset base associated with investments needed for the demonstration project (ordinary WACC is 7% pre-tax, which implies that total WACC for smart grid demo projects is 9% for 12 years and then back to 7% for rest of life span of the investment). 6.3.7 Norway Since 2013, regulation allows for passing through of R&D costs to a certain degree. The projects shall be aimed at contributing to an efficient operation, utilisation or development of the electricity network, recommended by the Research Council or similar institution. 6.3.8 Portugal There is an incentive of an extra 1.5% remuneration on the asset base of innovative projects. This only applies to small R&D/pilot projects and excludes any mass deployment of innovative technology. Furthermore, it requires extra cost-efficiency that more than offsets the extra remuneration of the asset base. 75 SONI is the electricity system operator for Northern Ireland and has been part of the EirGrid Group since 2009. SONI run a Technology and Infrastructure programme that focuses on developing the existing grid, delivering advanced network solutions, deploying new technologies on the grid and enabling additional HVDC interconnection to Europe. PÖYRY MANAGEMENT CONSULTING October 2016 713_Poyry_Report_Evaluation_of_the_LCNF_FINAL_Oct_2016_v700.docx 101
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EVALUATION

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