Updated: Feb 9, 2020
This week’s publication by Ofgem of its 9 Point Action Plan has been welcome reading. First up it shows new CEO Jonathan Brearley clearly looking to make a mark, and get out from under growing criticism that was gathering around the regulator.
In his last role inside Ofgem prior to taking on the top job, Jonathan led work on the Targeted Charging Review, which has been criticised roundly by the low carbon and renewables sector for undermining the development of renewables. Ofgem's announcement coincided with the Prime Minister launching UK action on COP26. Its probably true to say that Ofgem will be more pleased with its ability to get its message across than Number 10 which had its tilt at climate leadership impaled by departing COP President Claire O’Neill.
So, what does Ofgem's statement of intent mean in practice? First some history and my personal perspective. I’ve worked seeking to influence Ofgem for many years, first at Scottish Renewables when I met senior managers regularly in a bid to accelerate the growth and connection of Scottish renewable schemes, mostly onshore wind. This was back between 2002 and 2007, and Ofgem were frustrating to deal with. They and National Grid hid behind each other in pointing the finger about why change was so slow. The renewable industry wanted to see rapid role out of network upgrades but faced significant delays. The Regulator spent a lot of time worrying about stranded assets and higher consumer bills. Turn the clock forward and neither has happened. The demand for connection was real and networks could have been greenlighted much faster than they were. National Grid by the way, realised that renewables were here to stay and set to grow far earlier than Ofgem, and has been part of the solution for a good few years now.
Ofgem has in fairness sought to encourage innovation and looked at new charging to support growth of renewables in Scotland and has shifted its approach through RIIO so that there is dual emphasis on investment and managing costs. Overall though it has held back change because of a conservative mindset and a style of economic modelling that sees the future as a risk rather than an opportunity.
After Scottish Renewables I moved to the Sustainable Development Commission – a now defunct Government watchdog - which took on Ofgem and won in a battle to introduce a sustainable development duty into Ofgem’s work. I had a ringside seat watching the SDC eyeball then CEO Alastair Buchanan in a series of fraught meetings, and win the argument inside Government.
A particular feature of the duty was regard to the future and present consumer, meaning managing costs for current consumers, while investing in a changing network to protect future consumers, including against issues like climate change but until now Ofgem has behaved as if this is someone else’s problem.
So the Action Plan is interesting in its scope. It is a signal to Number 10, BEIS and Parliament that Ofgem is onside and ready to play its part, and that no review of its work and duties is required when there is so much work to be done. So many will be watching what kind of actions are taken.
An obvious point is that this makes a lot of sense for Ofgem. The issues it identifies are essentially critical infrastructure changes coming sooner or later. Ofgem is essentially agreeing to support the direction of travel of the market and Government policy. And if it creates a mindset where regulation is used to accelerate rather than slow change, then change will come at lower cost.
A final point to make is the fact that one big driver in changing Ofgem’s thinking is that the energy trilemma – that growth of renewables meant instability and higher consumer cost – has been solved. Technology, National Grid and in part the RIIO process have delivered system stability. Look back a few years and clearly Ofgem was trying to limit the impact of high cost renewables on people’s bills. That’s not a problem anymore. It’s true that some of the items covered in the action plan such as hydrogen, low carbon heat and EVs are higher cost than standard high-carbon alternatives. But our ability to scale up and bring costs down in renewables can be a blueprint for these other low-carbon shifts.
One of the people to thank for that is of course Jonathan Brearley. A senior official in DECC in the early part of the last decade, he led much of the work on Electricity Market Reform and the highly successful Contract for Difference. I worked in his team for just over a year and saw first-hand the choices and decisions being made over how to shape the CfD. I also talked to a lot of industry colleagues and encountered the scepticism of the renewable sector when faced with the move from the Renewables Obligation. Jonathan and others like my last boss Hugh McNeal called that one right.
That’s it for now, but next week I’ll come back to the commitment to support the growth and connection of offshore wind. Ofgem has not always agreed with industry on this, and regulatory and policy choices from earlier in the decade have held innovation back here. So it will be interesting to see what changes Jonathan and his team have in mind there.