“The transition will … require consumers to be engaged. How and when energy is used must change,” states new chief executive Jonathan Brearley.
Ofgem expects retailers to drive behaviour change.
“Most forms of flexibility will require consumers to change their behaviour. Retailers will be critical to fostering this behaviour change in homes and businesses – by developing and marketing products and services that encourage and make it easy for consumers to use energy efficiently and at different times,” states the decarbonisation plan.
For its part, the regulator said it will ensure reforms to retail and flexibility markets properly incentivise businesses and households to loadshift in order to save “billions of pounds on their energy bills”. The regulator claimed its new frameworks will make these markets “hassle-free”.
How the UK population reacts en masse to new arrangements and systems and whether today’s retailers can deliver the task Ofgem is setting them remains to be seen. Ofgem acknowledged its work and that of government in attempting to design smarter systems would “be more powerful if a realistic model of consumer behaviour were to be incorporated into policy making from initial conception to implementation and evaluation”.
Either way, power networks must also prepare for an increase in peak demand from electric vehicles and potentially heat, if gas with carbon capture and storage does not come forward.
As such, Ofgem said it will encourage network operators to invest upfront – where they can prove their plans provide good value. The regulator said its existing RIIO framework supports that approach, but Brearley is explicit: “We are clear … that investing in the short-term will save money in the medium and long-term,” he states. “Not acting today will result in much higher costs in the future.” Ofgem said it will provide some guidance around justification ahead of the next price control.
The regulator will also create a mechanism that caters for uncertainty and new technological advances within its regulatory frameworks, so that operators are not stuck with fixed duration investment plans if things change along the way. It is calling this a “net zero re-opener”.
Elsewhere, the plan moots a more co-ordinated approach to offshore wind networks, potentially leading to a linked offshore grid. Offshore wind capacity must “increase enormously to achieve net zero”, states Ofgem.
The plan is light on detail around heat, despite acknowledging it as “arguably the biggest challenge that the energy sector faces over the coming decades”. Ofgem said it will wait for government’s Low Carbon Heat Roadmap due later this year to set the direction. Ahead of that, the regulator said it would continue to work on evidence and costs of different approaches.
Ofgem said it would review gas networks’ mains replacement programmes and asset depreciation “once there is more certainty around the future of heat generation and transmission”.
The document also sets out plans to:
- review ‘green tariffs’ and suppliers’ claims about them
- review the role of system operators
- develop a regulatory approach around EVs
- facilitate better use of energy data
- provide guidance on how Ofgem accounts for decarbonisation
See the plan here.