The Energy Transition | Ofgem faces new net zero duty

This week we look at the changes to Ofgem's net zero obligations, the planned overhaul to grid connection queues and more.

Net zero duty to be imposed on Ofgem

The government has tabled a late amendment to the Energy Bill, which is currently making its way through Parliament, that will require Ofgem to consider in all cases how its decisions will support the achievement of the UK's net zero carbon emissions targets.

Ofgem's current duties are set out in the Gas Act 1986 and Electricity Act 1989, with the underlying principal objective of the regulator being to protect the interests of existing and future consumers. Though this does include protecting consumers' interests by reducing greenhouse gases, the new duty will make specific reference to the achievement of the statutory net zero targets and carbon budgets set out in the Climate Change Act 2008.

The government has come under increasing pressure to impose a net zero duty on Ofgem. This is in part due to criticisms that the regulator has historically placed too great an emphasis on cutting consumers' bills, at the expense of investing in projects within the electricity network which would support the drive towards net zero.

Reacting to this week's development in Parliament, Ofgem Chief Executive Jonathan Brearley stated that "consumers are best protected by building a low-carbon, low-cost energy system, scaling up long-term investment and stabilising prices with clean energy. The net zero mandate has overwhelming backing from every part of the energy industry, consumer campaigners and climate activists. It underlines net zero is the best option, not only from a climate perspective, but to ensure a secure, low-cost energy.”

Ofgem's newest obligations will come into effect two months after the enactment of the Energy Bill.

ESO reveals planned overhaul of UK electricity grid connections          

Energy generators in the UK with planned connection projects that are lagging behind schedule will be told to “[g]et on, get back or get out of the energy queue” by the Electricity Systems Operator (ESO). This statement formed part of a press release which detailed a number of targeted reforms designed to speed up connections to the electricity grid.

In a planned overhaul of the current grid connection queuing system, generators that are likely to fail to be ready to meet pre-agreed connection dates and other targets will be expected to agree to delay their connection space to give priority to other projects, or withdraw from the queue altogether. Projects that can demonstrate that they are ready to connect may therefore be able to connect to the grid up to ten years earlier than originally planned.

The ESO noted that 220 projects are due to connect to the transmission network before 2026, equating to roughly 40GW of capacity. However, only half of these projects have secured planning consent and some projects have been delayed by up to 14 years. Currently, around £200 billion worth of renewable energy projects are facing a 15-year waiting periods. This delay majorly threatens the ESO's goal of achieving a net zero power grid by 2035.

Developers aiming to connect to the grid have been written to by the ESO. The body is seeking updates in order to identify non-viable or heavily delayed projects.

Solar industry warns against ‘radical’ changes to the Contracts for Difference scheme

Solar Energy UK, a trade association representing the UK solar industry, has published a response to the Department for Energy Security Net Zero's (DESNZ) call for evidence on the introduction of non-price factors into the Contracts for Difference (CfD) scheme (as previously reported here).

Its response warned against any radical changes to the existing system of CfDs as uncertainty risks reducing investor confidence, and the introduction of non-price factors may create "a policy environment that undermines the business case for new projects".

The call for evidence outlined three options for introducing non-price factors. Of the options proposed, Solar Energy UK believes top-up payments to be the most workable. Under this option, projects that make it through the auction, and that submit high-scoring non-price factors, could receive

a "top-up" to their strike price over the for the first few years of their CfD Contract. Projects that do not score higher than a pre-determined minimum standard would not receive the top-up. Solar Energy UK's view is that this option offers developers and project investors a clearly visible financial value that can be factored into a core investment case.

The report made a number of other recommendations, including that:

• any changes to the CfD system should be announced at least two years ahead of an allocation round, as the preparations required by developers are likely to be "significant"; and
• any proposed introduction of non-price factors should be made in conjunction with the output from the ongoing review of electricity markets arrangements, to ensure a coherent change in policy.

Following the closure of the call for evidence on the 22 May, the government will now analyse the responses and set out their decisions in a response.

Barriers to V2G technologies entering the balancing market to be solved "organically", says ESO

In August 2022, Octopus Energy and the ESO carried out a trial seeking to understand the viability of domestic vehicle-to-grid (V2G) enabled electric vehicles (EVs) entering the Balancing Mechanism (BM) as an aggregated unit (as previously reported here).

The trial was a first of its kind for V2G technology and involved the ESO directly sending a series of signals to Octopus, which then charged and discharged 20 EVs depending on the needs of the BM, helping to balance the system.

The ESO has now published its findings of the trial in a report titled "Powerloop: Trialling Vehicle-to Grid technology". The report found that:

• customers participating in the Powerloop V2G trial realised a saving of up to £180 per year compared to smart charging, or £840 per year compared to unmanaged charging on a flat tariff; and
• V2G-enabled EVs could offer a cheaper option to balance the system than current alternatives, leading to reductions in consumer bills and a reduced reliance on carbon intensive fuel sources.

Although the trial highlighted a number of barriers in the current BM framework, the largest being the current operational metering standards, the report found that most barriers could be overcome "organically" with the increased adoption of V2G and EV technology across the UK.

The report also set out ESO's next steps with regards to V2G technology, including:

• Power Responsive, a programme which aims to simulate increased participation in the different forms of flexible technology such as demand side response and storage; and
• the CrowdFlex project, which is seeking to investigate the reliability, consistency and cost of domestic flexibility.

This article was written with the assistance of Jack Duffy and David Herron, Trainee Solicitors.