Ofgem proposes reforms for UK’s “home-grown” net zero energy system

Ofgem has put forward a range of potential reforms to reduce Britain’s reliance on expensive gas imports and accelerate the transition towards cleaner, more secure and affordable supplies of home-grown energy.

Last October, the UK Government pledged to decarbonise all our electricity generation by 2035, subject to security of supply, a key milestone on the path to hit net zero emissions by 2050. It subsequently published the British Energy Security Strategy, following Russia’s invasion of Ukraine. The strategy sets out more ambitious plans to reduce our reliance on expensive gas imports, including up to 50GW of offshore wind by 2030 and a five-fold increase in solar power by 2035.

However, existing market, regulatory and institutional arrangements are not geared up to running a net zero power system in the most cost-effective way. Today’s ‘Net Zero Britain’ discussion paper sets out a range of options to make the net zero transition over the coming years to achieve Government targets, at the lowest cost for consumers. Some reforms will take time to develop and implement.

Jonathan Brearley, chief executive of Ofgem, said “Record gas prices are driving the cost-of-living crisis, causing real harm to customers and the wider economy. 

The discussion paper identifies two key areas of reform: 

• Strategic planning for the energy system by a new independent Future System Operator at a national level and a potentially similar model at a local level; 
• Potential reforms to the electricity wholesale market, including limiting the price setting potential of natural gas, which could be done by splitting the wholesale market, and using pricing signals to run the system more efficiently and save customers billions of pounds collectively on their energy bills

Using pricing signals could include moving from setting wholesale electricity prices at a national level to either a regional or local level. Ofgem is undertaking further work on the benefits and feasibility of this as one of a range of options, to ensure that any changes could benefit all consumers.

These reforms could help enable a smart, flexible system, which has the potential to deliver more than £10 billion a year savings to customers by 2050. 

Read the full article here.