Issue link: https://fhpublishing.uberflip.com/i/883776
NETWORK / 9 / OCTOBER 2017 T wo reports have been published in the past month looking at the future of heat. One, which I co-authored for National Energy Action, was on the fuel poverty impacts of heat decarbonisation, and looked at the three leading approaches of electri• cation, district heating and repurposing the gas grid. This concluded there were some immediate win-win steps that would help with both fuel poverty and heat decarbonisation, but that further investment was needed in research to bring down the costs – and increase consumer acceptability – across all options. The other report by Carbon Connect focused on the options for the gas grid – again look- ing at short-term actions to increase the 'green' content of gas and changes to the regulatory regime, as well as further work required to demonstrate the potential of hydrogen. Given the strong consensus that heat decarbonisation is a huge chal- lenge and one that will have major rami• cations for the gas networks, it was disappointing that Ofgem's open letter on the framework for RIIO-2 displayed the usual bias towards the super• cially sexier topics of … exibility and smart grids. However, the • rst round of RIIO-2 majors on gas, and it is vital therefore that Ofgem's thinking re… ects the challenges that heat decarbonisation brings. I've set out below a six-point plan for RIIO-2 for gas – but the key message is for Ofgem to think hard about how you regulate a sector whose future is so uncertain. Point 1: Keep options open. Consumers' interests are best served at this point by keeping all options • rmly on the table. That means providing innovation funding to build understanding on the future options for use of the gas grid – and continuing the gas mains replacement programme that opens up the hydrogen option. Point 2: Allow GDNs to consider alternatives to gas now. Where it is clear even at this stage that gas isn't the right long-term solution for a particular locality, the GDNs should have the … exibility to employ alterna- tives. In the electricity world Ofgem encourages 'smart' alternatives to traditional reinforcement. On the same basis, if it isn't cost-eŠ ective to maintain a gas supply for one or two individuals in a tower block who just use gas for cooking, for example, then GDNs should be able to buy such customers out by providing electric cookers and for that to count as acceptable opex. If that requires legislative change, it should be pursued urgently. Point 3: Encourage greening of the grid. At the heart of RIIO is a focus on incentives and outputs. If we want to see a gradual greening of the gas in the network, then GDNs need an incentive to drive them to facilitate new biogas, or other low carbon, connections. Point 4: Work with local and regional government. A common theme of most reports on the future of gas is the local dimension. Regional characteristics will determine which heat solutions are most appropri- ate for the long term. Re… ecting this, Local Enterprise Partnerships are now charged with producing energy plans and the growth of district heating is oŽ en driven by local authorities. Another facet of the RIIO frame- work is the strong emphasis that is put on consumer and stakeholder engagement. Ofgem should send a strong message that the companies' engagement should include these key stakeholders. Point 5: Build … exibility into RIIO-2. As the Carbon Con- nect report concluded, there needs to be … exibility built into RIIO-2, so that as and when government policy becomes clearer, the RIIO regime can be revised. That could mean some sort of re-opener, but I would argue that the uncertainty means that an eight-year control is too long and a return to • ve years is right in this case. Point 6: Reassure investors about regulatory risk. The one place where Ofgem's open letter did talk about the future of heat was on the possibility of asset strand- ing – but with no mention of the implications of such a risk for the cost of capital. The long-term consumer interest has been served by having a stable regulatory regime and a RAB that has eŠ ectively been guaran- teed. If Ofgem looks as if it might be rescinding on that implicit commitment then it will have wider rami• ca- tions – not just for investment in gas networks, but in any of the other solutions for heat. Ofgem will now be digesting the responses to its open letter. Inevitably all the electricity networks responded, and many other stakeholders will have followed Ofgem's lead in focus- ing on electricity in their comments. Ofgem needs to redress the balance. "It was disappointing that Ofgem's open letter displayed the usual bias towards superfi cially sexier topics." I N J E CT I N G H E AT I N TO T H E D E B AT E MAXINE FRERK DIRECTOR GRID EDGE POLICY