Ofgem call for input: Future of local energy institutions and governance

Energy regulator Ofgem recently released a call for input as part of its review into the effectiveness of institutional and governance arrangements at a sub-national level to support delivery of Net Zero at least cost.

The call focuses on how the energy system can be planned, transformed and operated at a local level to ensure readiness for net zero along with proposals of future models.

Our response to the call builds on the insight we recently shared in our Innovate UK-funded report Building a governance framework for coordinated Local Area Energy Planning, which used a combination of stakeholder interviews, market research and whole system modelling to explore how coordinated local area energy planning could bring significant financial benefits on the road to net zero – and the future policy, regulatory and governance reform that is needed to deliver it.

Energy Systems Catapult’s work on developing Local Area Energy Planning (LAEP) suggests a much stronger role for Local Authorities in leadership responsibilities for net zero planning. However as highlighted in the consultation document, coordination between local government and Gas Distribution Networks (GDNs) / District Network Operators (DNOs) varies hugely across the country given local resource and commitment.

Ofgem outline three key energy system functions in energy system planning, market facilitation of flexible resources, and real time operation of local energy networks. Given the framing of the three energy system functions, we agree there must be greater interdependencies between planning, market facilitation and operation roles.

Key points

Address resource constraints in existing institutions – particularly within Local Authorities

Local Authorities are key to the energy transition, however they are often under significant resource constraints. We would recommend enabling local authorities to support with strategic policy coordination by rolling out LAEP. Additionally, support should be expanded to help in the deployment of multidisciplinary resources within local authorities with appropriate incentives to make best use of resources available.

Align incentives across planning and geographic scales

The plans, objectives and incentives of stakeholders across spatial and energy planning frameworks from local to regional to national scales are often contradictory. Decisions made by stakeholders across these scales are made in isolation and lack coordination with wider energy system decisions.

We agree with Ofgem’s view that there are significant gaps and lack of accountability in roles and responsibilities for local actors within the energy system. The future system needs much greater coordination across not only the geographic scale (national – regional – local), but also across the planning functions (spatial, transport and energy). A consistent local evidence base established through LAEPs can be the starting point for coordinating local, regional and national decisions, however this will require new processes and governance arrangements to ensure that plans lead to action.

Support greater regional decision making through independent coordination

There should be a stronger element of regional governance in future institutional arrangements, and we agree with Ofgem’s conclusion in re-assigning sub-national roles and responsibilities to the most applicable actors to perform these duties. Our Governance Framework report suggests that an independent technical assurance facility or coordinating body could be of significant value to the future system.

Independent coordination at the regional level is required to ensure Net Zero can be delivered at lowest cost. A decision on this function is required from BEIS and Ofgem to clarify who will be responsible for understanding how LAEPs fit together across regions.

Enable LAEPs to be delivered to a common methodology

Delivering coordinated local area energy planning lacks consistency in methodology and approach. We are pleased to see ESC’s work on LAEPs cited heavily in the document, however this now needs to go one step further in driving a consistent methodology and considering LAEPs formally in the price control framework.

The RIIO2 business plans highlight commitment from network companies, but this needs to be consistent across all regions. Even where there are efforts to deliver coordinated energy planning, this often lacks consistency in methodology and approach. In response, and in collaboration with industry stakeholders, ESC have recently released a Guidance document to enable LAEPs to be delivered to a consistent standard across the UK.

Test and understand stakeholder roles and responsibilities under each of the model options

Ofgem set out four potential models for future governance arrangements. Given the scale of changes needed, likely timescales to implement these changes, and the urgency to enable fulfilment of DSO functions, an adaptive approach to governance may be required. This could take the form of early adoption of Model 1, with progression perhaps towards Model 3 or 4 later down the line. The four models proposed by Ofgem should be further tested to understand the roles and responsibilities of stakeholders in each framework. It is our view that much stronger partnerships and incentives are needed between these stakeholders to develop the arrangements and functions required for delivering decarbonisation outcomes.

Read our consultation response

Future of local energy institutions and governance


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