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London — There may be energy infrastructure investments beyond new nuclear, such as large heat networks, that could benefit from a regulated asset-based financing model, UK energy regulator Ofgem said Thursday in a 2019-2023 strategy document.

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This summer the UK government is due to issue a White Paper detailing how a regulated asset base funding model could be used to support new nuclear build. The approach is used extensively to incentivize monopoly gas and power networks.

Ofgem said a key priority to 2023 was to "develop effective ways of deploying regulated asset base (RAB) financing models for low carbon technologies." This could include very large heat networks, Ofgem said.

The use of district heating or the conversion to low carbon gas -- through biogas and/or hydrogen -- would substantially reduce carbon emissions from heating, the regulator noted.

"With Government accepting the Committee on Climate Change's recommendation for a net zero carbon dioxide emissions target by 2050, there is an increasing focus on decarbonization and particularly in the transport and heat sectors," it said.

There are concerns, however, about the ability of the existing Contract for Difference/Capacity Market regimes to deliver new nuclear and certain other technologies in a cost-effective way, it said.

This is because of the longer-term nature of these investments, the financial risk in delivery, and the long lead time for payments under low carbon CfDs.

As such Ofgem said it was supporting the Department of Business, Energy and Industrial Strategy in examining the efficiency and viability of funding low carbon power through RAB models.

"This would also play a key role in achieving our priority to support decarbonization at the lowest cost," it said.

More generally, the regulator said it needs to prove it is capable of delivering major change to the energy system by:

  • developing a successor regime to the current default tariff price cap, which expires no later than 2023;
  • concluding RIIO-2 gas and power network price controls for 2021-2026 at least cost while supporting decarbonization;
  • and delivering a large-scale extension of flexibility markets.

-- Henry Edwardes-Evans, henry.edwardes-evans@spglobal.com

-- Edited by Alisdair Bowles, alisdair.bowles@spglobal.com

Related factbox: EU CO₂ price hits 11-year high

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