Recommendations & Conclusions
15 items
1
Conclusion
Eleventh Report - Decarbonisation of th…
Accepted
To deliver the Government’s target to decarbonise the power system by 2035, the UK needs to deploy low-carbon technologies at a faster rate than has been achieved historically. A whole host of regulatory and policy barriers continue to impede the deployment of clean technologies. The evidence submitted to our inquiry …
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To deliver the Government’s target to decarbonise the power system by 2035, the UK needs to deploy low-carbon technologies at a faster rate than has been achieved historically. A whole host of regulatory and policy barriers continue to impede the deployment of clean technologies. The evidence submitted to our inquiry made clear that, at the current rate of policy delivery, the UK Government will miss its target to decarbonise power by 2035. While the Government’s “Powering Up Britain” plans outline a suite of actions that would help it get on track, its focus must now be an unrelenting drive to deliver them.
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Government response AI summary
The government will report annually on its delivery of power sector decarbonisation and strengthen its portfolio management approach to provide a 'whole system' view and manage uncertainties.
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Department for Business and Trade
2
Conclusion
Eleventh Report - Decarbonisation of th…
Accepted
The level of coordination and pace of delivery needed requires the Government to operate in a different way than it has in the past. We welcome the creation of the new Department for Energy Security and Net Zero, but that Department must now act to coordinate stakeholders, unlock bottlenecks, and …
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The level of coordination and pace of delivery needed requires the Government to operate in a different way than it has in the past. We welcome the creation of the new Department for Energy Security and Net Zero, but that Department must now act to coordinate stakeholders, unlock bottlenecks, and drive the pace of delivery required. If the new Department operates ‘business as usual’ the Government will fail to hit its own targets.
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Government response AI summary
The government outlines its overall energy strategy for 2035, referencing existing plans like the Net Zero Strategy and Energy Security Plan. It describes the overall goal and existing strategies but does not detail how the new Department for Energy Security and Net Zero will specifically …
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Department for Business and Trade
7
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
The UK has become less attractive to energy investors. The UK is in a global race against larger markets to attract capital to decarbonise the economy. The US and EU have introduced a series of long-term tax incentives for clean energy infrastructure. The UK Government has yet to respond. We …
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The UK has become less attractive to energy investors. The UK is in a global race against larger markets to attract capital to decarbonise the economy. The US and EU have introduced a series of long-term tax incentives for clean energy infrastructure. The UK Government has yet to respond. We recommend that when reviewing the competitiveness of fiscal incentives offered by the UK to encourage investment in low- carbon energy projects, the Government should consider providing a more tailored response in the capital allowance regime for the sector.
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Government response AI summary
The government launched the Floating Offshore Wind Manufacturing Investment Scheme (FLOWMIS), worth up to £160 million, on March 30, 2023, to provide grant funding and leverage private investment in port infrastructure.
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Department for Business and Trade
41
Conclusion
Eleventh Report - Decarbonisation of th…
Accepted
A lack of network capacity and delays to securing grid connections are together hampering the delivery of low-carbon power and driving potential investments overseas. For too long, transmission and distribution network owners have been able to delay or avoid the level of anticipatory investment required to deliver a network capable …
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A lack of network capacity and delays to securing grid connections are together hampering the delivery of low-carbon power and driving potential investments overseas. For too long, transmission and distribution network owners have been able to delay or avoid the level of anticipatory investment required to deliver a network capable of meeting the needs of the country. Ofgem’s approach to agreeing future investment in previous investment rounds has not been proactive enough, Decarbonisation of the power sector 107 and frequent changes to Government policy have increased investment risk. Together, the system has failed to deliver what is required, and that must change.
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Government response AI summary
The Electricity System Operator (ESO) acknowledges the need for investment in its systems and details its ongoing Open Balancing Program to modernise balancing capabilities and IT platforms, aiming to increase flexibility and market participation for a net-zero electricity system. This describes internal ESO work rather …
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Department for Business and Trade
42
Conclusion
Eleventh Report - Decarbonisation of th…
Accepted
We join many other organisations from across the sector in calling on Ministers, Ofgem and network owners to help recover lost ground by accelerating investment in future grid capacity now ahead of need. The increasing costs associated with turning off generation sites due to a lack of transmission capacity must …
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We join many other organisations from across the sector in calling on Ministers, Ofgem and network owners to help recover lost ground by accelerating investment in future grid capacity now ahead of need. The increasing costs associated with turning off generation sites due to a lack of transmission capacity must be halted. Investment should be considered to increase capacity where it is currently inadequate and anticipatory investment should prevent this from happening in areas of future development, for example in Cornwall.
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Government response AI summary
The government details how Ofgem's RIIO-ED2 price control, which commenced in April 2023, along with measures like LV monitoring capacity and the DSO incentive, aim to unlock network capacity and support smart technologies. This response outlines existing or recently implemented policies rather than new commitments …
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Department for Business and Trade
47
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
We recommend that when a need for investment in the distribution network becomes clear, Ofgem ensures the uncertainty mechanisms included in the RIIO-ED2 framework are applied efficiently. Should these prove inadequate to respond to a rapid roll-out of low-carbon technologies, Ofgem should take equivalent steps to its ASTI framework to …
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We recommend that when a need for investment in the distribution network becomes clear, Ofgem ensures the uncertainty mechanisms included in the RIIO-ED2 framework are applied efficiently. Should these prove inadequate to respond to a rapid roll-out of low-carbon technologies, Ofgem should take equivalent steps to its ASTI framework to ensure that distribution networks are an enabler not blocker to net zero.
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Government response AI summary
Ofgem states that its RIIO-ED2 framework already provides effective uncertainty mechanisms, including a Reopener mechanism, and an ability to accelerate investment for rapid low-carbon technology rollout, thus addressing the recommendation through existing provisions.
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Department for Business and Trade
49
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
Regulatory settlements for network owners must deliver value for money for consumers. Despite improvements from Ofgem in tackling excessive profits made by these companies in previous price control frameworks, we are concerned that network owners continue to be overly rewarded. Asymmetries throughout the regulatory process between network companies and other …
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Regulatory settlements for network owners must deliver value for money for consumers. Despite improvements from Ofgem in tackling excessive profits made by these companies in previous price control frameworks, we are concerned that network owners continue to be overly rewarded. Asymmetries throughout the regulatory process between network companies and other stakeholders, including consumer representatives, increase this risk. Greater visibility of network performance is needed to drive up standards and ensure networks deliver against their business plans.
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Government response AI summary
The government states that Ofgem's current price controls (RIIO-ED2 and RIIO-T2) already include stringent efficiency targets, lower allowed returns, and mechanisms to share outperformance with consumers, addressing concerns about value for money and excessive profits. They also highlight funding for data and digitalisation to improve …
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Department for Business and Trade
54
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
At present, flexibility markets are disjointed and difficult to navigate, impeding the participation of small assetsand reducing the value of distributed flexibility. While Ofgem should be commended for its proposals for a single digital flexibility platform, this should not distract from near-term actions that are required to drive immediate progress. …
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At present, flexibility markets are disjointed and difficult to navigate, impeding the participation of small assetsand reducing the value of distributed flexibility. While Ofgem should be commended for its proposals for a single digital flexibility platform, this should not distract from near-term actions that are required to drive immediate progress. While Ofgem should be commended for its proposals for a single digital flexibility platform, this should not distract from near-term actions that are required to drive immediate progress. We recommend that Ofgem puts pressure on the Energy Network Association and Distribution Network Operators to ensure faster and more consistent implementation of the Open Networks Programme.
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Government response AI summary
Ofgem strongly agrees with the need for faster progress, stating it is driving DSO capabilities through incentives and working closely with the ENA and DNOs to ensure the Open Networks programme is delivered at pace.
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Department for Business and Trade
56
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
In future, data and visibility will be key to ascertaining whether network reinforcement or an alternative, such as procuring flexibility services, would be most cost effective for consumers. But there has been insufficient investment in monitoring capability at low voltages to date, resulting in poor visibility of connected assets and …
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In future, data and visibility will be key to ascertaining whether network reinforcement or an alternative, such as procuring flexibility services, would be most cost effective for consumers. But there has been insufficient investment in monitoring capability at low voltages to date, resulting in poor visibility of connected assets and the state of the distribution networks. It is also unclear whether all distribution operators are maximising the opportunities of a smarter, more flexible grid. We recommend firmer intervention from Ofgem on minimum visibility standards for Distribution Network Operators. We also recommend that Ofgem reviews whether it has robust processes in place to monitor whether Distribution Network Operators are taking a ‘Flexibility First’ approach and making sufficient use of smart solutions.
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Government response AI summary
Ofgem agrees with the recommendation, stating it has approved £167.54m for Distribution Network Operators (DNOs) to roll out Low Voltage (LV) network monitoring. Ofgem also clarifies that its DSO incentive framework within RIIO-ED2 includes evaluation criteria and a new smart optimisation output to monitor DNO …
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Department for Business and Trade
58
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
We agree that the wholesale electricity market arrangements need reform to help decarbonise power in a way that secures supply and ensures the system can function efficiently, including more locational signals. In principle, we find the argument for locational pricing appealing, but we are concerned about its deliverability and its …
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We agree that the wholesale electricity market arrangements need reform to help decarbonise power in a way that secures supply and ensures the system can function efficiently, including more locational signals. In principle, we find the argument for locational pricing appealing, but we are concerned about its deliverability and its potential impact on investor confidence. The Government must satisfy itself that any reforms it does pursue do not create an investment hiatus, which would put the 2035 target at risk.
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Government response AI summary
The government confirms it is actively reviewing electricity market arrangements (REMA), with a second consultation due in Autumn 2023. It has updated its assessment criteria to include "Investor Confidence" and explicitly commits to ensuring that renewable generation investment is not unduly affected by any reforms.
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Department for Business and Trade
59
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
We recommend that the Government provides before the end of 2023 a clear pathway on how wholesale market arrangements will evolve following its consultation. There are a number of constructive steps that the Government could make to the existing market structure in the near term, which would help it to …
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We recommend that the Government provides before the end of 2023 a clear pathway on how wholesale market arrangements will evolve following its consultation. There are a number of constructive steps that the Government could make to the existing market structure in the near term, which would help it to provide more effective signals on the type of low-carbon technologies and services the UK needs to decarbonise power. The optimal degree of locational granularity should weigh the benefits against the level of market disruption, and whether other mechanisms can achieve similar outcomes, within investment timeframes. Comprehensive impact assessments should be published in due course. (Paragraph 238) The role of institutions
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Government response AI summary
The government aims to publish a second consultation on the Review of Electricity Market Arrangements (REMA) in Autumn 2023. This consultation will set out a direction of travel and next steps for the evolution of wholesale market arrangements.
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Department for Business and Trade
60
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
Even though we urged the Government to publish its already very delayed Strategy and Policy Statement for Ofgem back in July 2022, it has still not materialised. We recommend that an explicit duty to deliver on the statutory net zero target is added to Ofgem’s remit. We reiterate our previous …
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Even though we urged the Government to publish its already very delayed Strategy and Policy Statement for Ofgem back in July 2022, it has still not materialised. We recommend that an explicit duty to deliver on the statutory net zero target is added to Ofgem’s remit. We reiterate our previous call for the Government to publish an updated Strategy and Policy Statement for Ofgem which provides a very clear sense of direction to the regulator on how to manage the political and distributional trade-offs intrinsic to its responsibilities, as well as a clear delineation of its roles and responsibilities.
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Government response AI summary
The government published its consultation on the Strategy and Policy Statement for Energy Policy in May 2023 and is content to amend Ofgem's existing duty to explicitly reference the net zero targets from the Climate Change Act 2008.
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Department for Business and Trade
61
Conclusion
Eleventh Report - Decarbonisation of th…
Accepted
The Future System Operator (FSO) is expected to provide strategic oversight of the planning and coordination of the power system, but there is a still a lack of clarity over its specific roles, responsibilities and powers, as well as how it will interact with the Government and Ofgem. It is …
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The Future System Operator (FSO) is expected to provide strategic oversight of the planning and coordination of the power system, but there is a still a lack of clarity over its specific roles, responsibilities and powers, as well as how it will interact with the Government and Ofgem. It is vital that the FSO is adequately resourced and that there is sufficient accountability and scrutiny of its work.
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Government response AI summary
The government outlines that the FSO will have necessary powers via the Energy Bill, with Ofgem regulating its functions, performance, and funding. It commits to creating and publishing a framework agreement to clarify roles between ministers, Ofgem, and the FSO, with the FSO aiming to …
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Department for Business and Trade
62
Recommendation
Eleventh Report - Decarbonisation of th…
Accepted
The Future System Operator (FSO) should be granted sufficient powers and resources to effectively plan and co-ordinate the transformation of the electricity system. The FSO should be given a clear net zero directive within its governance arrangements. In response to this report, we ask that the Government confirms whether it …
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The Future System Operator (FSO) should be granted sufficient powers and resources to effectively plan and co-ordinate the transformation of the electricity system. The FSO should be given a clear net zero directive within its governance arrangements. In response to this report, we ask that the Government confirms whether it is on track to set up the FSO by or in 2024 and outlines its plans for the division of institutional responsibilities between Ministers, Ofgem and the FSO. The FSO should engage with Decarbonisation of the power sector 111 the Energy Security and Net Zero Committee on the progress it is making to deliver a decarbonised power system by 2035 and proactively share key decisions, performance issues and relevant policy concerns. (Paragraph 244)
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Government response AI summary
The government confirms the FSO will have a net zero objective enshrined in the Energy Bill, aims for the FSO to be operational in 2024, and will publish a framework outlining institutional responsibilities between Ministers, Ofgem, and the FSO. It also notes the select committee …
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Department for Business and Trade
63
Conclusion
Eleventh Report - Decarbonisation of th…
Accepted
While huge strides have been made by the Government and industry over the last decade to tackle emissions in the power sector, the UK must continue to accelerate its shift away from fossil fuels to clean energy. However, a suite of policy and regulatory barriers are blocking progress to achieving …
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While huge strides have been made by the Government and industry over the last decade to tackle emissions in the power sector, the UK must continue to accelerate its shift away from fossil fuels to clean energy. However, a suite of policy and regulatory barriers are blocking progress to achieving the Government’s target to decarbonise the power system by 2035. Businesses which want to drive the transition forward on the ground are getting caught in red tape. The absence of an overarching delivery plan and lack of ownership of whole system costs has created policy silos and sequencing problems. Low-carbon projects are now facing delays of up to fifteen years to connect to the electricity network, as well as a cumbersome planning regime. The Government has launched a number of welcome consultations across different sectors of the power system which could lead to much needed policy reform, but a resolute focus on delivery is now essential. The Government’s strategy to decarbonise the power sector also includes notable omissions. These include, but are not limited to, policy to deploy onshore wind, measures to reduce energy demand, support for long-duration energy storage, a decision on the use of hydrogen across the economy and clarity on where private finance for nuclear energy projects will come from.
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Government response AI summary
The government acknowledges the benefit of a more overarching approach and commits to annual reporting on decarbonisation delivery. It will also strengthen its portfolio management to adopt a "whole system" view across its delivery work.
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Department for Business and Trade