Ofgem proposals for DNOs ‘not sufficient’ for net-zero goal

Ofgem’s proposals for the future role of distribution network operators (DNOs) are “not sufficient” to meet the 2050 net-zero target, a prominent academic has claimed.

University of Exeter energy policy professor Catherine Mitchell was responding to a new paper on the regulator’s plans for DNOs to take a more proactive role in the management of their networks through their transformation into distribution system operators (DSOs).

The paper featured a breakdown of the various functions they will likely need to fulfil. The included, for example, analysis of the value of distributed energy resources (DER) – a function she was happy to see.

Mitchell said this is “absolutely essential” and something DNOs should already be doing. “Every single network area is going to be different whether you’re in Blackpool or Newquay,” she explained.

But she also told Utility Week there was an important omission.

As part of its IGov programme, the University of Exeter’s Energy Policy Group has previously called for DNOs to undergo a more radical transformation by becoming distribution service providers (DSPs).

DSPs would facilitate and coordinate local energy markets, which would be used to balance the electricity system at the grid supply point level where cost-efficient. Remaining imbalances would then be bought and sold in national markets. Parties trading within the local area would benefit from reduced transmission charges.

Mitchell said local balancing would help unlock new sources of flexibility and expressed disappointment that this function was not included on the list.

She said the DSO model as currently proposed by Ofgem is “basically just system services and flexibility,” adding: “It is absolutely not going to be sufficient to get us to net-zero.”

Alongside the release of the paper, Ofgem also launched a consultation on the framework for the RIIO ED2 price control beginning in 2023.

In an open letter to stakeholders, the regulator suggested that DNOs may be given new incentives for helping to meet the net-zero target, for instance, by reducing demand on their network or supporting the growth of renewables.

Mitchell welcomed Ofgem’s citation of the DSP model as an example of how this might work and said she was “very pleased” by its enhanced focus on decarbonisation.

Under the DSP model proposed by the Energy Policy Group, network companies would earn an increasing proportion of their revenues from incentives to meet government policy goals as well as levies on market transactions.

The suggestion that DNOs may be incentivised to support the decarbonisation of the power grid was similarly welcomed by the Energy Networks Association.

“Private investment by the electricity network companies has helped to make Britain a renewables powerhouse so we welcome Ofgem’s focus on decarbonisation in their open letter on ED2,” said a spokesperson.

“It is vital that the regulatory regime allows DNOs to attract investment to build on their record levels of customer service and reliability and is also joined up with the government’s industrial and clean growth strategies and the achievement of net zero.

“We support the ED2 framework reflecting the integral role that DNOs will play in the delivery of these strategic objectives.”

Ofgem recently came under fire from the Confederation of British Industry for failing to give enough weight to environmental concerns when setting new rules – a charge which the regulator denied.