Utility Week

26 | 14TH - 20TH FEBRUARY 2020 | UTILITY WEEK Operations & Assets Event Paying for Net Zero debate, London I n the wake of the UK's landmark commit- ment in 2019 to achieving net zero emis- sions by 2050, heated debate has been stimulated over the best and fairest ways to fund the shi•. The issues encompassed in this chal- lenge are complex and impact a broad range of stakeholders, from individual consumers and communities, to business and industrial energy users and utilities, including the UK's regulated energy networks. It was in anticipation of a dynamic and wide-ranging discussion that Utility Week sis- ter publication Network, in association with National Grid, brought together a roundta- ble debate in late 2019 focused on advancing the debate around how to pay for the UK's net zero ambition. The roundtable included participation from senior network leaders, industrial energy users, academics, environmental NGOs, energy efficiency advocates and regu- latory experts. And it did not disappoint in terms of the breadth of discussion. The scale of the problem Participants raised considerations includ- ing the urgent need for clarity on low car- bon heat pathways before decarbonisation policy costs can be effectively allocated. They touched on the need to reinvent busi- ness models for energy retail so that energy efficiency services can proactively drive down demand and reduce the overall net zero price tag. And they explored the inter- action between successful decarbonisation cost allocations and the challenge of build- ing better public trust in both government and industry as positive agents for action against climate change. A key issue here was the current inadequacies inherent in loading low carbon policy costs on to bills in a way that disproportionately impacts low income households. A gamut of other concerns, from the increasing appetite for energy self-reliance among industrial and commercial energy users and the need to promote investment in biodiversity as part of the net zero agenda also featured in our conversation. Key controversy – Ofgem's balancing act Arguably the most controversial issue raised during the debate was Ofgem's current approach to balancing the interests of cur- rent and future customers, and the way in which this is influencing its design of net- work price control frameworks. One senior network industry leader at the event said they found it "unacceptable" that the regulator has "dodged this ques- tion for a long time". They said Ofgem had failed to act quickly to adapt its regula- tory measures to take into account the legally binding nature of the net zero commitment and the way this should have shi•ed its focus on driving down short to medium term energy system costs for consumers. "That hesitation in assuming a policy baseline which is set against achieving the [net zero] target is hugely damaging in lots of small ways," they insisted. Other industry representatives sec- onded these comments, reiterating previ- ous calls for an update to Ofgem's remit so that it includes a specific duty to support decarbonisation. Regulatory experts at the debate pushed back on some of these points, however, stating that it is "superficial" and "glib" to expect a new duty on the regulator to signifi- cantly change its position on the need to bal- ance current and future consumer interests. They emphasised that sustainability and the environment already sit at the heart of Ofgem's approach to executing its duties. One expert said: "Net zero is legally binding and there is absolutely no question that the regulator has to take its decisions within the legal framework in which it is set. "I don't think another duty is the issue here. The issue is how do you trade off the interests of current consumers against the interests of future consumers. Because when you make these kinds of big transforma- tional investments, inevitably you will raise charges in the short to medium term, hope- fully for the benefit of a future generation of consumers. But that is a difficult question because it is not obvious that loading extra costs on people who are already struggling to pay their fuel bills is particularly fair." Despite these disagreements, there was broad consensus that the regulator is mov- ing to rebalance its historical focus on short to medium-term cost pressures on consum- ers with an appreciation of longer-term sys- tem transformation needs, and that this is a good thing. Some examples of this were pointed to in the regulator's consideration of a National Grid proposal for a rapid EV charging net- work – regulatory experts explained that previously this would have been considered beyond Ofgem's remit to support and would have been pushed back to government. Furthermore, it was revealed, Ofgem is taking advice from the Committee on Climate Change about the extent to which it should allow for "oversizing" of networks today in advance of anticipated EV and electrified heat demands. The regulator is "absolutely open to this idea", according to those in the know, albeit with due consideration to the fact that new technologies may arise soon that mitigate the need for oversizing.* It's likely that 2020 will bring further insight and debate about this direction of travel in networks regulation. The year is set to be a critical one in terms of RIIO2 busi- ness plan development at the DNOs (distri- bution network operators) and settlement decisions for the transmission networks, electricity system operator and GDNs (gas distribution networks). As discussion at this roundtable high- lighted, these price control milestones must not progress in isolation and without regard to parallel developments in climate change policy and innovation. Our event signalled some significant anticipation of the out- comes of a Treasury review of decarbonisa- tion costs, including the way in which these Who foots the net zero bill? At an exclusive Network debate, energy system stakeholders discussed the big questions and challenges involved in finding a fairer way of paying for decarbonisation. Jane Gray reports. "It is not obvious that loading extra costs on people who are already struggling to pay their fuel bills is particularly fair."

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