Ofgem reveals green energy plans

In: Grid
Ofgem has unveiled proposals for a five-year investment programme of around £25 bn, which it claims will transform Britain's energy networks to deliver emissions-free green energy. Investment in the networks that transport energy round Great Britain is likely to rise, to ensure that they can deliver clean energy and meet government targets for a net zero emissions future.

Under the proposals, Ofgem is allocating £25bn upfront expenditure to maintain and operate gas distribution, and gas and electricity transmission networks as well as support the growth of green energy.

Ofgem is also proposing to unlock additional funding to drive green emissions-free energy and infrastructure upgrades, that companies can access over the next five years as needed. This could potentially see another £10bn or more of net zero investment supported through the price controls, and more if needed. Ofgem will scrutinise every investment and only give the green light to measures that deliver decarbonisation at the lowest cost to consumers.

On innovation, a new Strategic Innovation Fund, together with funding to individual companies for network innovations, will provide £630m to drive research and development into crucial green energy projects, including to help expand the range of possibilities for decarbonising the heat infrastructure, such as hydrogen, with the potential to fund more if needed.

Ofgem stated that its proposals nearly halve network companies’ allowed rate of return, so that less of consumers’ money goes towards network companies’ profits, and more towards driving network improvements. It claims would save £3.3bn over the next five years for gas and transmission sectors. In addition Ofgem is proposing to cut over £8bn from companies’ spending plans by setting them stretching efficiency targets and disallowing costs that companies have simply not justified as delivering value for money for consumers.

These proposals are part of Ofgem’s draft determinations for the RIIO-2 price control for transmission and gas distribution network companies. Ofgem stated that separate RIIO-2 price control for the Electricity System Operator (ESO) will boost the funding and activities of the ESO to prepare to operate a zero carbon electricity system.

The announcement does not apply to the price control for the electricity distribution sector, which runs from 2023, and on which Ofgem is consulting separately later this summer.

Jonathan Brearley, Ofgem’s chief executive, said: “Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we are striking a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for around £25 billion of investment needed to drive a clean, green and resilient recovery.

“Now more than ever, we need to make sure that every pound on consumers’ bills goes further. Less of your money will go towards company shareholders, and more into improving the network to power the economy and to fight climate change.”

With the release of Ofgem's investment plan, members of industry aren't convinced that RIIO-2 price controls will have a positive impact. RenewableUK’s Head of Policy and Regulation Rebecca Williams said: “These proposals won’t bring forward the investment that the Government says it wants to kickstart a green economic recovery. That means fewer jobs and slower progress towards net zero. So it’s a missed opportunity by Ofgem to encourage investment in grid infrastructure and it means consumers would lose out as vital grid upgrades wouldn’t happen.

“However, we welcome Ofgem’s recognition of the importance of working with network companies to achieve net zero. Its proposals to build more flexibility into price controls by using a net zero “re-opener” mechanism to accommodate new technologies such as renewable hydrogen, as well as boosting innovation funding more widely, could unlock benefits for consumers”.

Ofgem’s draft determinations consultation can be seen

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