Investing in the future of energy

Jonathan Brearley

Jonathan Brearley

Ofgem CEO
11th December 2020
Areas covered:
Corporate

Now more than ever, the world has its eyes on the future of energy. 

Cleaner ways of heating our homes and businesses are becoming available, such as electric heat pumps and hydrogen technology. The era of diesel and petrol cars is fast becoming a thing of the past. And day after day, we’re seeing plenty of changes to the way we generate electricity – including many thousands of smaller renewable generators. 

All of that comes against a backdrop of legislative changes. Last year the UK government legislated to cut Britain’s harmful carbon emissions down to net zero by 2050. They have since unveiled their 10-point green plan – with far reaching ambitions for offshore wind and hydrogen power. The Welsh and Scottish Governments have also made net zero commitments. 

Our energy system needs ongoing investment to support these ambitions – coupled with the excellent security and reliability that consumers deserve. Getting that right undoubtedly brings fantastic opportunities to kick-start a green economic recovery. 

Equally though, consumers continue to worry about their energy bills just as much as they’re thinking about climate change. And particularly in the light of the changes to our economy as a result of Covid-19, consumers do not want to pay unnecessary or unfair charges. 

And that’s exactly where Ofgem comes in. 

Boosting innovation, reaching net zero

As the energy regulator, Ofgem is central to helping Britain’s energy system meet these aims. And we do that by making sure that the monopoly network companies that run Britain’s energy infrastructure can invest to meet net zero targets, protect consumers now and in the future, and keep customers’ costs as low as possible. 

Those aims are at the core of our Final Determinations for price controls for the Transmission companies and Gas Distribution companies from 2021-2026. 

This includes a major investment programme into Britain’s energy infrastructure - which from the outset features £30 billion of funding, with potentially £10 billion more as needs become clearer.  

We’ve allowed the majority of the upfront net zero funding sought by network companies – this includes things like significant funding to connect renewable generation, reduce harmful greenhouse gas emissions from network equipment, and funding for the networks to reduce their own carbon footprints. On top of this, we have approved £660 million for innovation that could support a range of green energy innovation projects in RIIO-2. We’ve also set a new, unique price control for the Electricity System Operator (ESO) to enable it to operate a zero-carbon electricity system in the future. 

But we know the sector is likely to need to go further if we want to make new technology, innovations, and policies a reality in the coming years. 

That’s why we’re announcing a series of flexible funding mechanisms. Through these mechanisms we’re prepared to invest more funding in green energy projects – potentially £10 billion or more as government policy changes and new technologies develop. 

In their business plans, companies signalled potential investment in a range of projects – for example National Grid Electricity Transmission is exploring options to connect offshore wind to the grid along the East Coast of England as Britain ushers in 40GW of capacity in the North Sea. Similarly, Scottish Hydro Electric Transmission (SHET) have flagged potential additional investment as part of their aims to connect higher levels of renewables generation in Scotland. In the Gas distribution sector, Cadent have been funded to undertake a feasibility study for a hydrogen network in the north west of England. The outcomes of this work could inform further spending in future on the development of hydrogen networks.

Protecting consumers now and in the future

It will be welcome news for many then, that our new price controls enable greater levels of investment in greener energy infrastructure while keeping bill payments steady over the next 5 years. . Indeed, at the start of the period we will see a £10 reduction on consumer bills when compared with network bills through RIIO-1. This represents around £2.3 billion of savings to consumers over 5 years. 

We’re also pleased to announce more robust plans to protect consumers in vulnerable circumstances through a major step change in funding. These plans include a £132 million package of measures. 

Based on what companies have told us about their own vulnerability strategies, this funding will allow companies to set up a range of vital projects which will ensure that consumers in vulnerable situations are protected and not left behind. These projects will range from new efforts to raise awareness of carbon monoxide, to having more joined-up working between different utility providers. This work especially will be vital for ensuring that individuals on the priority services register are known across the different utility providers.  

With the days getting colder, this allowance will also be welcomed for preventing consumers in vulnerable situations being left without gas, following an interruption or emergency service visit. Now, many essential boiler repairs will be included within the scope of the allowance. 

Since we published our initial proposals in July, we have prioritised extensive consultation with stakeholders across the energy sector. We reviewed more than 22,000 pages of evidence from stakeholders across the sector. We’ve held a series of webinars  to equip stakeholders with the knowledge needed to submit their responses to our initial plans. And on top of all of that, we also held a series of Open Meetings that gave stakeholders the opportunity to discuss with the companies any aspects of their proposals. 

Our Final Determinations are the culmination of that work. 

There is still work to be done. But right now, we are confident that we have struck the balance between attracting investment to deliver a greener, secure energy system at the lowest cost to customers.