About Scottish Renewables
Scottish Renewables is the voice of Scotland’s renewable energy industry. Our vision is for Scotland leading the world in renewable energy. We work to grow Scotland’s renewable energy sector and sustain its position at the forefront of the global clean energy industry. The sectors we represent deliver investment, jobs, social benefits and reduce the carbon emissions which cause climate change. Our members work across all renewable energy technologies, in Scotland, the UK, Europe and around the world. In representing them, we aim to lead and inform the debate on how the growth of renewable energy can help sustainably heat and power Scotland’s homes and businesses.
Scottish Renewables welcomes the opportunity to provide written evidence to Industry and Regulators Committee inquiry into Ofgem and net-zero.
Renewable energy is already providing the equivalent of 97.4% of Scotland’s electricity consumption, and as we move towards net-zero it is essential that the level of generation keeps pace with electrification of heat, transport and industry if we are to meet the Scottish Government’s 2045 net-zero target. Ofgem role as the energy regulator makes the organisation a key actor in our efforts to reach net-zero, whilst securing the energy supply at lowest cost for consumers.
It is essential that Ofgem performs its regulatory functions in a manner that is consistent with net-zero. It is evident reforming Ofgem’s remit is an immediate priority for government, so that its primary duty aligns consumer protection with the delivery of Net-zero on an equal footing. In the light of the government’s legal commitment these can no-longer be viewed as competing objectives, but as intimately linked.
Our submission focuses on four key areas:
1) The role of Ofgem in the transition to net-zero
2) Ofgem responsibilities in relation to balancing environmental objectives and affordability for consumers
3) Ofgem management in relation to both securing energy supply and the transition to net-zero.
4) Ofgem duties and powers and whether these conflict with Ofgem objectives.
Response to questions
What role should Ofgem play in the transition to net-zero? What changes, if any, should be made to its remit, responsibilities, and resources?
The linking of the reduction in greenhouse gases to security of supply to energy consumers gives Ofgem an ambiguous relationship to the achievement of net-zero. It has led Ofgem to take a short-term approach that includes emissions reduction year by year rather than taking a long-term view, which is required to achieve our climate targets and protect consumers from any increased costs association with our energy transition. Given the Scottish Government’s and UK Government’s legal requirement to meet net-zero by 2045 and 2050 respectively, it is no longer optimal to separate consumer protection and decarbonisation into a principal and a secondary duty.
A primary example which Scottish Renewables has evidenced is that the current grid charging methodology used by Ofgem is not fit for purpose to meet either the Scottish Government or UK Government’s net-zero climate targets. This is also damaging to consumers and providing barriers to the deployment of renewable energy across the UK and especially in Scotland, where the charges to generators are higher than elsewhere in the UK. The UK Government must assign Ofgem responsibilities and resources to consider net-zero in its remit in order to allow a proportional deployment of renewable energy across the whole UK whilst securing energy supply at lowest cost for consumers.
Scottish Renewables will answer the following two questions collectively:
How well does Ofgem balance environmental objectives against its responsibilities in relation to affordability for consumers?
How well does Ofgem fulfil its obligations to consumers? Does Ofgem take consumer views into account sufficiently, particularly those of vulnerable consumers?
Ofgem has not yet indicated how it will address TNUoS charging or mitigate its impact on consumers and decarbonisation. We would recommend that the UK Government introduces a review of TNUoS charging and its impact on Scotland. The recent OFTO Review can act as an exemplar in how to deliver this.
This is another consequence of the short-term approach from Ofgem. In the last 8 years, the regulator has spent its time on the RIIO-1 price control, building as little grid infrastructure as possible, as late as possible, in the name of keeping consumer costs down. Now, this will only bring increased costs for consumers in the next decade, although these constraint costs will fall again as new infrastructure will be finished between 2029-2031. This demonstrates that the short-term approach from Ofgem needs to be changed as this is having a significant impact on consumer’s bills.
As stated in the National Grid FES scenarios, by 2050 we will need to almost double the renewable capacity installed from 2030. This means that if Ofgem does not change its short-term approach, consumers will be continually paying for it. We suggest that Ofgem incorporates a long-term strategic vision in its remit that considers delivering the renewable capacity needed by 2050 while ensuring secure supplies at the lowest cost for consumers.
Scottish Renewables will answer these two questions collectively:
What implications will the transition to net-zero have for the security of the UK’s energy supply? How does Ofgem currently manage issues relating to security of supply?
Is the current system of governance for the UK energy market appropriate to secure the transition to zero? What improvements could be made and what role should Ofgem play?
Achieving progress on renewable energy targets will require the UK Government to reform Ofgem and energy markets. Ofgem’s remit does not oblige it to consider the achievement of net-zero and its current reforms of network charging, which will reform electricity transmission and distribution network charging and access, will undermine the further deployment of renewables in Scotland where much of the UK’s best wind resource is located.
Based on the deployment targets indicated by the Climate Change Committee in the Sixth Carbon Budget we would expect at least 40GW of offshore wind in Scottish waters, plus a substantial increase in the deployment of onshore wind in Scotland if we are to achieve net-zero. If Ofgem does not include the need to achieve net-zero in its reforms of grid changing, then the achievement of net-zero will be put a risk and costs will increase, with these costs ultimately being borne by consumers.
To achieve our respective net-zero targets, we will need a steep increase in renewable energy installation by 2050 in all parts of the United Kingdom, not just the south. According to the Sixth Carbon budget from the CCC, the renewable deployment by 2050 should be between 95 and 125GW of offshore wind, between 75 and 85GW of solar PV, and between 30 and 35GW of onshore wind. Scotland has the resources to supply a big proportion of this deployment, but with TNUoS disadvantaging Scottish projects in the CfD, there is a risk these projects may not be built, reducing our ability to reach net-zero. It is important to move forward at pace with a strategic review between Government and industry about how best to use regulation to allow a proportional deployment of renewable energy across the whole UK.
The Strategy and Policy Statement that we are expecting in Q4 of 2021 will aim to consult on system operation governance arrangements and we expect that this could shape the actions of the regulator to ensure consistency with government policy. However, we are concerned that this document will not deliver the sufficient strength of remit change necessary for the regulator to make all the changes needed.
Without a significant increase in renewables along with the expansion of flexibility (such as storage, demand response and interconnection) and the enabling infrastructure, decarbonising heat, transport, and other key sectors of the economy will not be possible.
Ofgem price control mechanisms must at least be in step with, and ideally ahead of, government ambition. It must empower, not delay, investments in Electric Vehicle (EV) charging infrastructure as well as the grid connections and reinforcements needed to transport growing volumes of renewable energy. It must also have the agility and flexibility to adapt to keep pace with a pathway to net-zero.
Regulation does not exist separate to policy. If the Government’s preference is to increase the deployment of cost-effective renewables and flexibility as a key element of achieving the net-zero target, regulatory processes and network price control must not constrain this. Ofgem price control mechanisms must facilitate the journey to meet net-zero while delivering long-term value for money for energy consumers and stimulate a green economic recovery, something they do not currently do effectively.
Ofgem’s current relationship to the achievement of net-zero and how this is factored into their decision-making processes is ambiguous, unclear and lacks a clear legal basis. If this decarbonisation of the energy system is to be achieved it is essential that Ofgem, as the energy system regulator, has as a clear, unambiguous and legally binding duty to ensure its activities actively support the achievement of net-zero at least cost to consumers.
Are there any other aspects of Ofgem’s work that the Committee should consider?
28 July 2021
 Our powers and duties | Ofgem
 Future Energy Scenarios 2021 | National Grid ESO
 Future Energy Scenarios 2021 | National Grid ESO