Ofgem should implement a central scenario for net-zero investment across electricity distribution networks, with uncertainty mechanisms allowing regions to advance at their own pace.
This is the view of UK Power Networks (UKPN) chief executive Basil Scarsella, who told Utility Week the regulator was right to explore the use of net-zero re-openers in RIIO2 to avoid the risk of stranded assets.
He pointed to the number of variables involved in the pathway to 2050, including the uptake of electric vehicles (EVs), decarbonisation of heat policy, the rate of growth in renewables and local flexibility.
“Given the level of uncertainty, I would expect a number of mechanisms to allow the sector to respond but avoid too much investment ahead of need” he said.
In its sector specific methodology for RIIO ED2, Ofgem put forward possible scenarios for distribution network operators (DNOs) to invest based on the “most likely” path towards achieving net-zero emissions by 2050. These set out various forms of a centralised approach as well as an option for DNOs to each develop their own “most likely” view based on the requirements of their region(s).
Asked which approach he favoured, Scarsella said: “I think Ofgem should have a centralised approach that enables a common scenario, so you can benchmark between the various regions. But, at the same time there should be uncertainty mechanisms in place to allow the various regions to move at a different pace.
“If you look just at UKPN, we have the eastern network, which will probably move at a different pace to London and the south. Certainly, when you look outside our patch there will be different regions moving at different speeds.
“What’s key is that overall planning is based on a common scenario that gets the UK to net zero by 2050.”
Scarsella stressed that DNOs will need to work closely with local stakeholders on the regional transition.
He added: “It would be unacceptable for a distribution network to dictate the pace at which the economy and consumers wish to move towards net zero. That is not our call. We need to make sure that at whatever pace each region moves, our networks must be fit for purpose and not create obstacles for the transition to low carbon.”
Scarsella said the rollout of EVs was the obvious volume driver for uncertainty mechanisms, measured against the asset utilisation of the network.
However, he cautioned: “Before reinforcing the network, you have to ask firstly, can you utilise the existing capacity and secondly, are there other flexibility services that can apply. Only when those options are exhausted should we look at reinforcing the network.”
The price controls for distribution companies follow on two years after their counterparts in transmission and gas. Ofgem’s draft determinations have been met with criticism from those networks, including the extent to which uncertainty mechanisms will be used.
Distribution companies will be watching the process carefully, but Scarsella said that so far nothing has surprised him.
“Ofgem are trying to deliver an electricity network that is fit for purpose but at the lowest possible cost and avoids stranded assets or investments.
“The levels of incentives recognises that and I think the approach is consistent. It certainly matches our approach. They key is that we can’t impede progress.”
The regulator’s methodology for ED2 sits alongside the wider question of whether the role of distribution system operator (DSO) should be separated from that of the DNO. For the purposes of the next price control, Ofgem expects DNOs to incorporate DSO functions into their business plans. However, it is also set to introduce measures that could support “optionality around institutional arrangements”.
Scarsella said: “At UKPN we aim to be leading the transition to DSO but at the same time retaining flexibility because the reality is that no one really knows yet what the DSO role should consist of. Making predictions and moving down a path that turns out not to be right doesn’t seem right to me.”