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NETWORK / 12 / NOVEMBER 2017 B uilding on the government's Industrial Strategy Green Paper, Professor Helm CBE was asked in August to consider the whole electricity supply chain of generation, transmission, distribution and supply. In his 'Cost of Energy Review', Professor Helm has called for a drastic overhaul of the UK's energy sector. He recommends a broad swathe of re- forms, some of which are outlined below: 1. Feed-in tariƒ s, contracts for diƒ erence and the capacity market auction should all be merged into a uni„ ed equivalent „ rm power (EFP) capacity auction. Low- carbon generators would be forced to bear the costs of their intermittency. 2. The legacy costs of the renewables obli- gation, feed-in tariƒ s and contracts for diƒ erence should be separated out, ring fenced and placed in a "legacy bank". They should be charged separately on customer bills and industrial energy us- ers should be exempt. 3. The government should establish inde- pendent national system operators (NSO) and regional system operators (RSOs) under public ownership. They should take on a number of duties currently undertaken by distribution network operators (DNOs) and Ofgem. 4. The RSOs should be given responsibility for securing local energy supplies and should do this by contracting out system requirements. This process should take the place of periodic reviews and price caps under the RIIO framework. DNOs would eƒ ectively become contractors - "one of a number of competitive suppliers". ELECTRICIT Y MARKET Professor Dieter Helm has called for a major overhaul of the UK's energy sector. In his independent report entitled 'Cost of Energy Review' he has outlined a range of proposed reforms to the electricity supply market. 5. Carbon taxes and prices should be har- monised by setting a universal carbon price across the whole economy. There should be a border carbon price to pre- vent emissions being exported. 6. Separate licenses for generation, supply and distribution should be replaced by a simpler, single license, at least at the local level. 7. Standard variable tariƒ s should be superseded by default tariƒ s based on an index of wholesale costs, the „ xed cost pass-throughs, levies and taxes, and a published supply margin. The govern- ment's proposed price cap should take the form of a cap on the supply margin." 8. The government should give an annual statement to parliament, setting out required capacity margins and guidance for the NSO and RSOs. Professor Helm says failure to implement these recommendations is "likely to per- petuate the crisis mentality of the industry, and these crises are likely to get worse, challenging the security of supply, under- mining the transition to electric transport and weakening the delivery of the carbon budgets." He added: "It will continue the unneces- sary high costs of the British energy system, and as a result perpetuate fuel poverty, weak- en industrial competitiveness, and undermine public support for decarbonisation." Read the full report at https://tinyurl.com/yck6jrah Read the views of Duncan Botting, managing director of Global Smart Transformation, on page 38. A reset for the electricity industry? INDUSTRY REACTION Energy Networks Association "Through the Open Networks Project, the functions of both local and national electric- ity networks are already being re-defi ned in close collaboration with industry and these changes will transform the way our electricity networks operate. The report is a valuable contribution towards the cur- rent discussion on the RIIO2 price control framework, however we believe that it is important that the integrity of the current RIIO1 framework is maintained." John Parsons, Networks Portfolio Manager, BEAMA "The Cost of Energy Review represents a fundamental reset for the electricity industry. As it's unlikely that current industry structures can deliver the transition needed, we can only welcome proposals for radical change. Indeed, the proposals are so exten- sive that it is diffi cult to anticipate the details of implementing them and their impact. In practice, regulation has become increas- ingly prescriptive and abandoning RIIO2 and opening the networks to competition will certainly encourage innovation." National Grid " In August this year Ofgem confi rmed that a more independent system operator role within National Grid was the right way to develop a secure, competitive and fl exible energy system that will benefi t bill payers. "This decision was made after extensive discussion and consultation, including with the Government, and recognised our vast experience and expertise in balancing the electricity system and ensuring the market runs effi ciently." electricity industry? INDUSTRY REACTION Cost of Energy Review Dieter Helm 25th October 2017 C M Y CM MY CY CMY K