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Lost in Transmission? - The role of Ofgem in a changing climate

Classification:Energy, Climate Change, Watchdog
Document type:SDC Reports & Papers
Download:SDC_ofgem_report (2).pdf - 1889 KB
Summary:imageThe energy system is an extremely important part of all our lives, providing heat and light for our homes and power for our businesses. As our understanding of the science behind climate change has developed, however, concerns have grown about the effects of the greenhouse gas emissions that arise from burning fossil fuels for energy. Recent years have therefore seen an increasing amount of attention being paid to the role of the energy system in avoiding lasting climate change.

In September 2007, the SDC published its review of the role of Ofgem, the regulator for the gas and electricity markets. Lost in Transmission? identified the key opportunities for government to reduce UK carbon emissions through electricity and heat generation, transmission, distribution and use.

Lost in Transmission? resulted from an extensive programme of engagement, during which we held a lengthy 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 a number of specially commissioned consultants' reports, details of which can be found below.

The report's recommendations include:

  • Bringing energy and environment policy together under one Secretary of State

  • Changing Ofgem's primary duty to reflect the compelling need to move to a decarbonised energy system

  • Providing consumers with better information through smart metering and billing

  • Changing the current market arrangements to make it easier for smaller, low carbon generators and suppliers to compete in the markets

  • 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.

What happened next?

The SDC was pleased to see the formation in October 2008 of the Department of Energy and Climate Change, in line with our recommendation on combining energy and environmental policy under one Secretary of State.

Further to this, the 2008 Energy Act revised Ofgem's primary duty to better reflect wider energy and environment policy objectives. The subsequent restructuring of the organisation led the development of a new Sustainable Development Division.

Regarding our recommendations around the need to better incentivise greenhouse gas emission reduction, the announcement in December 2009 of Ofgem's final proposals for the next electricity distribution price control (DCPR5) will help with the transition to a low carbon economy in the short-term. Beyond this, we would encourage Ofgem to maintain sufficient flexibility in their approach to network regulation, in order that the new price controls do not act as a barrier to more fundamental changes that are likely to be required in future.

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

Purpose:Our in-depth reviews aim to examine past performance, indicate how the current context may require change, and make proposals for changes that can increase effectiveness.

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