Utility Week

18 | APRIL 2022 | UTILITY WEEK Opinion Comment The cost of everything H aving battled through the RIIO-ED2 business plans trying to make sense of numbers that were impossible to compare, I was looking forward to the Ofgem Challenge Group report. The Challenge Group has the bene• t of seeing all the formal business plan template data that the companies provide to Ofgem, which therefore ought to be presented on a consist- ent basis. As expected, the Challenge Group report does indeed provide a helpful series of comparative cost tables looking across the Distribution Network Opera- tors (DNOs). They also do a simple tra… c light rating for various aspects of the company plans. This provides a very quick overview of the relative merits of the di‡ erent plans and a basis from which to probe further. That said, I have always been wary of such ratings precisely because they present a necessarily simplistic picture of what can be complex issues. Anyway, no surprises what this shows – UK Power Networks (UKPN) come out well ahead of the other DNOs with an almost clean sweep of green ratings. Among the others it's hard to split the pack – although Scottish and Southern Elec- tricity Networks (SSEN) does seem to have been marked down for having higher costs than the others across almost all areas. For the most part the elements that have been scored are the di‡ erent cost categories in the business plans. In practice the ratings seem based primarily on the extent to which costs have increased over ED1. That's perhaps a sensible place to start, but still leaves unanswered the question that I posed in my last article as to whether elements of UKPN's costs in ED2 are lower because you are getting less anticipatory investment in the network, leaving more to do in ED3. The Challenge Group does try to look at, for example, network utilisation and how the companies expect ED2 peak loads to increase against ED1 but the numbers are hard to interpret and so they are le" passing this back to Ofgem to explore further. Looking beyond the cost analysis, there are some areas where the Challenge Group is essentially provid- ing a judgment on the outputs being delivered – on Distribution System Operators (DSO), vulnerability and the Environmental Action Plan. In places it could be clearer what that judgment is based on – and in some areas where I have scrutinised the plans carefully for Sustainability First, I am le" questioning the Challenge Group's scoring. On DSO the Challenge Group sets out a number of criteria it has considered and UKPN scores highly across the piece, including for its clear plans around separa- tion. In practice, a proper debate is still needed on how far and at what pace the separation model is the right one for distribution. On vulnerability, UKPN scores highly for its ambi- tious target for Priority Service Register (PSR) customers as a proportion of those eligible. But there is not yet a consistent way of measuring PSR eligibility across companies so there is a risk of comparing apples and oranges. Reducing emissions And • nally, on the Environmental Action Plan (EAP), UKPN scores highly, along with SP Energy Networks (SPEN), seemingly down to their numeric targets for reducing their scope 3 emissions (that is, their emissions from their supply chain). In our Sustainability First deep-dive on the EAPs we caution against placing too much weight on such metrics in ED2 because work is still needed for all manner of companies on baselining of scope 3 emissions (including on embedded carbon). Indeed, we highlight in our response that SPEN does not yet have an accredited target for its scope 1 and 2 emissions and that UKPN only has a target based on meeting "well below 2 degrees" rather than the "1.5 degree" target that is now required as standard by the Science Based Targets Initiative (SBTI). Other DNOs with accredited targets all align to 1.5 degrees. UKPN looks good for committing to review its target mid-period but the reality is that it only needs to do this because its cur- rent target is inadequate. There is also a need to take account of the new Net Zero Standard that SBTI introduced in October, which talks about the role of o‡ setting – requiring any o‡ setting to be separately identi• ed with "no net zero claims until long-term targets are met". Only SSEN seems to have written its plan with that guid- ance in mind, whereas UKPN, SPEN and Western Power Distribution place heavy emphasis on a head- line "net zero" target in ED2 that excludes losses and relies (to an undisclosed level) on o‡ setting. In our view, Ofgem was right to require the companies to have targets accredited by SBTI and the focus should be on that, to avoid the smoke and mirrors of these various "net zero" claims. are getting less anticipatory investment in the network, leaving more to do in ED3. The Challenge Group does try to look at, for example, network utilisation and how the companies expect ED2 peak loads to increase against ED1 but the numbers are hard to interpret and so they are le" passing this back to Ofgem to explore further. Looking beyond the cost analysis, there are some areas where the Challenge Group is essentially provid- ing a judgment on the outputs being delivered – on Distribution System Operators (DSO), vulnerability and the Environmental Action Plan. In places it could be clearer what that judgment is based on – and in some areas where I have scrutinised the plans carefully for Sustainability First, I am le" questioning the Challenge rent target is inadequate. There is also a need to take account of the new Net Zero Standard that SBTI introduced in October, which talks about the role of o‡ setting – requiring any o‡ setting to be separately identi• ed with "no net zero claims until long-term targets are met". Only SSEN seems to have written its plan with that guid- ance in mind, whereas UKPN, SPEN and Western Power Distribution place heavy emphasis on a head- line "net zero" target in ED2 that excludes losses and relies (to an undisclosed level) on o‡ setting. In our view, Ofgem was right to require the companies to have targets accredited by SBTI and the focus should be on that, to avoid the smoke and mirrors of these various "net zero" claims. In her latest column exclusively for Utility Week, Maxine Frerk delves into the Ofgem Challenge Group report on the business plans of the DNOs, which assesses their strategies around distribution system operation, vulnerability and emissions.

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