The writer is chair of the UK’s net zero review and a former UK energy minister
Our energy regulator Ofgem should be playing a crucial role in climate policy if we are to reach net zero, but in its current shape, it is not fit for purpose.
Despite government departments being aligned with the 2008 Climate Change Act, the regulator’s remit has not substantially changed since its establishment in 2000. This means it fails to prioritise electricity decarbonisation as set out in the UK’s net zero legislation. As a former energy minister and author of the government’s net zero review, I believe Ofgem needs reform to help electrify the economy and bring down bills.
The organisation’s legal duty is to protect the interests of existing and future consumers. While this does include the reduction of greenhouse gases, the mandate has never been explicit enough, and Ofgem’s role has traditionally been more of an economic regulator than anything else. This has led to a focus on prices and competition that leads to short-term considerations with negative longer-term impacts.
We need to take a more strategic view. A net zero energy system is predicted to be billions cheaper than the system we have. But to get there will require upfront investment and planning.
My net zero review, published this year, heard from hundreds of innovative companies eager to bring new technologies to market. But these are all being hampered by slow, ponderous bureaucracy, and an antiquated approach to grid connections which is not suitable for a 21st-century electrified economy. It’s why the first of my 10 missions, set out in the review, was to reform “grid and infrastructure”, and why a key recommendation was to give Ofgem a net zero duty.
At present, grid connections are being built on a just-in-time or retroactive basis, rather than proactively planned in areas where we know renewable energy will be built. Some onshore renewables have been quoted dates for connection as late as 2036, and in some cases, connecting offshore wind to the grid can take three to five times longer than the delivery of the project itself.
Delays have become the new normal: hundreds of renewable energy projects are being held up either in planning, or in a queue for a grid connection. The National Grid estimates that about 600 projects with a combined capacity of 176GW (our current capacity is just 64GW) are backed up in a sclerotic deployment system for future renewable power. During an energy price crisis, we can’t afford to wait.
The madness doesn’t stop there. The current system overseen by Ofgem favours electricity coming from Europe, rather than wind farms built in the UK’s windiest areas. Due to a lack of investment in transmission networks, Scottish generators are at a significant disadvantage compared with sites in France, Netherlands, Belgium, Germany, Denmark or Norway.
Ofgem can and must help sort out this mess if it’s given the powers. As the chief executive of Energy UK said last month, Ofgem is fast becoming “the de facto UK regulator for net zero”. This follows similar calls by expert bodies such as the Climate Change Committee, the National Infrastructure Commission and the House of Lords industry and regulators committee. Tim Pick, the government’s first “offshore wind champion”, has already concluded that Ofgem’s powers should be changed to “give proper weight” to the 2050 target.
Ofgem’s own chief executive, Jonathan Brearley, has said he can see benefits in defining a net zero duty for Ofgem in statute. But the clock is ticking. In the interest of both present and future consumers, we need an empowered regulator with a clear duty to secure the net zero energy system.