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A former Ofgem chief has told Utility Week that he fears energy companies could use the regulator’s proposed net zero mandate to push through investments that are not in consumers’ best interests.
The government confirmed on Tuesday (6 June) that it will amend Ofgem’s existing duties to include a reference to the net zero targets outlined in the Climate Change Act 2008.
This means the regulator will be legally required to consider the UK’s net zero carbon emissions target in all decision making.
Yet Dermot Nolan, who served as Ofgem’s chief executive for six years until February 2020, said while he was “broadly supportive” of the move, he is concerned about some firms abusing the net zero duty.
Nolan, who is now a senior advisor at consultancy Fingleton, said: “I would potentially be concerned that sometimes companies would use it as a device to get investments through that Ofgem did not think were in customers’ interest. That would be a concern.
“Everybody knows, including Ofgem, that you will need massive levels of investment for net zero but I would still think the regulator has to retain the discretion to decide how to get there, at least in the areas that it is competent for.
“That would be my only concern. I don’t think that’s a show stopper though, in the sense that provided it’s properly drafted it can reflect the idea of Ofgem trying to get to net zero but to do so at what it feels is the lowest cost for customers.”
He is not the only industry expert to raise concerns about the legal mandate.
Adam Bell, the former head of energy strategy at the then Department for Business, Energy and Industrial Strategy and current head of policy at management consultancy Stonehaven, said he failed to see how a net zero duty tackles the major challenges facing the regulator.
Specifically he raised concerns about the fact the government hasn’t yet made a clear decision on its pathway to decarbonisation, as well as the fact that there are major problems in delivering grid connections.
He told Utility Week: “It’s not clear to me at all in any way how a net zero duty changes the dynamic there. It doesn’t tackle the heat decarbonisation question, it doesn’t create new impetus for speedy decision making.
“All it does is just basically add a plus one to its existing sustainable development duty and its existing duty to have regards to greenhouse gasses and future consumers.”
Elsewhere Doug Parr, chief scientist and policy director at Greenpeace UK, welcomed the news.
He told Utility Week: “There was a frustration that was coming through from businesses that nobody’s really taking hold of what these carbon budgets mean, there’s nobody grasping it. This should give the energy regulator the job of making sure that we hit the carbon budgets.
“Now if you look at the specific wording it doesn’t quite do that, it says it’s got to reflect the interests of consumers in hitting those carbon budgets which is not quite the same but it is a substantial step forward.”
The topic of how regulators can remove barriers to accelerated delivery will be discussed at Utility Week Forum on October 4-5 in London. Find out more here.
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