The author is chairman of the UK’s net zero review and a former UK energy minister
Our energy regulator Ofgem should play a crucial role in climate policy if we are to reach net zero, but in its current form it is not fit for purpose.
Despite government departments being aligned with the Climate Change Act 2008, the regulator’s mandate has not changed materially since its inception in 2000. This means it fails to prioritize the decarbonisation of electricity as set out in the UK’s net zero legislation United. As a former energy minister and author of the government’s net zero review, I believe Ofgem needs reform to help electrify the economy and bring down bills.
The organization’s legal obligation is to protect the interests of current and future consumers. While this includes reducing greenhouse gases, the mandate has never been explicit enough, and Ofgem’s role has traditionally been more of an economic regulator than anything else. This has led to a focus on pricing and competition which leads to short term considerations with negative long term impacts.
We need to take a more strategic view. A net zero energy system is predicted to be billions less than the system we have. But getting there will require upfront investment and planning.
My net zero review, published this year, was heard by hundreds of innovative companies eager to bring new technologies to market. But these are all hampered by slow, cumbersome bureaucracy and an antiquated approach to network connections that is ill-suited to an electrified 21st-century economy. It’s why the first of my 10 missions, set out in the review, was to reform ‘network and infrastructure’, and why a key recommendation was to give Ofgem a net zero duty.
Currently, grid connections are being built on a just-in-time or retroactive basis, rather than proactively planned in areas where we know renewable energy will be built. For some onshore renewables, connection dates have been given as late as 2036, and in some cases, connecting offshore wind to the grid can take three to five times longer than the project delivery itself.
Delays have become the new normal: Hundreds of renewable energy projects are stuck on schedule or in queues for a connection to the grid. National Grid estimates that approximately 600 projects with a combined capacity of 176 GW (our current capacity is only 64 GW) are supported in a sclerotic distribution system for future renewable energy. During an energy price crisis, we cannot afford to wait.
The madness doesn’t stop there. The current Ofgem-supervised system favors electricity from Europe, rather than wind farms built in windier parts of the UK. Due to lack of investment in transmission networks, Scottish generators are at a significant disadvantage compared to sites in France, the Netherlands, Belgium, Germany, Denmark or Norway.
Ofgem can and should help fix this mess if he is empowered. As Energy UK’s chief executive said last month, Ofgem is fast becoming “the UK’s de facto regulator for net zero”. This follows similar calls from expert bodies such as the Climate Change Committee, the National Infrastructure Commission and the House of Lords Industry and Regulators Committee. Tim Pick, the government’s first ‘offshore wind champion’, has already concluded that Ofgem’s powers should be modified to ‘give due weight’ to the 2050 target.
Ofgem’s chief executive, Jonathan Brearley, said he could see benefits in setting a zero net duty for Ofgem in the statute. But time is running out. In the interests of present and future consumers, we need a licensed regulator with a clear duty to ensure the net zero energy system.
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