Reset the reset (2) – Aligning Content with Intent: BEIS and the Regulator have to sort out their relationship and roles
Catherine Mitchell, IGov Team, 15th March 2017
GB has a stated intent of moving to an energy system capable of delivering a cost-effective decarbonised energy system by 2050 – thereby meeting the Committee on Climate Change’s 2050 carbon budgets.
Sadly, the content of our energy policy (EP) does not deliver its good intention. As a recent IGov blog stated, GB may be talking the talk, but we are not walking the walk. Even worse, we seem to be trapped in a one step forward, two step back mentality.
IGov is arguing that the Government / BEIS should develop a fit-for-purpose GB energy governance framework – analogous to the IGov fit-for-purpose GB energy governance framework, as a means to give direction and a boundary to our energy policy decisions.
One particular issue which has highlighted the non-strategic, random nature of current GB energy policy is the recent ‘minded to’ decision on the value of embedded benefits (EB).
As a recent blog has highlighted, the value of EB was calculated based on its value (anyway contested) to the current energy system rather than on its value within a flexible and smart energy system. Arguably, this reflects the non-progressive role Ofgem is currently playing within the energy system. If it genuinely wants to be a Regulatory body which is enabling a cost-effective transformation to a sustainable, secure and affordable energy system – i.e. fulfilling its Duties to current and future customers – then it would be aware of other distributed energy resource (DER) valuations being undertaken in other jurisdictions at the current time (e.g. here and here). It should also have been aware of an IEA methodology for undertaking such valuations. And if so, it should have undertaken a valuation based on a methodology increasingly being seen as fit-for-purpose for a smart and flexible energy system.
However, it would also have been far better that Ofgem did not de facto collude with a code governance process [which is acting as the essential resistor to change within the energy system] by not announcing the ‘minded to’ decision at all. Far better to wait until a clear decision on the institutional needs of energy system transformation has been clarified – including the methodology to be used when valuing DER and the reform of the code governance process. As the reset the reset (1) blog argued, GB is having too many policy statements, too many Call for Evidence’s without a coherent institutional framework for them to fit into, and this is leading to non-joined-up policy making.
Ofgem has a great deal of lee-way in interpreting its various Duties – albeit currently without the help of a formal Strategic Policy Statement (SPS) from BEIS (originally intended to replace the formal Environmental Guidance). If Ofgem considers that its current Duties, or the Advice given to it, is not allowing it to act as a responsible Regulator in this time of spectacular energy system change and challenges, then Ofgem should act responsibly and talk to the Government/BEIS about it rather than simply continue with the wrong Duties and a constrained Role.
We argued in a recent blog that GB has to undertake a review of the institutional needs of the GB energy system – this would include the roles of the Regulator and Secretary of State, and the relationship between BEIS and Ofgem. One way to incorporate the outcome of such a review would be to codify it within an SPS from BEIS to Ofgem. This might be one means to establish a suitable institutional framework for energy system change, and a way to break the cycle of inaction and simmering tension between the Government/BEIS and the Regulator.
On the other hand, Ofgem may take the view that – given its Duties – it could lead an investigation themselves into the institutional needs of GB energy governance (i.e. a GB equivalent of the NY Public Service Commission aspect of Reforming the Energy Vision) or press the Government to set one in motion. Goran Strbac calculated for the NIC Smart Power process that a best-case £8bn saving per year could be made were GB to move to a fully flexible and smart electricity system. This did not include the benefits of moving to a more integrated system operation between vectors. Similarly, both New York State and California have argued for the cost-benefits to customers of such a move. Given this, one would imagine that Ofgem would be well placed to argue that undertaking a review of the institutional needs of a GB energy system transformation would not only be within its Duties, but be the act of a responsible Regulator.
BEIS and Ofgem may be undertaking the necessary and useful discussion / consensus building about future institutional roles in the GB energy system, including their own relationship, and how to get there. If this is occurring there is no public notice of it, and this is unhelpful. IGov would like to see a formal process for this, preferably linked into the Government / BEIS developing a fit-for-purpose GB energy governance framework.
The role of all actors – the Secretary of State; BEIS; the Regulator; the SO; the DNOs; markets; networks; customers; companies; local authorities; and people – can expect to change given the huge technological advances which are being made within the energy system, and the new possibilities these technological advances are opening up.
At the moment, the irritation around rising energy prices is focusing (to some degree unfairly) on the energy companies involved. At some point, it must become clear to the wider population / media that the Government (BEIS) and Ofgem are equally responsible. Drifting along with a NOT-fit-for-purpose governance system, as we currently are, must aggravate those politically salient issues. Moreover, not dealing with vital public interest issues, such as cost-effective energy system transformation, is failing the country.
A move to a flexible and smart energy system is the cost effective option over the longer term (thereby meeting customer concerns), and is the option which has most chance of meeting the 2050 GHG targets. BEIS and the Regulator have to grasp these challenges and turn them into opportunities for GB plc. This should start with them sorting out their relationship and roles.