UK Smart Grids Get £500 Million Jolt

Electricity grid operators in the UK have been told to modernize grids and reduce their carbon footprint as part of a Â£6.5 billion overhaul to occur between 2010 and 2015.

Plans have been laid out by the country's energy-regulating body, the Office of Gas and Electricity Markets (Ofgem), and will include a Â£500 million sweetener in the form of the Low-Carbon Networks Fund to support large-scale trials of advanced technology, including smart grids. The goal of the fund is to encourage the 14 distribution network operators (DNOs) to connect up to 10-gigawatts (GW) of low-carbon generation to their networks from local generation and other renewable sources, such as small windfarms, during the next five years.

The largest obstacle to the use of local and small-scale renewable energy projects Â— not just in the UK, but everywhere Â— is that the electricity grids are old and not 'smart' enough to deal with small and variable amounts of power from renewable sources. The original UK networks were built mostly in the 1950s and 1960s.

Customer bills are expected to rise by about Â£4 per year to help fund the modernization process, but Ofgem is placing much of the cost at the door of the grid companies. The regulator has demanded that the companies deliver investment plans for 17% less than original industry forecasts and collectively cut operating costs to 10% below forecasts.

"Our electricity network proposals are tough but fair and will deliver for energy-consumers today and in the future," said Ofgem Chief Executive Alistair Buchanan. "We have accepted the companies' investment plans but told them to deliver them at much lower cost. In return for higher prices, we expect even better customer service and reduced carbon emissions. We are looking in particular for better service in new connections, where the companies will face penalties should they fail to meet new standards. And we have proposed ambitious new incentives and funding to deliver the networks we will need in a low-carbon economy."

He added: "Meanwhile the companies need to adapt to the needs of a low-carbon economy. Greater use of electric vehicles, home-grown generation and other developments will demand radical change in the way networks are designed, managed and operated. Measures like Ofgem's Â£500 million Low-Carbon Networks Fund will enable the companies to explore new technical and commercial routes to a low-carbon future."

The Â£100 million-a-year Low-Carbon Networks Fund will cover up to 90% of the cost of expected projects with DNOs expected to fund the remainder. Part of the programme demands that DNOs share what they learn with all the other U.K. energy distribution network companies. DNO's will also have to report their own carbon footprint annually, improve the efficiency of their grids in order to reduce power loss Â— which is currently enough to power 6 million homes a year Â— and improve information made available to distributed generation companies that specialize in local power generation projects.