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Press Releases

CALL TO RE-EXAMINE IMPACT OF NETWORK CHARGING REFORMS ON RENEWABLES
Apr 29, 2019

Investment in renewable energy to support UK decarbonisation targets may be undermined unless Ofgem’s proposed network charging reforms are reconsidered, an independent study by economic consultants Oxera [1] has found.

The report recommends the proposed reforms, part of Ofgem’s Targeted Charging Review (TCR) [2], should be further assessed to identify the likely impacts on deployment of renewable generation before being fully implemented.  

Oxera found that elements of the TCR (specifically the ‘TGR/BSUoS’ reforms) [3] could:

  • Adversely impact the economic viability of onshore renewable generation, as well as increasing cost to consumers by as much as £1.3bn (under Ofgem’s baseline Future Energy Scenario (FES)) or £7.6bn (under Ofgem’s alternative FES) over the period 2019–40 compared to Ofgem’s own estimate.
     
  • Have ramifications for decarbonisation across the UK: Ofgem estimates the average annual increase in CO2 emissions in the GB as a result of the TGR/BSUoS reform to be between 0.20m and 0.42m tonnes over the period 2019–40. However, the Oxera report, using plausible alternative emission factors, put it into a range from 0.24m to 0.56m tonnes.
     
  • Increase the costs of the energy system; system costs could be £168m to £879m higher than Ofgem’s modelling suggests over the period 2019–40 given the uncertainty of emissions, CO2 and gas prices.

While the TCR reforms are intended to reduce harmful distortions to competition and promote fairness in the interests of consumers, Oxera’s evaluation of Ofgem’s Impact Assessment found that a greater focus is needed to fully understand the impacts on renewables and decarbonisation to ensure that the TGR/BSUoS reforms do not become counterproductive to achieving Ofgem’s main objectives of affordability, security of supply and sustainability.

The impact of the reforms will also be dependent on the outcome of ongoing related work by National Grid on the TGR, by the BSUoS Task Force on BSUoS, and a separate Ofgem review of forward looking network charges, the first two of which are due to conclude this summer.  Given the uncertainty over the impact of the TGR/BSUoS reforms and the potential interactions with these other workstreams, Oxera concluded it may be prudent for any final decision on TGR/BSUoS reform to be withheld until Ofgem has fully assessed the impacts of its proposals.

Lucy Whitford, Managing Director – Development and Construction, RES, said: 

Our electricity network needs to become a smart flexible system, fit for the future and utilising greater amounts renewable generation to provide homes and businesses with access to the cheapest forms of electricity – onshore wind and solar.  We are committed to working with Ofgem and the industry to find a solution to network charging which delivers decarbonisation at the least cost to consumers.”

Notes to editors:

  1. Oxera’s report, ‘Review of Ofgem’s Targeted Charging Review Impact Assessment’ is available here: https://www.oxera.com/publications/ofgem-targeted-charging-review-impact-assessment/ The report was commissioned jointly by Innogy, RES, ScottishPower and Vattenfall.
     
  2. Ofgem’s Targeted Charging Review (TCR) is a project to assesses how residual network charges should be set and recovered in Great Britain and to keep under review other ‘embedded benefits’ that may distort investment or dispatch decisions.  Ofgem published a ‘minded-to’ decision on reforms to residual network charging and to embedded benefits on 28 November 2018.  https://www.ofgem.gov.uk/publications-and-updates/targeted-charging-review-minded-decision-and-draft-impact-assessment
     
  3. The main elements of the TCR embedded benefits reforms relate to the way that the Transmission Generation Residual (TGR) charge is set and the arrangements for charging Balancing Services Use of System (BSUoS) costs to distribution-connected generators (the ‘TGR/BSUoS reforms’).