The Energy Transition | Forward Work Programme and heat pump flexibility

Ofgem's 2022/23 Forward Work Programme Consultation opens

Ofgem is currently consulting on its 2022/23 Forward Work Programme; a statement of intent detailing the activities Ofgem proposes to prioritise in the coming year.

In light of the energy market volatility and significant rises in gas prices seen in recent months (reported on in a previous edition of the Energy Transition), one of Ofgem's primary objectives moving forwards is to build energy market resilience. It is hoped that diversifying Britain's energy supply will protect it from similar future price shocks, while also accelerating the pursuit of its climate goals. To further this endeavour, Ofgem has committed to publishing an 'Energy Transition' roadmap in early 2022, setting out the action that it and the industry need to take over the coming decade to ensure that the goal of net zero by 2050 can be achieved.

The consultation sets out 10 key 'points' to Ofgem's 2022/23 strategic framework:

1. Enduring priorities: Ofgem will continue to deliver its enduring priorities, which comprise its core regulatory functions to regulate the sector and protect the interests of consumers, and the delivery of existing and new government schemes to support vulnerable customers and advance decarbonisation.
2. Strategic change programmes: This point introduces the programmes set out in the points that follow.
3. Future of retail: Ofgem will continue to develop its organisational and regulatory approach to help it withstand market volatility and keep up with trends such as decarbonisation and digitalisation.
4. Low carbon infrastructure: Through this strategic change programme, Ofgem seeks to ensure a more coordinated approach to the transition of network infrastructure for net zero. The programme addresses the themes of network planning, network investment and disinvestment, and enabling new technologies.
5. Full chain flexibility: The Smart Systems and Flexibility Plan 2 sets out reforms to remove barriers to flexibility on the grid for storage and interconnectors; bring forward and reward flexibility through markets and signals; facilitate flexibility from consumers through products, tariffs and regulation of smart appliances; and support planning and markets through data and digital architecture.
6. Data and digitalisation: Ofgem will seek increased and more robust data sharing; enable data to be more visible, secure and assessable; and continue to enhance Ofgem's own data and digital capability to facilitate effective regulation and advanced analytics.
7. Energy systems governance: In recognition of the increased roles of flexibility, data and decarbonisation in the future of the energy system, Ofgem believes that "there is a case for stronger strategic oversight and better whole system coordination, which will likely require changes to existing governance procedures, codes, standards and licensing arrangements".
8. Transforming Ofgem: Continuing on the programme of work that began in 2021/22, Ofgem will continue to strive for internal transformation through pursuit of a clear purpose and strategic goals, and effective structure and governance.
9. Reducing burdens: In accordance with the Regulatory Enforcement and Sanctions Act 2008, Ofgem will continue to review its regulatory functions to ensure that it does not impose undue burdens on regulated parties.
10. Estimated expenditure: Ofgem's budget for 2022/23 is £90.7 million. This will rise to £94.3 million in 2023/24 and £100.2 million in 2024/25. These figures include "ring-fenced funding for Heat Network regulation and Carbon Capture Usage and Storage regulatory costs".

Ofgem is inviting views on its proposed priorities, noting that the Programme is subject to change to reflect current and new challenges. The deadline for responses in 28 February 2022 and the final 2022/23 Programme will be published by the end of March.

WPD launches 'Equinox' project to unlock flexibility from heat pumps

Western Power Distribution (WPD) has launched new a project called 'Equinox', which stands for 'Equitable Novel Flexibility Exchange'. The project seeks to "develop novel commercial arrangements and supporting technologies that unlock flexibility from residential low carbon heating" through three new commercial methods designed "to maximise participation in domestic DNO services." These are:

1. 'Save in advance' - in return for offering a fixed, minimum obligation of flexibility, the energy supplier, and in turn the end-customer, receive an upfront flexibility payment.
2. 'Save as you go' - the energy supplier, and in turn the end-customer, do not commit to a fixed, minimum obligation, but instead control the flexibility they offer based on (near) real-time automated signals.
3. 'Save in advance and boost as you go' - this method combines aspects of both upfront flexibility payments and dynamic price signals.

The project is partly funded through the Network Innovation Competition (NIC), and will run between March 2022 and January 2026 with an estimated expenditure of £15.38 million. Project partners consist of SP Energy Networks, Octopus Energy, PassivSystems, the Welsh government, West Midlands Combined Authority, Sero and Guidehouse. This project has been described as the "first NIC project dedicated to addressing the challenges DNOs [distribution network operators] face with the electrification of heat."  

Stuart Fowler, WPD Innovation Engineer, said, “WPD believes that everyone should be able to access the benefits that can be offered through heat flexibility. In our Equinox project, we want to make this happen by developing and trialling the commercial arrangements that are needed for this to become a reality. Through unlocking the flexibility of heat pumps, we hope that the project will allow DNOs to effectively plan investment and reduce barriers for all residential customers to provide flexibility.”

Ofgem places plans to apply transmission charges to distributed generators on hold

In June 2021, Ofgem consulted on its minded-to positions for three key policy areas within its review of access and forward-looking charges: distribution connection charging, the definition and choice of access rights and transmission charges for small distributed generators. In response to feedback, Ofgem has now published updates updated its minded-to positions, and has opened a further consultation.

Other than the embedded export tariff, distributed generators with a capacity of less than 100MW are currently exempt from Transmission Network Use of System (TNUoS) charges. This includes both forward-looking charges, which cover future network costs and reflect the impact of network users on costs in different locations, and residual charges, which are fixed and exist to recover the remaining sunk costs of the transmission network. In its June minded-to position, Ofgem proposed to expose small distributed generators to forward-looking TNUoS charges, based on the rationale that Ofgem "[does] not think the impact export has on the transmission networks differs between the size of the generator or whether they are connected at transmission and distribution".

However, in recognition of the "large majority" of respondents who did not support its proposals for transmission charges for small distributed generators, Ofgem has put these plans on hold. Many stakeholders argued that the proposals would disproportionately affect generators in remote areas, whilst others suggested that a more fundamental review would be required before making such a change. Nevertheless, Ofgem maintains that it "stand[s] behind the principle that smaller generators should pay charges equivalent to larger generators where they have an equivalent impact on the network".

Ofgem has expressed that it will not impose any changes to TNUoS charges for April 2023. However, whether these changes will implemented further down the line remains to be seen.

Heat Trust urges government to introduce price cap to heat networks

Consumer protection body Heat Trust has warned that more than 500,000 households on communal and district heating networks are in need of protection from spiralling gas prices. Currently, the government's price cap does not extend to heat networks, as operators have to buy gas on the commercial rather than the domestic markets. Heat Trust claims that commercial gas prices are presently four times pre-crisis levels. There was a 1000% price increase in 2021, which saw a rise from 1.5p per unit to 15p per unit before Christmas – the price is now roughly 6p and 7p per unit.

Heat Trust is calling for urgent government intervention to allow heat network operators to purchase gas at the capped domestic tariff rates and pass on the saving to consumers. As reported in a previous Energy Transition update, Ofgem has been confirmed as the Heat Networks regulator. Heat Trust is urging for this plan to be brought forward in order to offer the protection and support that heat network customers require.

Stephen Knight, Director of Heat Trust, said, “The government is fully committed to making heat networks a key part of its energy policy, and must not leave families living on these schemes behind. Heat networks have the potential to offer low-cost, low-carbon heat, but without intervention hundreds of thousands of families are facing horrendous and unaffordable heating bills this winter."

£61 million to support innovative floating offshore wind technologies

The government has announced more than £32 million in funding for the development of innovative floating offshore wind technologies, which will be matched by over £30 million of industry funding. The government funding forms part of the £1 billion Net Zero Innovation Portfolio, which endeavours to accelerate the commercialisation of innovative low-carbon technologies.

Through the Floating Offshore Wind Demonstration Programme, 11 successful projects will each be awarded up to £10 million to accelerate the deployment of floating offshore wind turbines in seas around the UK. Part of this funding will go towards researching areas such as how turbines are moored to the seadbed, undersea cabling and developing foundation solutions. Compared to fixed turbines, floating turbines can be deployed in deeper waters, where winds tend to be stronger, so investment in this area will likely offer a significant boost to energy capacity.

In light of soaring global gas prices (discussed above), it is hoped that this funding will go some way to expanding Britain's renewable energy portfolio and reducing its dependency on volatile fossil fuels such as gas, as well as accelerating the transition to net zero.

This announcement follows the first Scottish offshore wind leasing round in over a decade earlier this month, in which 16GW of capacity was allocated to floating wind farms. For more information, see this previous edition of the Energy Transition.

British Gas launches new air source heat pump

British Gas has launched a new air source heat pump, with the first customer installation planned to occur next month in North Devon. British Gas intend to begin their installations in the South West, before a wider national roll-out takes place. The installations will be done by specialist British Gas engineers. This initiative aligns with British Gas' aims to lower its carbon emissions. Parent company of British Gas, Centrica (under the PH Jones brand), also intends to install air source heat pumps into social housing. The intention is to install up to 1,000 homes with heat pumps in 2022 and for this to reach 20,000 homes per year by 2025.

Jana Siber, Managing Director of British Gas has said"There is a big challenge ahead of us to decarbonise UK homes. We’ve made a lot of progress helping our customers use less energy with smart technology, and our first mass market heat pump will now help them change the type of energy they use. There will not be a single solution for every home but it’s important we act now to start customers on this journey. Heat pumps are an essential part of decarbonising heat and the momentum around this technology is building. To ensure we can meet the demand that’s coming, we’ve committed to training 3,500 apprentices over the next decade, many of whom will develop specialist green skills."