Ofgem is targeting local electricity transformation in its distribution proposals for the next five years.
In its new proposals, the regulator has explained that it wants to ‘turn your street green’, focusing on growing investment, flexibility and ensuring a fair balance between shareholders and consumers.
Given the predicted growth in the use of electric vehicles (EVs) and heat pumps in Britain as the country pushes decarbonisation, the need to unlock capacity to support the following growth in demand is key.
This will require investment, with the regulator set to help companies speedily and reliably upgrade their networks to accommodate increased demand. This will be supported by a new strategic innovation fund, with an initial £450 million across all the energy networks announced to drive research and development of green energy.
Additionally, the previously announced system wide ‘net zero’ fund will help enable crucial infrastructure upgrades.
Wherever possible, Ofgem is pushing for operators to manage electricity flow, exploring flexibility options rather than just infrastructure upgrades. This could include technologies like batteries or digitalisation, helping to reduce peak demand periods and secure the grid.
The regulator highlighted that such solutions can often work out to be cheaper and quicker to implement, for example flexible EV charging could mean the current infrastructure could charge 60% more vehicles, with drivers avoiding the peak demand time to maximise the grid's capacity.
Ofgem’s CEO Jonathan Brearley said the proposals will help "turn Britain's streets green" by putting in place the wires and technology to enable EVs and heat pumps powered by clean energy.
“The green energy transformation is not just about putting more copper in the ground. We need a modern, digital grid that uses all our energy assets as efficiently as possible.”
As the country continues to target net zero emissions by 2050, the importance of greening local energy networks is growing. To accommodate the estimated 11 million extra EVs predicted to be on our roads by 2030, the system must adapt over the RIIO-2 price control period, which is set to start in 2023 and run for five years.
“Local electricity networks will be at the forefront of eliminating harmful carbon emissions from the country, helping tackle climate change, so it’s vital they have the investment they need to do this whilst keeping costs as low as possible for consumers,” added Brearley.
Today’s announcement follows the release of Ofgem’s transmission and distribution proposals earlier this month, which received a mixed reaction. While many welcomed the £25 billion investment programme, networks were critical of the changes to the allowed rate of return with ScottishPower’s Keith Anderson labelling it “a massive missed opportunity”.
The electricity distribution proposals today have managed to avoid much of the same scepticism, with David Smith, chief executive of Energy Networks Association, welcoming them and stating that it was “vital” that the RIIO-2 period creates investment, helps to deliver a green economic recovery and “ensures the public can benefit from a smarter, cleaner energy system".
“The public must be able to benefit from greater efficiencies as well as new services and products including increased numbers of electric vehicles and greater electrification of heating. Although the proposals outlined today will take time to review in detail, we will continue to work with Ofgem to make sure that this vital investment can be delivered, securing economic and societal benefits now as we look to recover from the effects of the pandemic.”
The consultation period for Ofgem’s RIIO-ED2 proposals will run until 1 October 2020.