UK energy regulator Ofgem cannot deliver net-zero in 'political vacuum': Lords committee

Energy regulator Ofgem faces barriers to implementing the UK's net-zero CO2 emissions ambitions from a lack of political leadership from government, a parliamentary committee heard on June 29.

A panel of energy economists told the House of Lords Industry and Regulators Committee that Ofgem could play a role in advising government on the impact of trade-offs between objectives for net-zero, energy affordability and security of supply, and would have a role in implementing clear policies. But it should not fall to the regulator to make decisions on such trade-offs.

The economists told the committee that a lack of political leadership from the UK government over details of how to reach its net-zero ambitions was preventing the regulator from taking a greater role.

"I think there is a political vacuum," Catherine Waddams, Emeritus Professor at the Norwich Business School and former member of the UK Competition Commission said, citing a lack of guidance and political leadership from central government.

"It's a huge problem for Ofgem to know how it is supposed to plan, when it doesn't know what the trade-offs are or what the environment is in which it is making these decisions," Waddams said.

Waddams said Ofgem was technically well-placed to inform the government's plans, but it was not appropriate for the regulator to make decisions in the push for net-zero by 2050.

The committee considered the question of whether taxpayers or energy consumers should foot the bill for the energy transition.

The panel said that while CO2 emissions reductions were a priority for citizens, and a duty for the government to deliver, Ofgem's primary responsibility was to consumers, and as such should be focused on economic considerations.

The group of economists agreed that reaching net-zero was a societal rather than a consumer issue, and should be addressed by policies and incentives from central government rather than through utility billing.

Security of supply

Cloda Jenkins, Professor of Economics at University College London and former head of regulatory review at Ofgem, said security of supply in the energy transition was not a concern, particularly for electricity markets.

System operators had increasingly detailed data to help manage supply and demand, and had a very adaptable network, with interconnectors adding to increasing renewables supply, Jenkins said. However, she noted the need to upgrade aging transmission and distribution networks.

Former Ofgem chief economist Joe Perkins said that overall, interconnectors added to security of supply, but acknowledged the risk of increasing energy resource nationalism, adding that political cooperation across borders between regulators and energy departments in Europe was strained, even before Brexit.

Jenkins told the committee he was skeptical of the potential for competition in energy networks given their nature as natural monopolies, but said there was more scope for competition to play a role in promoting the energy transition on the generation side and with contracts for difference. But he said markets could not deliver the required changes to meet climate objectives on their own, and intervention from government was critical.