By our Climate, Energy and Environment Policy team
While 2017 has been a year of big energy policy announcements, a swathe of regulatory initiatives have also kicked off in relation to network charging. This is the rules around who pays for the wires and pipes connecting the various parts of our energy system and how much. It is unfortunately complicated, technical and hard to understand, but also important. Proposed network charging reforms from Ofgem and the energy industry could have real implications for UK industry and decarbonisation, reaching far beyond the energy sector.
Signals for Demand Side Response and energy resilience
The Smart, Flexible Energy Plan from BEIS and Ofgem launched to much fanfare earlier this year. It saw industrial and commercial Demand Side Response (DSR) as largely a done deal. It is right that historically the largest and most intensive industrial firms have engaged successfully in DSR opportunities. But whether others will leap on board in the quantities assumed is more uncertain.
Network charges - namely triads - have played a key role in unlocking the current industrial flexibility, while also incentivising energy efficiency, onsite renewables and helping firms to access relatively more competitive charges. But that may all change with proposed reforms, which could - among other options - remove triads. This will be a key area for decision-makers to monitor and address as proposals progress.
Fairness and affordability
The fairness and affordability targeted by the reforms mean different things for different consumers. For an industrial consumer, 'fair and affordable' really means 'internationally competitive'. There is plenty of evidence through Eurostat data, as well as in analysis by our Western European competitors, that UK industrial firms of all sizes face among the highest electricity prices in Europe across all bill elements: wholesale, network and policy costs. In a recent EEF survey, 72 per cent of manufacturers rated the UK as poor or very poor in this field.
Our Western European competitors have realised the competitive disadvantages that their key industries have faced due to high energy (including network) costs. This has led to countries such as France, Germany and the Netherlands introducing network cost exemptions of up to 90 per cent for industrial firms, recognising the macro-economic benefit to those countries from supporting their industrial bases.
As the UK develops its Industrial Strategy, achieving costs at least as competitive as our Western European competitors is fundamental. At the very least, the proposed network charge reforms must not aggravate the already uncompetitive rates UK firms face.
Industrial consumers have not been involved in reform of network charges on a consistent basis, but this has changed with the recent launch of a Charging Futures Forum (CFF) to coordinate the multiple network charging reforms being led by multiple organisations to different timescales and ensure a wider range of views and evidence is considered.
This will be invaluable given the volume of change in network charging, but also the very real language barriers in this area and the increased role that network charging signals may play in the energy system transition.
The energy industry and its decision makers have an important role to play to ensure that it genuinely supports the eighth largest manufacturer in the world: the UK.
A version of this article first appeared on BusinessGreen