03 August 2022
Geopolitical events over the past two years have clearly demonstrated how reliant Britain remains on imported gas supplies and how badly our energy costs are impacted by events outside of the UK’s control.
Reducing our exposure to volatile natural gas markets requires a major overhaul of our current generation mix. This must also be balanced with a pressing need to decarbonise Britain’s energy supply, with an initial target of decarbonising the UK’s total electricity generation by 2035.
Russia’s invasion of Ukraine accelerated an ongoing gas and electricity price crisis, bringing into sharp focus the need for major reform of the UK’s energy mix.
Existing market, regulatory and institutional arrangements are not designed around operating a net zero power system, particularly with the additional target of doing so as cost-effectively as possible.
As a result, last month Ofgem put forward their ‘Net Zero Britain’ discussion paper to assess the available options for a successful net-zero transition while minimising costs for end users.
While Ofgem can lay out the options available and advise on the best course of action, ultimately it will be up to Government to reform current electricity market arrangements in a bid to achieve the country’s net zero ambitions.
The paper outlines three major proposed reforms. If implemented, Ofgem states that they have the potential to save consumers billions of pounds annually on energy costs:
These measures are designed to implement a future energy system more suited to the needs of a changing demand outlook.
The electrification of transport and heating will see demand for electricity grow significantly, as could the production of hydrogen.
In turn, each of these will reduce the demand for fossil fuels, particularly natural gas. Still pinning electricity prices to a commodity that will play a shrinking role in our generation picture in the future does not make sense.
Ofgem also identified three key barriers to overcome. The first is the need for better coordination, as well as a more strategic approach to the implementation of emerging energy assets, such as heat networks at both national and local levels.
Secondly, an energy system that has performed well for decades is now no longer fit for purpose and there will be a growing need to match the plentiful, low-cost but inconsistent power generated by offshore wind, likely to become our largest single-generation method, with flexible electricity demand.
Lastly, it highlighted the challenge faced by both businesses and households in terms of rising energy costs, with a changing energy market needing to maximise benefits for consumers as well as protect their interests.
Stakeholders wishing to respond to the discussion paper have until August 8th to do so – visit them here.
But despite this much-needed focus on delivering a robust national infrastructure, the onus remains in the short term on each individual business to set out its own clear and actionable plan that can achieve net zero.
For more information, give us a call on 08451 46 36 26 and speak to one of our experts.