RenewableUK has called for Ofgem’s remit to be more firmly tied to the UK’s net-zero emissions target, arguing the regulator is still treating the commitment as a “future aspiration or even an uncertainty”.
Rebecca Williams, head of policy and regulation for the trade body, made the comments in response Ofgem’s final determinations for the RIIO2 price controls for transmission, gas distribution and the electricity system operator.
Williams welcomed its decision to give upfront approval to another £5 billion of investment – bringing the total to £30 billion – while also leaving a further £10 billion on “standby” to be released through uncertainty mechanisms over the course of the five-year regulatory period.
“But the plans are still treating net zero as if it is a future aspiration or even an uncertainty,” she added. “We’ve been urging Ofgem to put net zero at the centre of every decision it makes, to benefit current and future consumers.
“To ensure that they do this, it is now vitally important that Ofgem’s legal duties and responsibilities are linked more firmly and more specifically to achieving the UK’s legally-binding net zero target, not least because this will achieve decarbonisation at the lowest cost to consumers as renewables are the cheapest sources of new power.”
She continued: “We all want to decarbonise at the lowest cost, and the RIIO2 settlement is rightly designed to minimise costs for consumers. But there’s still a risk that Ofgem is underestimating the scale of much-needed grid investment that needs to happen in the next five years, which could mean delaying or restricting the growth of renewable generation on the system.”
Speaking to Utility Week, Williams elaborated that her main concern is the amount of investment which has been assigned to uncertainty mechanisms rather than being approved upfront: “There are many aspects of net zero that are becoming increasingly certain and we think that those need to be priced into the package from the outset rather than being left to chance or uncertainty.
“I think, for example, on offshore transmission, that’s an issue that we know a lot about already and we know some of the costs of different approaches that are on the table.”
RenewableUK policy analyst Yonna Vitanova clarified: “Our position is that we are not opposed to the use of reopeners and uncertainty mechanisms to tackle those difficult issues where the evidence presented by the companies is not sufficient for the project to proceed as a baseline activity.”
She welcomed Ofgem’s decision to introduce a more automatic reopener mechanism for approving medium-sized projects but said: “The question for us is whether all of the activity that has been scoped to fall within that reopener is really a matter for uncertainty to deal with.”
Vitanova cited as an example Scottish Power Transmission’s project to build a new substation at Branxton to facilitate the connection of more offshore wind generation and the construction of the Eastern Link – a proposed subsea power line between Scotland and England.
The total cost of the project is estimated at £93.3 million. Of this, £30 million was expected to be spent during RIIO2 but has been put in an uncertainty mechanism. Vitanova said the substation is definitely needed as it is required for “existing contracts with existing connection dates.”
Williams said: “Whilst it is good that they have recognised a lot of our concerns, we still ultimately feel that they do need to have a change of remit because at the moment they are constrained by their remit as an economic regulator.”
She said this issue is exemplified not just by the RIIO2 determinations but also by Ofgem’s ongoing revamp of network and balancing charges, which she acknowledged is still “a work in progress”.
“We need to get to net zero and we need to do that at the lowest cost to consumers but what we’ve said all along is the framework we have and the settlement that comes out of that needs to work for consumers in five years’ time, not just based on a very narrow view of the cost to the consumer right here right now.
“It’s about looking at what we need in five years’ time and saying will that be the best value for consumers and how does that match up with net zero.”