Ofgem and the Energy System
Developments since the SDC's Ofgem report
The SDC welcomes Ofgem’s recent (December 2009) announcement on their final proposals for the next electricity distribution price control (DCPR5) as outlined in “Sustainable Development and Electricity Distribution”. This provides a practical example of how existing policy frameworks can be adjusted to better deliver the transition to a low carbon economy in the short-term, pending the conclusions of their more fundamental, ongoing review of the approach to network regulation under the RPI-X@20 project.
Following our 2007 report “Lost In Transmission? - The role of Ofgem in a changing climate” (see below) the SDC made a number of recommendations to Ofgem’s role going forward. Some of these have now been implemented, including the key revision to their primary duty in the 2008 Energy Act to better reflect wider energy and environment policy objectives. This has also led to a restructuring of Ofgem itself in September 2009, a key outcome of which was the creation of a new Sustainable Development Division, which the SDC warmly welcome. This new division will help to bring together Environmental, Social and Consumer Policy, along with enforcement, and help Ofgem to meet its duties to promote sustainable development in the energy market.
With respect to the price control annoucement, "Lost in Transmission?" made a number of recommendations based around the need to better incentivise greenhouse gas emission reduction. In particular, we focused on the incentives for reducing losses on the distribution networks, connecting new distributed generation and supporting innovation. We are pleased to see progress being made in all of these areas, for example, via the new £500M Low Carbon Networks Fund (LCNF) to support innovation and a higher losses incentive value.
Whilst the period of the next price control only runs until 2015, the next 5-10 years will be critical in ensuring we are able to decarbonise the electricity system as quickly as possible to meet the UK’s challenging targets. We would encourage Ofgem to maintain sufficient flexibility in their approach to network regulation such that the new price controls do not act as a barrier to more fundamental changes that are likely to be required as a result of RPI-X@20.
Lost In Transmission? - The role of Ofgem in a changing climate
Our review of the role of Ofgem - Lost in Transmission? - has revealed a number of key opportunities for government to achieve a significant shift in its efforts to reduce UK carbon emissions through electricity and heat generation, transmission, distribution and use.
Our recommendations include:
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• Bringing energy and environment policy together under one Secretary of State |
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• Changing Ofgem's primary duty to reflect the compelling need to move to a decarbonised energy system |
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• Providing consumers with better information through smart metering and billing to help them make decisions about their energy consumption |
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• Changing the current market arrangements to make it easier for smaller, low carbon generators and suppliers to compete in the markets |
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• Introducing a greenhouse gas incentive package into the Price Control Reviews for the distribution and transmission networks to reduce losses and facilitate the connection of low carbon generation |
Publications
Main Report
Lost In Transmission? - The role of Ofgem in a changing climate
The SDC in-depth review of Ofgem, published 19th September 2007.
Press release also available.
Evidence Base Papers
Paper 1 - A review of consumers' attitudes to energy
Paper 2 - Evidence of steps towards a sustainable energy system in other countries
Paper 3 - Options for changes to the regulatory framework required to deliver a sustainable energy system in Great Britain
Our Methodology
The engagement programme for this review comprised a series of interviews with a range of individuals in the industry, including Ofgem staff and Authority members, academic experts and NGOs. Our own desk based research was supplemented with the consultants' reports above. We would like to thank all contributors to this review particularly Ofgem, who have allowed us to work closely with their staff, helping us to understand their thinking and decision making processes and the members of our External Advisory Group and Government Reference Group.
Opinion Pieces
As part of our work we published a series of short opinion pieces reflecting the issues that have arisen during the review and our thinking about these issues, written by Bernie Bulkin, SDC Commissioner for Energy and Transport.
Opinion piece 1 - Ofgem - Looking back, looking ahead
Opinion piece 2 - A Sustainable Energy System and Barriers to Achieving it
- Ofgem response
Opinion piece 3 - Heat and Cooling
- Ofgem response
Opinion piece 4 - Consumers and Efficiency
More information on Ofgem and its role can be found can be found on its website at www.ofgem.gov.uk.
