Post: Ofgem examines pathway towards a net zero energy system

Ofgem examines pathway towards a net zero energy system

Reforms are needed on the way to reducing Britain’s reliance on gas imports and accelerating a shift to cleaner, more secure, affordable, home-grown energy supplies, according to Ofgem.

In its Net Zero Britain: developing an energy system fit for the future report, published on 8 July, the energy regulator concluded that with the right investment decisions and increased flexibility, energy costs could be cut by more than £10B per year by 2050. But there are challenges that must be overcome.

According to the report, existing market, regulatory and institutional arrangements are not well placed to run a net zero power system in the most cost-effective way, with Ofgem identifying the need for coordination and optimisation, as well as continued attention on the challenges faced by consumers, particularly in the wake of unprecedented energy price rises.

Ofgem set out key areas of reform, including strategic planning, both at national and local levels. It pledged to push ahead with the establishment of a Future System Operator (FSO); advising governments and Ofgem as a key input into the planning of generation heat and transport; and facilitating competition to deliver new infrastructure at least cost.

Considering the need for greater planning and coordination at a sub-national level too as a means of ensuring the development of local energy networks, the facilitation of flexibility options and to enable a reliable, transparent operation of local energy systems, it suggested a similar model here could prove effective. There is also the potential to use pricing signals to run the system more efficiently, potentially saving billions for consumers on their energy bills. This could include locational marginal pricing, something that would encourage investments in flexible energy assets in the right places, while sending location specific signals to those assets in real-time, helping to minimise the costs of keeping the system balanced.

It also explored potential reforms to the electricity wholesale market through limiting the price setting potential of natural gas. This could be possible by splitting it into two markets, one for intermittent, green power which is then paid a fixed price per unit, based on average cost, while the other is for firm power and paid at market prices as the case is now.

GridBeyond Managing Director UK and Ireland Mark Davis said:

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