Ofgem Consultation: Getting more out of our electricity networks through reforming access and forward-looking charging arrangements
Rachel Bray and Catherine Mitchell
Energy Policy Group, University of Exeter
Running the energy system costs society and the customer a certain total amount every year. That sum of that cost is currently derived in a particular way – transmission costs, distribution costs, including charging costs, wholesale market costs etc – and via a certain methodology and regulatory mechanism and then paid for via customer bills before finally being reimbursed to different parts of the energy system by suppliers.
This is a top down, centralised, passive customer approach and no longer fit for purpose. Most of the Ofgem consultations recognise that the energy system is changing and recognise that there are ‘challenges’ in delivering a decarbonised energy system – even if they do not baldly say that the current rules are not fit for purpose. However, the consultations then tend to put forward suggestions based on the conventional framework of organising and costing the energy system. Such is the case of this access and charging review.
Given we are trying to transform our energy system, then we also need to ask whether the way that we deliver energy and run the energy system is still the right way or whether we could deliver public policy goals by organising and costing the energy system in different ways. Unfortunately, the access and charging review consultation does not ask this question.
Delivering a decarbonised, smart and flexible energy system is increasingly a very inter-linked process because of decarbonisation, digitalisation and decentralisation (as set out in Figure 1 below) most particularly coming together at the local level. This new local reality requires coordinating between energy vectors (heat, electricity, mobility) across different levels (local and national; distribution, transmission) via supply, storage and the demand side.
EPG / IGov simply does not believe that these needs and this system operation complexity [to deliver a cost-effective, secure, affordable, equitable energy system] can any more be delivered via wholesale markets and separated regulatory activities, including a regulatory activity related to network charging. We believe that there needs to be more coordination between governance, scales and vectors. We think that an essential piece of this coordination are local, area based coordinators (see refs below) – and it should be up to these local coordinators how they charge for the distribution network, depending on what suits the area, given all of the issues set out in Figure 1 below. This allows the local coordinators to be much more dynamic in terms of charging and more flexible to change and unintended consequences. The regulated access and charging activity of Ofgem should be folded within the regulatory mechanism activity of RIIO2, and that regulatory mechanism should be more output based and more related to public policy goals – set out in numerous IGov working papers, blogs and journal articles (see refs below).
We do think that residual charging has different issues – and these probably should be socialised across customers.
We also think that transmission and distribution issues are very different, and can be treated differently.
We do think however that high level charging principles have major distributional impacts, and that these principles need to be decided by Government not the Regulator. In this way, we think that the access and future charging activity of Ofgem is inappropriate: (1) from a policy and distributional impact point of view; (2) because we do not think that it should be a separate regulated activity; and (3) because we believe that the Charging Futures Programme is direction-less because there is no overarching framework to fit it in to.
You can read the full submission here: Exeter EPG response to Ofgem access and charging arrangements. Sept18
Figure 1: The Inter-locking Dimensions of Network Costs