Transforming Electricity Network Investment: A Step Change Needed

Welcome, Net Zero News readers,

In an era where the demand for sustainable energy solutions is at an all-time high, a significant transformation in investment strategies for local electricity networks across Great Britain has been deemed essential. A recent report from the National Infrastructure Commission (NIC) has underscored the urgency of this need, calling for a “step change” in investment to not only support economic growth but also to lower long-term energy costs.

The NIC’s report, titled Electricity distribution networks: Creating capacity for the future, highlights that the current investment pace must double to meet the anticipated energy demand by 2050. This ambitious target is crucial as we strive to transition towards a greener, more sustainable future.

The report critically assesses the current regulatory landscape overseen by Ofgem, stating that it is “too complex” and fails to incentivise Distribution Network Operators (DNOs) to make the necessary proactive investments. This lack of encouragement is seen as a significant barrier to enhancing network capacity, which is vital for accommodating the increasing demand for electric vehicles, heat pumps, and other renewable energy technologies.

To address these challenges, the NIC advocates for a fundamental shift in the approach to energy regulation and system planning. The analysis presented in the report reveals a concerning reality: delivering the required investment levels could lead to an increase of between £5 and £25 on the average annual household electricity bill by 2050. However, even with this additional cost, electricity bills are still projected to remain lower than current levels, highlighting the long-term financial benefits of proactive investment.

Moreover, failing to improve the connection process to electricity distribution networks could stifle economic growth and hinder the government’s timeline for achieving clean power targets. The NIC’s report suggests that Ofgem should establish new service standards for DNOs, ensuring that commercial customers experience a consistent and efficient connection process to the network. Additionally, the introduction of incentives for larger connections is recommended to further facilitate this transition.

Furthermore, the price control process currently in place by Ofgem must be simplified and broadened. The NIC argues that the focus should extend beyond merely prioritising short-term low costs for consumers; instead, it should encompass enabling growth and fostering decarbonisation. To achieve this, the report recommends that the government provide fresh strategic guidance to Ofgem regarding the necessary outcomes.

In terms of investment barriers, the NIC’s report proposes a series of procedural changes aimed at reducing uncertainty for network operators. This includes expediting the approval process for new infrastructure projects, which is crucial for aligning with the government’s overarching decarbonisation goals.

Another key aspect highlighted in the report is the importance of expanding flexibility measures. By managing demand effectively, we can harness whole-system benefits, including reducing electricity costs for consumers. For instance, enabling households to utilise power during off-peak times, such as when charging electric vehicles, can significantly mitigate pressure on the grid.

Sir John Armitt, Chair of the National Infrastructure Commission, emphasised the pressing need for change: “The UK is heading in the right direction on decarbonising power, but we can’t be complacent. We must learn the lessons from playing catch-up on transmission grid expansion and get ahead of the curve on investing in our local networks. This ensures that people can enjoy the benefits of electric vehicles and heat pumps, knowing that the network will support them, and businesses can connect when they need to.”

Sir John further noted that a new regulatory approach is essential to encourage operators to make prudent local investments that anticipate future demand. He acknowledged that while asking consumers to contribute a small amount upfront may not be popular, the potential rewards are significant. “We have the opportunity to harness the benefits of cheap renewable generation sooner rather than later, building a secure network that supports economic growth and decarbonisation, with resilience embedded throughout,” he added.

Nick Winser, National Infrastructure Commissioner, echoed these sentiments, stating, “Every part of our electricity sector must play its part in supporting economic growth, and distribution networks are no exception. But that requires a more strategic approach that empowers proactive investment and ensures network operators do more to make connections easier and faster for businesses.”

The insights from the report have resonated with industry leaders. Chris Burchell, Managing Director of SSEN Distribution, responded positively, stating, “At SSEN, we’ve long called for reform to the mechanisms ensuring distribution networks enable – and don’t hinder – decarbonisation and growth. The NIC’s findings align with our conclusions on how proactive investment in distribution networks can spur growth in local economies, validating our strategic development approach to decarbonisation.”

Yselkla Farmer, CEO of BEAMA, added: “The NIC distribution review highlights the need to end the ‘build just-in-time’ approach that has led to a lack of network capacity being a blocker for growth and decarbonisation. Instead, the UK needs to invest ahead of need for economic growth.” She cautioned that the existing “feast-and-famine” model, where procurement halts at each price control, does not support the necessary supply chain readiness, skills investment, or job creation. She urged both Ofgem and the government to act swiftly to ensure that the UK meets its Clean Power 2030 goals, warning that delays could prove detrimental.

Cordi O’Hara, President of National Grid Electricity Distribution, welcomed the NIC’s report, particularly its recognition that the RIIO-ED3 framework requires a considerable increase in network investment. “The NIC’s focus on net zero, growth, resilience, customer service, and connections strikes the right balance and aligns with National Grid and Government ambitions,” she stated.

As we move forward, the findings of the NIC’s report serve as a clarion call for immediate action. The path to a sustainable energy future is fraught with challenges, but with strategic investments and regulatory reforms, we can create a robust electricity distribution network that not only meets the demands of tomorrow but also supports economic growth and decarbonisation efforts. The time to act is now, and together, we can pave the way for a cleaner, greener future.

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