Regulating energy networks - future investment

In August 2009 we reported on Ofgem's Working Group paper, published as part of its RPI-X{at}20 Review is a two-year project to evaluate the current approach to regulating Great Britain's energy networks and to develop future policy recommendations.

Ofgem has now published a further Working Group Report which focuses on the question of how to regulate new investment in energy networks.

The Investment Working Group Report:

• asks whether the current market approach (which has focused on replacing, reinforcing and extending existing networks on a piecemeal and more short-term basis) will continue to be effective in a developing, and perhaps less certain energy market, where the drivers for investment could be very different to current investment drivers;
• considers the need for new network investment to accommodate changes in energy policy, technology, sources and use and examines some alternative approaches that might better facilitate future investment;
• highlights some of the barriers preventing future investment; and
• outlines a potential way forward for the supporting and making of decisions with regard to future network investment.

The report recognises that decisions on investment need to support a strategic industry-wide long-term plan and discusses the concept of a "Guiding Mind" organisation to help address and support the decision making process.

Given the diverse range of interests in the energy sector, it is suggested that the Guiding Mind should comprise of a selection of representatives across the energy supply chain. Key objectives of the Guiding Mind would be to balance present and future priorities for gas, electricity, heat and carbon and to achieve improved investor confidence. The report considers how the role and responsibility of any such new organisation could help to reduce barriers within the supply chain to ensure that the results of investment are enjoyed much sooner.

The full report of the Investment Working Group can be accessed on Ofgen's website.

In terms of next steps, Ofgem has indicated that it will publish an "Emerging Thinking" consultation on the range of issues arising from its review within the next few weeks.