Six Steps to Zero Carbon Buildings – Step 3: Make energy networks invest for Net Zero by adapting the RIIO2 framework

Energy Systems Catapult set out our current thinking on policies for decarbonising buildings over the next two decades in ‘Six steps to zero carbon buildings’ and the accompanying ‘Towards an enduring policy framework to decarbonise buildings’.

This is the second in a series of six policy briefs providing further detail on each of the six steps.

Key points

This policy brief sets out the case for reforming how we regulate energy networks as part of a wider policy framework to decarbonise buildings and achieve Net Zero.

We propose embedding a new approach to whole system Local Area Energy Planning (LAEP) within the price control and investment framework for GB gas, electricity and heat networks. This would focus network planning and investment decisions more clearly on delivering what is best for the energy system as a whole (i.e, across all energy vectors and users), while taking better account of local needs and ambitions that are identified through Local Area Energy Planning processes that are led and convened by local authorities.

This approach should help ensure that network operators do not hinder potential progress by local areas aiming to achieve local ambitions ahead of national targets.

Our vision for energy networks’ investment in Net Zero involves:

• Ofgem requiring gas and electricity network companies to support local authorities in Local Area Energy Planning process and to use LAEP outputs in line with common methodologies¹ as basis for strategic investment decisions.
• Ofgem incorporating an LAEP process in the RIIO framework alongside DFES scenarios to supplement business planning with bottom-up evidence including as basis for investment in support local decarbonisation plans.
• Ofgem and network companies using LAEP evidence as the basis for the use of whole system re-opener (Coordination Adjustment Mechanism)¹, in line with possibilities highlighted by ENA’s Whole System Cost-Benefit Analysis Methodology². Extension of the use of LAEP as evidence for RIIO-2 Net Zero re-openers.
• Ofgem allowing funding for LAEP’s methodology refinement through innovation funding or other mechanisms – e.g. the approved Net Zero and Re-opener development allowance for gas distribution networks or newly established price control deliverables for electricity distribution companies.
• Requiring network companies to make timely progress on data modernisation and digitalisation in line with new licence requirements ahead of RIIO-ED2 combined with incentives throughout the period in line with continuously evolving Data Best Practice Guidance.
• For the electricity sector, in particular, Ofgem should encourage the development of DSO functions and network investment in smart operation, requiring demonstration of progress in assessing and implementing traditional and non-traditional solutions such as the use of flexibility, demand reduction and energy efficiency, and encouraging progress in terms of low-voltage monitoring, data sharing and granularity of price signals in terms of time and location.