Networks failing to show ‘true leadership’ on net zero

The RIIO2 challenge group has lamented a lack of “true leadership” among network operators on subject of decarbonisation, stating that none of the companies that submitted business plans to Ofgem in December have been “genuinely proactive”.

The only exception was the electricity system operator (ESO) at National Grid, which showed “laudable ambition” in committing to make the power grid ready for zero-carbon operation by 2025. However, the expert panel also highlighted ambiguity over the ESO’s future role and called for the situation to be “clarified without delay”.

In its report on the submissions, the challenge group said that “all companies have upped their game” when compared to the current price controls, but “none have shown true leadership”.

“Whole system thinking in particular needs further development and very few companies have fully engaged with the wide range of potential paths which may be required to meet net zero, particularly as it is for all a game-changing, and for some, an existential, issue.”

The report praised Cadent and the transmission arm of SP Energy Networks for discussing the issue in an “informed and intelligent way” and considering a range of scenarios, whilst “drawing on objective sources of evidence, not simply industry perspectives”. It said they, along with National Grid Electricity Transmission, put forward “substantive new proposals”.

“The better plans also include non-asset related issues, such as billing methodologies, as well as the implications for assets,” it added.

“They show serious engagement with stakeholders outside their part of the sector and indeed outside the sector altogether, show a real understanding of the challenge of moving to a genuine whole systems approach and have started to map out possible delivery pathways.

“Poorer plans lack ambition, analysis and detail. They focus on scenarios that maximise the role of their company, rather than on alternatives and are not fully informed by outside expert analysis.”

The challenge group said that achieving net zero emissions will require co-ordinated policy covering the whole of the energy system but it is “not at present clear who will drive that policy.”

“While there are arguments for the ESO to take a greater overall leadership role,” it explained, “this also presents significant challenges and may have unintended consequences.

“We think that this is an area that must be clarified without delay.”

The report said the ESO’s business plan envisions an enhanced role for the body which includes enabling the cost-effective decarbonisation of the energy system. But it said comparison with those submitted by the electricity transmission companies suggests there is a “lack of clarity about specific roles, at least at the margin.”

“We are not convinced therefore that gaps do not remain, which the ESO ought to be filling, or unnecessary duplication of effort,” it added. “There is also (or perhaps because of this) an incomplete mapping from net zero to all the activities which are needed to deliver this.”

The panel raised concerns over the ESO’s proposals to upgrade its IT systems to support the transition, saying that although the investment is justified, “there does not seem to us to be robust prioritisation across what is a complex capital programme.

“We remain concerned that critical elements may be undercut by fire-fighting/diversion of effort to earlier but less critical elements of the programme should the ESO come under delivery pressure… We think that appropriate governance mechanisms will be essential if delays and nugatory investment are to be minimised.”

The report likewise expressed support for the ESO’s efforts to overhaul balancing markets to improve accessibility and move close to real-time procurement but said there appears to have been no consideration of need to provide long-term price signals for investment in new assets. It said the ESO’s proposed review of the interactions between balancing, capacity and wholesale markets by 2026 should be delivered “much earlier”.

“Overall, we think this is an area that needs close oversight from Ofgem to ensure that the benefits can be realised in a timely way and that the proposed changes do not result in new complexity or market barriers being created,” it concluded.

The report covered the business plans for the transmission and gas distribution sectors as well as the ESO, which will all begin their next price control period in April 2021. The timetable for the electricity distribution sector is set back by two years.

It also said networks operators could not justify £4.1 billion of non-load-related expenditure and called for an “urgent review” of the mandatory iron mains replacement programme for gas distribution networks.