Page 7 - Gi September2020

industry & government news

instead, with as many eight million
homes actively managing their heating OFGEM LOOKS TO SLASH ENERGY RETURNS
demands by storing heat and shifting
their use outside of peak periods.
The analysis shows significant changes OFGEM HAS REVEALED that it
for the energy system, with emissions intends to almost halve the allowed
from the sector negative by 2030. This is returns energy companies will be
generated by 40GW of offshore capacity able to make in the next regulatory
and using bioenergy with carbon capture period, running from 2021 to 2026.
and storage, plus the scaling up non- Investors Chronicle reports that
traditional sources of flexibility such as the regulator is proposing that the
demand side response and storage. allowed return on equity – based on
the "consumer price index including
Headline messages from Future Energy owner occupiers’ housing costs"
Scenarios 2020: (CPIH) – be set at 3.7 per cent for
Reaching net zero carbon emissions electricity transmission and 3.95 DAME GILLIAN GUY
by 2050 is achievable. However, this per cent for gas transmission and
requires immediate action across all distribution, down from the current Keith Anderson, Chief Executive
key technologies and policy areas, and 7-8 per cent level. The new plans are of ScottishPower – which is owned
full engagement across society and also a step down from the 4.3 per cent by Iberdrola – was particularly
end consumers. threshold it had proposed last year. scathing in his response, suggesting
Hydrogen and carbon capture and Justifying its decision to cut the investment in green energy projects
storage must be deployed for net zero. rate of return to a historic low, Ofgem would be undermined. “Slamming
Industrial scale demonstration projects said it was so that “less of consumers’ the door in investors’ faces by
need to be operational this decade. money goes towards network offering one of the lowest rates of
The economics of energy supply and companies’ profits, and more towards return of any developed country traps
demand fundamentally shift in a net driving network improvements”. the UK in an economic cul-de-sac,”
zero world. Markets must evolve to It estimates that the reduction in said Mr Anderson.
provide incentives for investment in energy companies’ earnings will save National Grid said it was
flexibility and zero carbon generation. £3.3 billion over the next five years, “extremely disappointed” and also
Open data and digitalisation underpin translating into a £20 annual saving believes such a regulatory framework
the whole system thinking required for the average household bills. will not incentivise investment or
to achieve net zero. This is key to Despite the lower returns on offer, the protect consumers, particularly as
navigating increasing complexity at regulator believes investors will still the UK looks to fulfil its 2050 net zero
lowest cost for consumers. be willing to fund system upgrades carbon emissions target.
National Grid Head of Strategy Mark given that the UK’s energy networks Meanwhile, SSE vowed to “keep
Herring said the scenarios “paint an are a “low-risk and attractive sector”. all options open” unless significant
exciting picture of net zero Britain” and Dame Gillian Guy, Chief Executive changes are made. It is worth
highlight the key role of electricity in of Citizens Advice, believes Ofgem noting that several non-listed
meeting 2050 emissions targets. has “struck the right balance between water companies appealed to the
“It’s clear while net zero is shareholder returns and value for Competition and Markets Authority
achievable, there are significant money for energy customers”. (CMA) earlier this year over industry
changes ahead,” he said. Shareholders might be inclined regulator Ofwat’s ‘final determination’.
“Across all scenarios, we see a growth to disagree. Ofgem is proposing Energy providers could follow suit.
in renewable energy generation, that the cost of equity – the rate of Both National Grid and SSE have
including significant expansion in return energy companies pay their come under pressure from Covid-19
installed offshore wind capacity. There shareholders – be reduced to between due to higher customer bad debts and
is a widespread uptake in domestic 3.9 per cent and 4.2 per cent, down other pandemic-related costs. National
electric vehicles, and growth and from 7-8 per cent in the current Grid is bracing for a £400 million hit
investment in hydrogen and carbon regulatory period. to underlying operating profit this
capture technologies too.” The energy companies are year, while SSE is anticipating a £150-
Herring added that consumers need unimpressed by the regulator’s plans. £200 million blow.
“greater understanding of how their
energy use impacts the wider system,
and how changes to their lifestyle have
an impact on net zero ambitions”.
The full extent of Covid-19 became
apparent too late to be factored into
the analysis and will be examined fully
in FES 2021.
Herring said that despite this, many
areas highlighted in the report “will
be crucial in a green recovery from
the pandemic”, particularly improving
energy efficiency low carbon electricity ENERGY PROVIDERS HAVE SLAMMED
OFGEM PLANS TO SLASH RETURNS
generation investment.

07

13/08/2020 09:22
News.indd 2
News.indd 2 13/08/2020 09:22