Regulatory challenges in the transition to a lowcarbon

Transcription

1 Regulatory challenges in the transition to a lowcarbon energy system James Luger Sustainable Energy Policy, Ofgem Midlands Energy Graduate School MEGS III Christmas Event 14 th December 2012 University of Nottingham

2 Ofgem a brief introduction Our principal objective is to protect the interests of existing and future customers in relation to gas conveyed through pipelines and electricity conveyed by distribution and transmission systems. Our Corporate Strategy ( ) identified four themes: Contribute to the achievement of a low carbon energy sector Help to maintain the security of Britain s energy supplies Promote consumer choice and value and protect vulnerable customers Via Ofgem E-Serve, ensure the timely and efficient delivery of government programmes for a sustainable energy sector Ofgem is governed by the Gas and Electricity Markets Authority its responsibilities are set out in statute (such as the Gas Act 1986, the Electricity Act 1989, the Competition Act 1989, the Utilities Act 200 and the Energy Act 2004, 2008 and 2010)

3 The energy industry is facing unprecedented change De-carbonisation Security of Supply Ageing Assets Affordability ELECTRICITY NETWORKS GAS NETWORKS Renewables / new generation Smart Grids Electricity storage Electric vehicles Different network patterns Electrification of heat Energy efficiency Local generation Demand Side Management Carbon Capture and Storage Biomethane HVDC Skills shortages

4 Low carbon future = change in network use Issue Consequence 2020 targets Lower energy use, increased renewables, heat pumps Planning Partial local self targets & zero sufficiency; more urban carbon homes DG Renewable heat incentive Lower electricity use, more urban DG, district heating Feed-in tariffs Partial local self sufficiency Domestic smart meters Electric cars Electric storage Opportunity for DSM and ANM Increase in demand but storage potential Enable more renewable DG connection Increased network investment Combined effect unclear, but network use will change Decreased / offset network investment Changing Network Use: Passive network 2 way system flows Active networks Smart grids DSO Uncertainty around timing and scale of changes. LCN Fund established to encourage DNOs to trial ways of responding/anticipating this future

5 RPI-X regulation has performed well, but falls short of what we now need HAS DELIVERED SIGNIFICANT BENEFITS FOR CUSTOMERS Reductions in network charges Operational efficiency More efficient financing Improved quality of service Increased investment BUT Focused on the short term Focused on Ofgem, rather than customers Limited innovation Biased towards capex RPI-X was not broken but new fit for purpose framework is needed

6 RIIO framework seeks to address this Constraint set up front to ensure: Revenue = Incentives + Innovation + Outputs Timely and efficient delivery Network companies are financeable Transparency and predictability Balance between costs faced by current and future consumers Deliver outputs efficiently over time with: 8 yr control Rewards/penalties for delivery Upfront efficiency rate Technical and commercial innovation encouraged through: Core price control incentives Option to give third parties a greater role in delivery Innovation stimulus package Outputs set out in clear compact, reflecting expectations of current and future consumers

7 The heat challenge... 1.Future of gas 2.Electrification of heat 3.Heat networks image:

8 DSR: Demanding less and more 1.Current focus on electricity, but gas also important 2.10% of system costs by DSR potential increases from 2020 onwards

9 Energy Efficiency Less is more... The EEDO Energy Efficiency Strategy (Nov 2012) identified 196TWh of potential energy savings from -effective measures -ECO and Green Deal -Commercial opportunities in lighting, HVAC and refrigeration Electricity Demand Reduction (EMR): Consultation on options to encourage permanent reductions in electricity use Energy Efficiency Directive (EED) 20% improvements against 2007 baseline by 2020 Delivered via MS indicative E/E targets and agreed with the Commission image: what about DSR?

10 Managing uncertainty in decision-making Mid-term Strategic Long-run Sustainability Project level System level Project level System level Optionality Diversity and resilience Learning by doing and supply chain development Pathways and lock-in Stress and security implications Security of supply failure electricity, gas and interactions between the two fuel sources Extreme energy prices and volatility affecting personal security (eg winter deaths) Legally binding energy targets Natural asset and sustainability implications Consistency with the UK s 2050 GHG target Cumulative carbon emission implications (timing) Impact on wider environmental assets (land, water, air etc)

11 Thank you for your interest. Comments and discussion welcome! james.luger[at]ofgem.gov.uk Sustainable Energy Policy Team Office of Gas and Electricity Markets (OFGEM)