Ofgem to launch net-zero innovation fund

Ofgem has published a list of nine actions it intends to take over the next year and a half in order to support the decarbonisation of the UK’s energy system.

The plan has been released on the same day as Jonathan Brearley – previously its executive director for systems and networks – replaces Dermot Nolan as its chief executive.

“This action plan sets out the steps that we will take as a regulator in the next 18 months to ensure that we enable the most effective decarbonisation of the energy sector at the lowest cost to consumers, Ofgem stated.

“We expect this workplan to adapt as government policy, technologies and circumstances in the energy market change.”

The regulator has pledged to:

• Create a new net-zero reopener mechanism within the RIIO2 price controls to allow network operators to invest efficiently and respond to changes.
• Replace the Network Innovation Competition with a new fund designed to address major strategic issues.
• Explore opportunities to coordinate the connection of offshore windfarms and interconnectors to the power grid with the aim of reducing costs.
• Assist the government and industry in developing cost-effective low-risk options for the decarbonisation of heating.
• Hold a strategic review of system operation informed by findings from its investigation into last year’s blackout.
• Ensure energy markets adequately reward flexibility, including by reforming network access and charging arrangements and moving closer towards market-wide half-hourly meter settlement.
• Develop a regulatory strategy to support the roll out of electric vehicles.
• Amend regulatory requirements and improve access to data to better support innovation and experimentation, particularly within the retail market.
• Form a net-zero advisory group to help Ofgem adapt its approach its regulation. It will work with industry to develop toolsets to enable better decision-making in the face of uncertainty and publish more detailed guidance on how it assesses regulatory options and their impact on emissions.

As part of its heating pledge, Ofgem has also committed to work with the Health and Safety Executive to review the Irons Mains Risk Reduction Programme as recommended recently by the RIIO2 Challenge Group. It will additionally review both the capacity requirements for the gas transmission network alongside National Grid and gas network asset depreciation once there is more clarity over the future of heat.

In an apparent response to criticism that it has given great priority to reducing bills than addressing the climate change crisis, Ofgem said: “It is expected that there will be additional costs in the short term as our energy decarbonises. We will continue to work to ensure that these costs are as low as possible, are shared as fairly as possible, and that vulnerable consumers in particular are protected.

“We are clear, however, that investing in the short term will save money in the medium and long term. Not acting today will result in much higher costs in the future as we would face an even tougher challenge to reduce carbon emissions. The dramatic reduction in offshore wind costs demonstrates that in the long term, low carbon energy can be cheaper than traditional fossil fuels.”