Ofgem’s Targeted Charging Review (TCR) proposals risk undermining renewables investment and could even result in higher consumer bills, a new study has found.
The study, compiled by economic consultancy Oxera on behalf of energy firms ScottishPower, innogy, Vattenfall and RES, calls for the regulator’s controversial proposals to be assessed further before they are fully implemented.
The consultancy’s evaluation concluded that elements of the reforms stood to adversely impact on the economic viability of onshore renewable generation, something which would have a knock-on effect on both consumer costs and the country’s decarbonisation progress.
Oxera concluded that the reforms could increase costs to consumers by as much as £1.3 billion under Ofgem’s baseline Future Energy Scenario, or even as much as £7.6 billion under its alternative scenario, over the period 2019 - 2040 compared to the regulator’s own estimates.
Oxera has also alleged that Ofgem has underestimated the reforms’ impact on decarbonisation efforts, suggesting that instead of a maximum increase caused by the reforms of 0.42m tonnes of CO2, they could in fact raise CO2 emissions by 0.56m tonnes.
The TCR may even shunt energy systems cost higher than Ofgem’s modelling has suggested, with Oxera modelling estimating that systems costs could be between £168 million and £879 million higher over the same period.
Oxera’s evaluation of the proposals found that a greater focus was required to “fully understand” their potential impact on renewables and decarbonisation, with their current form at risk of being counterproductive to Ofgem’s objectives.
Lindsay McQuade, chief executive at ScottishPower Renewables, said that it was necessary for Ofgem to ensure that network charging reforms did not unintentionally reduce investment in onshore renewables like wind and solar.
“Oxera’s analysis sets out that risk – potentially creating a more costly system – with further consideration needed prior to any decisions being taken,” she said.
Danielle Lane, UK country manager at Vattenfall, meanwhile said that Oxera had shown “clearly” that alternative scenarios to Ofgem’s preferred reforms “turn the benefit case of charging reform on its head”.
“Vattenfall supports the principle of fair network charging but reform cannot come at the expense of higher consumer bills and higher carbon emissions. Now, more than ever, we need predictability and stability in energy policy so companies like Vattenfall can invest with confidence in our low-carbon energy system.”