Networks are at the heart of the UK’s low carbon ambition. Our inquiry into low carbon network infrastructure has identified that they face three interwoven challenges. Firstly, new energy sources—in electricity, gas, and heat—need connections to, and consequent reinforcement of, the grid. Secondly, some of these sources are variable in output, such as wind and solar electricity: system operators must therefore employ new tools to balance supply and demand. And thirdly, networks’ efforts to overcome these obstacles must not be impeded by outdated and inflexible regulation and governance. Significant infrastructural development is needed, but incurs considerable expense of both time and money. Deployment of new technologies is crucial to achieving these goals while controlling cost.
The recent rise of new connection requests is astounding. For example, the UK’s installed solar capacity is approaching levels previously expected by 2030, stacking pressure on regional distribution networks. There is a need for better integration of connection and planning-consent processes. More forward-looking investment by network companies may also be helpful in reversing the slowdown in connections, but Ofgem must assess the best way of recovering costs for such investment.
Connection costs remain geographically skewed. Ofgem should assess the costs and benefits of levelling connection costs across Great Britain. Network charges incurred by consumers also vary considerably by location. Moreover, transmission charges for generators in the UK remain high by EU standards. The Government must investigate the disadvantage UK generators may consequently face against other European generators as Great Britain becomes more interconnected.
The UK’s gas grid must adjust to unorthodox cleaner fuels. To assist this transition, Ofgem should assess safe levels for injection of green gases into the current network and the Government should set targets for their deployment. We welcome the Government’s ambitious target for district-heating networks, which are an alternative approach to the electricity and gas networks in providing heat. However, district heating needs a regulatory framework to encourage investment and complement existing voluntary schemes in safeguarding consumers.
Networks have a number of tools to balance variable energy sources:
These challenges can only be met within an appropriate governance, regulatory and operational framework. Network companies have generous allowances for early-stage testing of the technological solutions they need, but the UK struggles to bring these innovations into commercial reality. More and more electricity generation occurs at the regional distribution, rather than national transmission level, but Distribution Network Operators remain somewhat blind to their energy flows and passive in managing them. There must be a transition to fully-functional Distribution System Operators which balance and control their local grids. At transmission level, we recommend creating an Independent System Operator (ISO). The Government must set out its intentions regarding an ISO, and consult on a detailed, staged plan for their implementation.
Networks are transforming. We recognise that this presents challenges for the Government but it has been slow to present a clear, holistic plan for the evolution networks need. It seems instead to have disconnected policy ideas at various stages of implementation. We are concerned that the roll-out of smart meters is not progressing quickly enough to achieve the necessary mass to truly create a smart energy network.
Our central message to the Government is that it must address the network system as a whole, learn lessons from policy lags in the key areas we outline, and develop its change readiness so as to meet the ambition of low carbon network infrastructure.
15 June 2016