Driving Net Zero: how Ofgem is creating an energy network for the future
Blog
Akshay Kaul
Director General, Infrastructure
Publication date
Industry sector
- Distribution Network
- Transmission Network
The war in Ukraine has heightened the UK’s focus on the need for a reliable energy system that is less dependent on gas imports. As Great Britain’s energy regulator, it is Ofgem’s job to pave the way for a large investment in infrastructure. This investment is vital to move away from imported fossil fuels towards a homegrown, cheaper, and more secure net zero energy system.
We’ve been working towards that for the last 15 years. Ofgem and our colleagues across the energy industry have created policies that support the use of renewable energy sources. However, we have not reached the end of the journey. There is much more to be done, to make sure we meet our target of a net zero electricity system by 2035 and put ourselves on track to meet net zero by 2050.
Renewable energy from wind and solar farms has a key role to play in our future energy system. Carbon capture and storage, nuclear energy as well as batteries - including in our cars - will be part of this complex puzzle. Add to that the move to electricity as the future main source for heating and transport, and we have a real revolution in how the UK generates and consumes energy.
Network changes
The change of energy sources is often in the spotlight, but we also need massive changes to our electricity networks. Energy lines, poles, pylons and substations are the motorways, A-roads and country lanes that electricity uses to get from generator to customer. As we increase our electricity demand, these roads will need to be improved and expanded. The network will also need to manage extreme weather caused by climate change.
All this means Ofgem has a huge job on its hands: to make sure we have strong infrastructure in place to meet these challenges, and that it is finished efficiently and at low cost.
Infrastructure investment
We have already taken actions to help rapid investment in new transmission infrastructure. For example, we applied the Electricity System Operator’s assessment of how best to bring future offshore wind power into the national network. This led us to approve new investment in just a few months, rather than years.
However, we need also to look more deeply at how we regulate network companies. The current structure was set up when the energy industry was first privatised to make sure network companies were efficient at running the system. At this time, the system of gas and electricity networks had already been built. Now we need to transform that system.
Local upgrades
With electricity demand expected to more than double, we need to build electricity networks at a rate not seen since the middle of the last century. Upgrades will be needed at a local level to manage the increased demand driven by the electrification of heat and transport. When we build new offshore wind farms, we need to connect them to the towns and cities where the energy is needed.
To deliver the changes needed at the ever-growing pace required in the coming years, we are taking a different approach.
Future Systems
To help us through this transition we, alongside government, are creating a new independent public body. This body, which we’re calling the ‘Future System Operator’ or FSO, will be responsible for planning and optimising both the electricity and gas networks. The FSO will allow us to holistically plan, and shift to a new ‘invest and connect’ policy where infrastructure is built and ready ahead of when it is needed, at the lowest cost to consumers.
Another challenge is how to run an electricity system that relies on energy sources that can be intermittent. When the sun is shining and it’s windy, we need to save the extra power we generate. And when it’s cloudy and still, we need to access that energy again. Consumer devices like electric vehicles and heat pumps can be fitted with devices to change when and how they use power. We’ll also need energy storage that can both respond to changing electricity generation and avoid some costly network upgrades. Smarter tools, developed through digitalisation and AI, will not only make this possible, but must also play a role in planning for the future.
At the same time, hydrogen could have an enormous role in decarbonising industry and allowing renewable energy to drive the electricity system. We are currently working with government to set up the regulatory systems to enable this.
New regulatory framework
Given the scale and range of factors affecting the future development of our gas and electricity networks, we are looking at the most appropriate regulatory framework for the challenges and opportunities that lie ahead. How can we best use the opportunities of the new Future System Operator, and of digitalisation, to regulate to help ensure consumers get the best value from the overall energy system - not only to benefit from efficiently run networks? Is the broad framework of the past suitable to drive the transformation ahead?
The current ‘RIIO’ framework, which sets the price controls and determines the investment into our gas and electricity networks, is in place until 2026. However, to achieve the government’s ambitious goals of a net zero power system by 2035, and net zero target of 2050, we need to plan ahead, stepping up our efforts to radically restructure our energy networks at pace.
For this reason, we are now undertaking a consultation to consider the most appropriate regulatory framework to get the infrastructure we need built in the right place, at the right time, and the right price, beyond 2026. This work will be crucial to deliver the cheaper, greener, and more secure energy system we need for the long term.
The consultation is open to feedback from all stakeholders, and I would strongly encourage you to contribute to the debate.
You can find out more about our work on frameworks for future systems and network regulation in our consultation. We are hosting a virtual engagement event on Thursday 30 March 2023 where we will discuss in more detail the options and development work. Book your place at the event