Policy paralysis on gas gives Ofgem a headache

The announcement that the department for energy security and net zero (DESNZ) is not progressing any further work on a hydrogen town pilot until after the 2026 decision on the technology’s role in home heating will probably not shock many in the sector.

Utility Week readers will be familiar with the recent comments from the government and the increasing apparent desire for ministers to pass this particular buck. However, while not a startling decision, it does leave gas networks in an even more passive position ahead of the 2026 decision. It also piles even more pressure on Ofgem as the next price control period for gas looms on the horizon.

Gas network sources have expressed frustration at this latest procrastination but had seen it coming. One told me: “It’s been clear for some time now that this government has no desire to get into a serious debate about the future of heat. Whether you think that future is about hydrogen or electrification, there needs to be a plan. There’s absolutely no sign of that at the moment. They just don’t want to talk about it.”

Another summarised the lines between the short statement put out by DESNZ on Thursday (9 May) as: “We don’t think there’s a role for hydrogen in home heating but we know that raises all sorts of questions which we don’t have answers for so we’re just going to kick the can down the road until it’s someone else’s problem.” They added that ministers “haven’t got a plan, haven’t got a vision, haven’t got a clue”.

While the town pilot would only ever have progressed after a 2026 decision, it was hoped that detail in the plans themselves would have fed into the government’s thinking. This approach had already been dealt a blow with the scraping of the village trials. Now ministers have made it clear that networks would be wasting their time to put in any more effort into their town candidates.

One source told me: “It essentially means 18 months of hiatus now because once we have a new government this won’t be the first thing on their agenda.”

Current polls suggest that next government will be formed by Labour. The opposition has proved just as reluctant as the Conservatives to engage meaningfully in the future of heat debate. However, all indications are that they see industrial clusters and potentially district heating in time as the direction for hydrogen.

While all of this leaves the gas networks in limbo, it presents Ofgem with a real challenge. The RIIO-3 price control for gas networks (and electricity transmission) begins in under two years time. How does Ofgem reflect the uncertainty around the networks’ future? So far it has said it does not expect “large-scale, systemic changes” to gas networks between 2026 and 2031. But given that period will either require the networks to set out a plan to convert parts of their networks to carry hydrogen or to decommission them, Ofgem will have to manage some almighty ‘what-ifs’. All of this must be managed with one eye on the impact for electricity networks, if they are to shoulder the burden of home heating.

It puts the regulator in an impossible and unfair position. Policy direction is desperately needed on home heating. Politicians on all sides have to stop evading difficult conversations and engage now on what is an absolutely crucial part of the energy transition.