This year Ofgem will begin their formal consultation for RIIO GD2 – the next price control period. Early indications suggest there will be questions about its length, another eight-year period or shorter, perhaps five, with the potential impact upon innovation projects.
No doubt the regulator will want to be seen as “tough”, especially with political attention on energy prices still a live issue. I’d like to think they were confident of their own case, willing to do what they think best for the consumer and the sector and not crave a quick tabloid headline.
When they look at network returns, let’s hope they see the big picture – the need to bring in private sector investment to improve the networks and not succumb to the populist attraction of focusing solely on financial returns to owners. That said, no-one I have spoken to expects to see settlements at the same scale as GD1.
We saw, at the back end of last year, a prolonged campaign focusing on the gas networks (I bet the suppliers didn’t mind that) – network returns, threats of nationalisation and even spurious tabloid headlines attacking chief executives. This will not go away in 2018, so my advice to the networks is to fight back. Show the good work they do: cost effectiveness, reliability, innovative thinking, providing high-quality jobs and, importantly, delivering heat to 23 million homes across the UK.
One particular fear I have of GD2 is that the direction of travel Ofgem envisages for the gas networks may not reflect current thinking around the decarbonisation of heat. Ofgem and BEIS need to be in-sync with their thinking. Imagine the chaos of politicians, quite rightly seeing the long-term future role of gas networks in meeting the energy trilemma, only for the regulator to be wedded to outdated thinking about gas.
With this in mind, I expect BEIS to release their new Heat Strategy in 2018, which will help inform Ofgem and provide some direction to the industry. Let’s hope it is more sensible than the ill-fated all electric heating scenario, totally discredited by industry experts.
Getting on the front-foot is what the GDNs should now do. Start by telling politicians about the impact they are having in the fight against fuel poverty. Fuel poor network extensions, helping people switch from expensive electric to cheap and convenient gas central heating is something that deserves to be shouted from the rooftops of those warm and more affordable properties. Providing gas to 23 million homes, at levels of reliability that should be the envy of every utility, at a daily cost half that of providing a standard BT phone line isn’t something to be shy about.
Forward thinking projects around decarbonisation such as HyDeploy, Leeds H21, the Liverpool/Manchester hydrogen cluster; economic regeneration in the Northern Powerhouse; whole energy system work in Bridgend and the step-change in biomethane connections envisaged by SGN – all cry out for wider public awareness.
GDNs have been the Cinderella of UK utilities. Hidden from view, going about their business without any fuss. It’s time for them to go to the ball, otherwise the pumpkin beckons.