Energy companies voice their concerns as Ofgem opens RIIO2 consultation

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CONCERNS over net zero and energy industry jobs have been raised by the industry as Ofgem has begun consultation on its RIIO-2 draft determination.

RIIO, standing for Revenues, Incentives, Innovation and Outputs, is Ofgem’s approach to ensuring the monopoly companies who run the regulator’s gas and electricity networks have enough revenue to run an efficient network.

Ofgem introduced RIIO-1 for the gas distribution and gas and electricity transmission price controls in 2013, and are due to finish in 2021.

Following a consultation and decision announcement on the RIIO-2 Framework in July 2018, and the publication of Ofgem’s sector-specific methodology in May 2019, the regulator is now consulting on the draft determinations for the next price control (RIIO-2).

Based on an initial assessment, SSEN Transmission said it believes the approach set out in Ofgem’s Draft Determination ‘fundamentally fails to deliver on net zero, inadequately reflects stakeholder and customer needs, and falls short in seeking to attract the significant investment required.’

One of energy bosses to respond personally was ScottishPower CEO Keith Anderson, who said that the draft is ‘gravely at odds with the UK Government’s ambition to boost investment in green infrastructure’ and ‘a massive missed opportunity.’

Mr Anderson commented on a public statement after the draft was published on 9 July: “Coming just one day after Rishi Sunak has taken welcome steps to kickstart the Green Recovery, Ofgem is now trying to slam on the brakes. It makes no sense whatsoever.

“Instead of investing more in creating green jobs and skilled apprenticeships in every community, at a time when the UK needs them most, this is a short-sighted return to austerity politics.

“Nobody benefits from this half-baked plan. It’s bad for jobs, bad for apprenticeships, bad for training and bad for the UK supply chain.

“Net Zero can be an accelerator of the economic recovery, but only if private companies are given the right conditions for investment.

“Slamming the door in investors’ faces by offering one of the lowest rates of return of any developed country traps the UK in an economic cul-de-sac.

“These proposals to drive companies to the lowest cost denominator leave us with big questions about how Ofgem can match its framework against the clear drive and leadership that we are seeing from government, at both UK and Scottish levels, where there is rightly a focus on how best to attract investment in a powerful economic stimulus that delivers long-term benefits.

“According to the Committee on Climate Change, the UK needs to double clean energy generation in order to hit its Net Zero targets and Scotland will provide half of that green power.

“Our transmission system already supports 11,000MW and is the vital link that brings green energy into people’s homes which is why investment in our networks now will benefit us for decades to come.

“The danger here is that Ofgem’s view puts the UK at an unnecessary disadvantage.

“In the wake of the COVID-19 crisis, there is fierce international competition to secure capital for infrastructure projects to support Net Zero and many nations are now powering ahead with green investments in their energy networks.

“Our plans come at a low cost to the consumer and deliver huge benefits. Our customers agree, with 80% of those surveyed supporting our business plan as good value for money.

“At this critical juncture, we should be doing much, much more to unlock the economic and environmental benefits of investment in Net Zero networks.

“Our proposals would help do that, at an additional annual cost per customer of less than 50 pence.

“We’ll continue to press our case very hard for Ofgem to rethink its approach in the context of the green recovery.”

ICON presented Mr Anderson’s comments to Ofgem, and a spokesperson told us: “Claims that Ofgem’s investment proposals for the energy sector will put the green recovery at risk are wrong.

“Billions of green energy investment is urgently needed for Britain to achieve its ambitions of net zero carbon emissions.

“In our draft determinations, we proposed to approve £25 billion of expenditure upfront for network companies.

“Companies will not have to come back to Ofgem for approval once agreed at final determinations. They will be able to spend this sum straightaway.

“The £25 billion includes funding for 90% of the investment sought by network companies in their plans for net zero projects, removing only projects that were highly uncertain or unnecessary based on advice from the system operator.

“As a result, we have allocated over £3 billion of funding for connecting renewables and upgrading the transmission grid.

“Network companies did not ask for any additional upfront funding for green investment beyond this, because they were unable to identify any ‘shovel-ready’ projects in their plans.

“Nevertheless, we have identified potential for another £10 billion or more of future green investment.

“We are waiting for network companies to bring forward plans and we stand ready to green-light measures that demonstrate that they bring emissions free energy at the lowest cost to consumers.”

Responses to RIIO-2 can be sent by 4 September to [email protected]