BEIS considers net-zero guidance for Ofgem

The government is “looking at” amending Ofgem’s remit to explicitly reflect the net-zero 2050 target that was enshrined in legislation last year.

Energy minister Kwasi Kwarteng made the comments in an appearance before the Department for Business, Energy & industrial Strategy (BEIS) select committee.

The move was welcomed by the committee’s chair Darren Jones, who today wrote an open letter to the regulator’s chief executive Jonathan Brearley following his own appearance before the panel.

Given that the goal is now a “policy certainty”, it should be better factored into the regulator’s upcoming RIIO2 review of the energy networks price control regime, Jones writes:  “Delivering net zero and energy security is essential, and delaying necessary investments may only increase costs in future.

“Slower investment now may only increase costs later, impacting future consumers. As such, the certainty of net zero must be better recognised in the price control.”

Jones adds in his letter that Ofgem should review the provision of net-zero funding in RIIO2 to provide the “clarity and confidence needed to deliver the necessary investment”.

He also calls for the uncertainty mechanism, which allows fluctuations in network companies’ allowed revenues in response to changes during price control periods, to be overhauled.

Pointing to the need for an “efficient and agile process” so that new funding can be allocated as required throughout the price control period, he writes: “Narrow application windows, a slow process, and insufficient pre-construction funding can all impact the delivery of essential infrastructure.”

“This needs to change to give the clear signal needed to mobilise investment into critical net zero projects while maintaining robust scrutiny.”

Brearley acknowledged to the committee that the uncertainty mechanism proposed in the regulator’s draft determinations is “too slow and not fit for purpose” and will be reconsidered when the final version is published.

However, Jones endorses the National Audit Office’s criticism of RIIO1 for being over generous and urges Ofgem not to “give in” to pressure for RIIO2 to follow.

Jones also calls for the level of funding support earmarked for vulnerable customers in the draft determinations to be rectified in the light of increased demand due to the coronavirus pandemic.

Jones concludes his letter by expressing hope that the final RIIO2 determinations prevent a repeat of the Competition and Market Authority appeal currently ongoing for the water industry by “adequately addressing stakeholder concerns”.

Jones has also written to Kwarteng and chancellor of the exchequer Rishi Sunak urging clarification of the government’s plans for carbon pricing as the end of the Brexit transition period at the end of this year as the UK’s membership of the EU emissions trading system (ETS) expires.