Has the Low Carbon Network Fund been successful at stimulating innovation in the electricity networks?

Dr Aidan  Rhodes, Imperial College London, United Kingdom

Prof Jim Skea, Imperial College London,United Kingdom

Ms Renee Van Diemen, Imperial College London, United Kingdom

The UK electricity networks are currently undergoing a period of considerable change, driven by two major causes. The first is the need to incorporate increasing quantities of variable renewable generation at distribution level, as well as to prepare for increasing levels of electrification in heating and transport. The second are the new opportunities arising from the incorporation of ICT technology into the networks, including smart metering, smart appliances, demand-side participation and the development of new business models and services which facilitate active consumer engagement.


Due to these factors, there is currently a period of exceptional innovative activity in the networks sector, with substantial public funding (£81 million p.a) provided through the Ofgem-administered Low Carbon Network Fund (LCNF) and its successor the Network Innovation Competition (NIC). Funding from customer bills is funnelled through network operator-led consortia to assist the development of a culture of innovation in these organisations, a novel mechanism for public innovation stimulus both within the UK and internationally. This paper examines current trends in network innovation in the UK and assesses whether the LCNF has been successful at developing and demonstrating new technologies and practices, if these technologies and practices are successfully proceeding from demonstration to deployment and if the LCNF has been open to new entrants and more radical and disruptive ideas.


Quantitative research has been conducted via analysis of ‘innovation input’ indicators, including project proposals, progress reports, public grant databases and private finance databases, as well as ‘output’ indicators, including scientific publications, dissemination reports and events and patent information sourced from the EPO PATSTAT database. Documentary interviews have been conducted over the past six months with over twenty academic, industrial and policy stakeholders, ranging from high level policy figures to managers and participants in specific projects.


Analysis of the indicators shows that the UK is well placed as a top-ten global leader in network innovation in both scientific outputs and patent filings, with a substantive increase in outputs over the last decade corresponding with the sharp rise in available funding.  Data from LCNF reports shows that many successful projects have been focused on technical improvements and short-term impact, with fewer projects examining management structures, business models and longer-term effects.


Key messages from the interviews point to the success of the LCNF as a method of stimulating innovation in the regulated monopolies of the networks, and the achievement, at least in some organisations, of stimulating a culture of innovation. However, this is tempered by concerns regarding the dissemination of learning from projects to other network operators and the public availability and quality of project results and data. There are also uncertainties as to whether this culture of innovation is resilient enough to survive a reduction in public support.


The paper finds that there is a tension in network innovation between an incremental model, where network components are upgraded and modernised but the structure and role of the networks and key actors remain largely unchanged, and a systemic change model, in which an increasing level of communication and connectivity enables radical new consumer services and business models as well as the possibility of decentralised local grid systems. The LCNF has performed well at stimulating incremental improvements to address current network issues, but the research has found that questions remain about the mechanism’s ability to demonstrate and assess radical and disruptive innovations, particularly those originating from actors outside the conventional network ecosystem. The next steps for this research project are to analyse comparable large-scale network innovation projects in South Korea and New York State in order to learn lessons for successful network innovation policy.


Keywords: innovation, networks, smart grids



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