Investing in the electricity network must be the backbone of a green build back better04 Sep 2020
“Unfinanceable” were the words of one prominent energy market analyst when in July they looked at Ofgem’s first cut of its plans for the future regulation of Britain’s electricity transmission network. Industry couldn’t understand why billions of clean investment was being stripped out of their plans. Green groups couldn’t see how the Regulator’s draft plans put the country on a pathway to net zero.
This matters. The new “RIIO2” regulatory framework will define how the network companies operate and, vitally, how much they can invest. These energy motorways play an essential role connecting and transporting renewable electricity, fuelling low carbon heating and powering electric vehicles. They are a key part in delivering the transition to net zero, and investment is needed or they will become barriers, not enablers.
The industry stands ready to invest despite the impacts of Coronavirus. At SSE, as a UK headquartered company, we know how climate change and a green recovery are critical to all parts of the UK. That’s why we’ve put our money where our mouth is with £7.5bn of investment planned in the next five years - £4m every single day – on the low carbon infrastructure which will power all parts of the country for decades to come.
And our own draft business plan for the electricity transmission network we operate in the north of Scotland was stakeholder-led and designed to deliver the essential investment needed to deliver net zero, whilst maintaining reliability. Shovel-ready projects were ready to kickstart the green recovery there – the plan was in place.
The UK Government was also clearly wanting to stimulate investment and sounded the starting gun with a £3bn package to boost energy efficiency and cut household carbon emissions in early July. We expect the forthcoming Energy White Paper and National Infrastructure Strategy to build on this. The message is clearly one of investment over austerity.
Yet, despite willing partners, and ready-to-go investment plans, Ofgem’s initial view was not quite in step regarding the pace of change and ambition required. The huge slashing of investment plans and the introduction of unwieldy mechanisms to sign-off future net zero investments looked likely to delay net zero efforts. And the regulated returns on offer to companies were below any comparable investment type, anywhere in the world.
It’s absolutely right that Ofgem protects billpayers, but the cost of delaying critical investments will cause us to pay a much heavier price in years to come. Far from putting net zero at the heart of the coronavirus recovery, the regulator’s plans could jeopardise net zero, as well as impact the reliability and security of supply of critical national infrastructure.
That’s why in our response to their draft plans we have set out fairly costed, constructive and workable solutions to ensure the regulatory framework delivers on net zero. Backed by businesses, local authorities and climate action groups and, importantly, by science - as the world’s first network company accredited as having a science based greenhouse gas target consistent with a road to net zero - our response points at a net zero pathway bringing long term value for money.
In it we have clear detailed asks. Investment plans should be commensurate with net zero. Expenditure allowances should cover the true costs of investments. We should be empowered to invest adequately in maintaining and cost-effectively improving the reliability of our growing network. Critical preconstruction work should be factored in appropriately to the settlement. Ofgem’s complex new investment mechanisms for new net zero investments should be fast and effective, not slow and bureaucratic. And returns must be commensurate with the risk of these huge capital intensive projects.
But overall, my message to Ofgem is simple; there’s still time for us to work together to unlock the billions of pounds of investment needed to put the country on a path to net zero. Our plans are formed by stakeholders and evidence. They are deliverable. And by unlocking this investment we can kickstart the green economic recovery – and be the backbone of ‘build back better’.