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Give regulators new powers or risk missing net zero, NIC warns

Regulators must be given new powers to ensure utility firms invest in sustainable infrastructure or the UK’s net-zero emissions target is at risk.

In a new report, published today (11 October 2020), the National Infrastructure Commission has warned that ministers must move to strengthen power the country’s utility regulators – Ofgem, Ofwat and Ofcom – have, to correct what it has labelled as a culture of short-termism.

The NIC has said there must be “extensive strategic investment” to reduce emissions across the economy, with the current regulatory framework not suited towards meeting long-term challenges, such as climate change.

The report proposes a raft of changes to the existing framework, including the addition of new duties for regulators to promote emissions reductions and a recommendation for government to give regulators a “clear strategic focus” for the country’s infrastructure priorities.

It’s intended that this shift in regulation will pave the way for major new infrastructure projects to be delivered, including more renewable electricity generation and electric vehicle charging networks.

Amongst the recommendations are;

  • New duties for regulators to promote the achievement of the UK’s legally binding net zero by 2050 target;
  • A government-led, long-term strategic vision for each sector to support long-term planning with stable funding;
  • The UK Regulators Network to be given a stronger leadership role to ensure markets continue to deliver for consumers;
  • Opening most major strategic investments up to competition, to support innovation rather than a reliance on incumbents, and;
  • Powers for regulations to prevent companies from engaging in price discrimination.

Sir John Armitt, chairman at the NIC, said the net-zero targets would be “simply unattainable” if regulators were not equipped with new duties.

“The regulatory system must adapt to meet the demands of the future – and the great challenge we face to bring down emissions and build resilience against increasingly frequent extreme weather.

“If ministers are serious about a low-carbon revolution, they must act quickly and decisively to modernise regulation.”

The report comes in the same week that Ofgem chief executive designates Jonathan Brearley, who will take over from Dermot Nolan next February, told the EnTech conference that decarbonisation would be an “absolute priority” for the energy regulator under his stewardship.

Stressing that effective regulation is of “vital importance” to the UK’s net-zero ambition, Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, said that ensuring decisions made by Ofgem are seen “through the lens of decarbonisation” is essential.

“Recent years have seen decisions to damage the economics of small-scale and renewable generation, tardy progress on rules that allow batteries to operate on an even playing field, and uncertainty around technologies such as demand-side response, all of which are set to be vital as an increasing proportion of the UK economy is run on low-cost and low-carbon energy. Shifting Ofgem’s focus onto facilitating the energy transition should see more joined-up thinking on such issues.”

Ofgem has stood accused in recent months of making a number of policy decisions that risk holding up decarbonisation, most notably the Targeted Charging Review which, if passed in its current guise, risks rendering swathes of clean energy projects uneconomical and setting back subsidy-free renewables deployment by years.

David Smith, chief executive at the Energy Networks Association, described the NIC’s report as a “major step forward” for Britain’s net-zero targets.

“By providing greater certainty, the duty will help deliver access to Britain’s world-leading, innovative energy network infrastructure for more renewable energy projects, more clean transport and new types of low carbon heating. It will help ensure that our country takes the smartest, most innovative and fairest approach to deliver decarbonisation,” he said.

written by Liam Stoker

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