Ofgem unveils regulation reform strategy

Ofgem has outlined a new strategy for regulating the energy system to reflect what it said was the faster than expected pace of the low-carbon transition underway.

The watchdog said the move was designed to keep pace with major changes in how the country is generating and using energy.

As part of the strategy, Ofgem has also launched a significant code review looking into aspects of charging for using the energy networks.

Ofgem said its overall aim is to “ensure a regulatory framework that drives innovation, supports the transformation to a low-carbon energy system and delivers the sustainable, resilient, and affordable services that all consumers need”.

Key themes include balancing supply and demand at all times, efficient locational management and development of the energy system and system coordination and the institutional framework.

Demand for electricity set to rise

Andrew Wright, Ofgem’s Senior Partner for Energy Systems, said the transition to a low carbon energy system is happening at a pace that “nobody thought possible just a few years ago”.

“Every unit of electricity we consume produces, on average, around half as much carbon dioxide as it did five years ago. Renewable generation now accounts for around quarter of electricity produced,” he pointed out.

“Although we are well on the way to decarbonising our electricity system, there is a great deal more that we need to do. The Government target for 2030 of less than 100g of CO2 per MWh of electricity produced requires us to reduce emissions from the sector by more than a half again in just 13 years.

This practical challenge is increased by the likely growth in demand from electric vehicles. Demand will also rise if we start using electricity to heat our homes instead of gas.”

Ofgem’s Targeted Charging Review Significant Code Review announced as part of the strategy will look at how the network is paid for including reform of residual charging for transmission and distribution, for both generation and demand.

The review aims to address concern that the current framework for residual charging may result in inefficient use of the networks.

System operator change rubber-stamped

Meanwhile, National Grid is expected to separate its electricity system operator (ESO) function from the rest of its business by April 2019 after Ofgem rubber-stamped the proposal.

The UK Government, the electricity regulator and the company unveiled a joint statement back in January 2017 laying out the measures.

Those plans have now been given the go-ahead following a consultation.

The ESO function will be a separate legal entity but will still be part of the National Grid group of companies.

Ofgem is also removing £277.5m funding from National Grid’s price control allowance. This was for new pipelines and other network upgrades needed to provide capacity at the Fleetwood entry point to the national transmission system (NTS), a high-pressure gas pipeline.

Ofgem said it had decided to remove the funding as National Grid does not expect to incur further expenditure on providing the capacity during its current price control (2013-2021).

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