- Ofgem believes current arrangements are not geared up to
support net zero at the lowest cost to customers
- New bodies separate from network companies could be created
to plan and operate the system locally
- Ofgem is seeking views from industry, local authorities and
other interested stakeholders
Ofgem has launched a review into how the energy system is planned
and operated locally to ensure Great Britain is ready for a huge
increase in green, more affordable homegrown power.
This could result in the creation of new independent bodies
separate from network companies to oversee local energy systems
across the country.
Local power grids will play a critical role in helping to reduce
our reliance on expensive imports of gas, bring down energy bills
and meet the country’s climate goals.
They will deliver electricity to charge millions of electric cars
and power clean alternatives to gas boilers to heat homes and
businesses.
To do this most quickly and at the lowest cost to customers will
require a strategic, co-ordinated approach at a local level.
Currently, each electricity distribution network company is
responsible for operating its local power grid and planning for
future energy demand, for example by reinforcing the grid to
connect new local electric vehicle charging points and heat
pumps.
Local authorities also play an important role and need to make
sure that these network companies meet the needs of local
transport and housing.
Ofgem believes that the current arrangements have gaps, lack
co-ordination and could create potential conflicts of interest
which could add unnecessary costs to customers and delay the
transition to net zero.
For example, new local markets could play a bigger role in future
to balance power supply and demand flexibly and reduce the need
for building expensive new grid capacity.
However, if electricity distribution network companies are
responsible for these new markets, they face a potential conflict
of interest as building new grid capacity would boost their
revenues.
In today’s Call for Input, Ofgem
has set out four possible alternative arrangements. These range
from separating the local system operation function internally
within electricity distribution network companies to setting up
new fully independent regional bodies.
Charlotte Ramsay and Richard Smith, co-directors of energy
systems, management and security of Ofgem, said:
“To reduce our reliance on expensive imports of gas and bring
down customers’ energy bills, we need to accelerate our
transition to net zero. This will require a transformation of our
energy system, in particular at a local level.
“This review will ensure that local energy systems across Great
Britain are set up for a huge increase in green, more affordable
and homegrown power.”
, chief executive of UK100,
a network of local government leaders for delivering net zero,
said: "This review is extremely
timely and welcome.
"It is great to see Ofgem recognise the vital role of local
communities and authorities in creating the kind of future-proof
net zero energy systems we need, which have flexibility at their
core. UK100 members are keen and ready to play their part."
Notes to editor
- In addition to this Call for Input, and to complement our
information gathering, we will be carrying out a programme of
stakeholder workshops which we aim to kick off in June 2022. Over
the second half of this year, we will focus on evaluating reform
options, with a view to arriving at conclusions by early 2023.
The outcome of our workshops will help to inform how we take our
work forward, including how to evaluate change options.
- Earlier this month, the Government backed a recommendation
from Ofgem to create a new Future
System Operator (FSO) fully independent of National Grid to
oversee the energy system at a national level.
- Ofgem includes four sample alternative governance models in
its Call for Input. These models range from relatively small
changes, such as governance reforms within existing institutions
to drive effective delivery of energy system functions (eg
internal separation of Distribution System Operator or DSO roles
from Distribution Network Operators or DNOs), to more significant
reforms such as the creation of new institutions to deliver some
or all functions (eg independent DSOs or regional bodies carrying
out roles with responsibilities across electricity, gas and
heat). The sample models presented are not intended to be
exhaustive of all possible reform options but aim to stimulate a
wider discussion with stakeholders about challenges presented by
existing arrangements and how to best address them.
