The government has backed handing utility regulators a new net-zero duty and signalled moves to split off the Electricity System Operator (ESO) from National Grid.
In its National Infrastructure Strategy (NIS), published today alongside the Chancellor of the Exchequer’s Spending Review, the Treasury said a policy paper on economic regulation to be published next year will consider the duties of the UK’s economic regulators, including Ofgem and Ofwat.
The document says the government supports a recommendation by the National Infrastructure Commission (NIC), which published a review of economic regulation in March, that regulators should be given duties to support the UK’s net-zero target.
The government will “continue to review the most appropriate measures”, including a net-zero duty, to ensure that regulators make the “necessary contributions” to achieve the statutory goal of reducing emissions to net zero by 2050, it adds.
The NIS, which is the government’s long-awaited response to the NIC’s 2018 National Infrastructure Assessment, says it supports the introduction of a “coherent approach to price, quality, resilience and environment” by the UK’s economic regulators.
Utility Week last week reported comments from energy minister Kwasi Kwarteng that his department was considering creating a net-zero duty for Ofgem.
ESO separation
The document also signals that the government is exploring moves, as also first reported by Utility Week, to complete the split of the ESO from the National Grid when it publishes its Energy White Paper.
The white paper will include a review of the ESO’s “right long-term role and organisational structure”, it says: “It is possible that there will need to be greater independence from the current ownership structure, should it be appropriate to confer additional roles on the System Operator.”
The government’s approach on the overall governance of the electricity system will be set out in the forthcoming white paper, which will also outline plans for introducing competition into electricity onshore networks.
In addition, the NIS confirms that the government backs the NIC’s recommendation that total system costs should be factored into the design of future Contracts for Difference (CfD) rounds “as far as possible”.
A call for evidence will be published on the evolution of the CfD regime to explore these issues, it says: “The government will continue to ensure that support mechanisms evolve to consider the total system benefits provided by competing generation technologies and flexibility solutions.”
And the NIS contains an announcement that the government is setting up a new UK infrastructure bank, as also first reported in Utility Week.
The new bank, which will have a remit to co-invest alongside the private sectors in infrastructure projects; will be based in the north of England and support the government’s ambitions on net zero.
The chancellor will set out comprehensive details of the operations, mandate and scale of the bank in next year’s Budget.
Green industrial revolution
However, the NIS contains few details on the government’s decarbonisation plans beyond those outlined by the prime minister in his green recovery 10-point plan last week.
It proposes that the north east could become a location of choice for companies involved in hydrogen and carbon capture and storage (CCS).
And it says that while the bulk of generation will be provided from renewable sources by 2050, “more reliable” sources of power will continue to be required including nuclear, hydrogen or gas fitted with CCS.
The NIS says that nuclear will continue to play an “important role” in the UK’s energy mix, provided it can be delivered to time and budget.
Reaction
Responding to the NIS, NIC chair Sir John Armitt said the statutory advisor had been particularly pleased by the acceptance of its recommendation to set up an infrastructure bank.
He said: “Alongside announcements in the Spending Review, the strategy represents a solid down payment on a long-term fiscal commitment to infrastructure.
“As government acknowledges, there are currently some missing pieces of the jigsaw when it comes to energy policy. The 10-point plan set out by the Prime Minister last week set out serious commitments in areas such as wind power, decarbonising heating, developing hydrogen and carbon capture and storage. We look forward to seeing detail on the delivery plans for achieving these targets in forthcoming announcements.”
Tom Greatrex, chief executive of the Nuclear Industry Association, said it was welcome that the government had not taken forward the NIC’s recommendation that the UK only needs one more large nuclear power plant after Hinkley Point C.
He said: “Meeting net zero by 2050 is incompatible with the flawed analysis offered by the National Infrastructure Commission.
“It is right that today the UK government have rejected John Armitt’s group in clear and stark terms – nuclear alongside other low carbon technologies will be required to decarbonise, and it was never a sound position to suggest otherwise.
“The focus now must be on delivering the infrastructure required to meet net zero – and avoiding wasting further time, effort and attention in seeking to pit low carbon technologies against each other.”
The publication of the NIS has been delayed by a string of factors including Brexit and the coronavirus pandemic since the NIA, which it is a response to, was published more than two years ago in the summer of 2018.