Utility Week

16 | JANUARY 2021 | UTILITY WEEK Policy & Regulation Green Industrial Revolution NIS proposes net zero duty for regulators The National Infrastructure Strat- egy (NIS), which was published alongside the chancellor's Spend- ing Review at the end of November, backed handing utility regulators a new net zero duty. The Treasury said a policy paper on economic regulation to be pub- lished next year will consider the duties of the UK's economic regula- tors, including Ofgem and Ofwat. The document says the govern- ment supports a recommendation by the National Infrastructure Com- mission, 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 meas- ures", including a net zero duty, to ensure that regulators make the "necessary contributions" to achieve the statutory goal of reducing emis- sions to net zero by 2050, it adds. The NIS, which is the govern- ment's long-awaited response to the NIC's 2018 National Infrastruc- ture Assessment (NIA), says it sup- ports the introduction of a "coherent approach to price, quality, resilience and environment" by the UK's eco- nomic regulators. The Energy White Paper commit- ted to 'set out our vision for energy as a guide to Ofgem' by consulting on a strategy and policy statement for the regulator in 2021. Also, the NIS confirms that the government backs the NIC's recom- mendation that total system costs should be factored into the design of CfD rounds "as far as possible". And the NIS contains an announcement that the government is setting up a new UK infrastruc- ture bank. The 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 govern- ment's ambitions on net zero. Heat scores a big point Boris Johnson's recognition that heat has a part to play in decarbonisation could mark a step change in policy thinking. With much of the prime minister's 10-point plan for a green industrial revolution having already been heav- ily trailed, the signals on decarboni- sation of heat were one of the few genuine surprises. Experts tell Utility Week the tar- get of installing 600,000 heat pumps a year by 2028 is a welcome sign of ambition, although it may still not be fast enough to put the country on track for net zero by 2050. For heat pumps, that's a pretty ambitious target for 2028," said Jan Rosenow, director for European pro- grammes at the Regulatory Assis- tance Project. "It's probably not quite enough. It's not in line with what the Climate Change Committee believes we need. But it's pretty close and it's certainly a massive step up from the 30,000 that we have right now." Rosenow, who is also an honorary The caveat to this is that government bor- rowing has exploded to record peacetime levels to finance lockdowns and furloughs during the pandemic, although Lockwood argues that the additional investment required for net zero is negligible in the con- text of the vast sums borrowed to prop up the economy. In addition, historically low levels of interest rates mean that it makes sense to borrow currently. Stark, too, points to this as a justification for borrowing now to finance And if there ever is a good reason to bor- row, tackling climate change must be one of them, given that the action is being taken for the sake of future generations, says Lockwood. Consumer buy-in Unless households are helped to make the transition to a lower carbon future, there is the risk of a political backlash, he argues. It will be difficult enough to convince ordinary households to switch to heat options, like heat pumps, without demand- ing that they fork out more than they would have to for a new boiler, he says: "It's going to be difficult to impose this on households, if they have to pay an additional £10,000; it's not going to happen and the government knows that." The CCC says that one million heat pumps must be installed a year by 2030 in order to get the UK on track to meet its 78 per cent target. This goal is "not, not feasible", says Buck- land. However, it is not achievable in the cur- rent policy and regulatory climate. "At the moment, the government doesn't have a pol- icy framework that will deliver it," he says. He claims that one of the problems is the unequal policy costs for electricity and gas, a point taken up by Laura Bishop, chair of the Ground Source Heat Pump Association. "While gas is cheap, it's going to take a long time to offset the cost of running a gas boiler. Until the gas price is more in line with the electricity price, it's going to be very, very difficult," she says. "If the government wants to go for electrification of heat, it is going to have to address the different prices." Stark observes that implementing its rec- ommendations is going to require "strong leadership" from government "especially over next two parliaments". Tackling this thorny issue could show whether the PM's green recovery ambitions are more than hot air. David Blackman, policy correspondent continued from previous page

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