ENERGY giants could lose control over local networks after regulators highlighted concerns that existing arrangements add unnecessary costs to customers and delay the transition to net zero.
Ofgem said it has launched a review into how the energy system is planned and operated locally to ensure Great Britain is ready for a huge increase in green, more affordable homegrown power.
The launch of the review comes as consumers face swingeing increases in their energy bills following the surge in gas prices on international markets.
The outcome could impact on ScottishPower and SSE, which have significant networks businesses.
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Ofgem said the current arrangements have gaps, lack co-ordination and could create potential conflicts of interest.
For example, it noted: “New local markets could play a bigger role in future to balance power supply and demand flexibly and reduce the need for building expensive new grid capacity.
“However, if electricity distribution network companies are responsible for these new markets, they face a potential conflict of interest as building new grid capacity would boost their revenues.”
Ofgem said the alternative arrangements it might recommend range from separating the local system operation function internally within electricity distribution network companies to setting up new fully independent regional bodies.
The organisation will focus on evaluating reform options over the second half of this year, with a view to arriving at conclusions by early 2023.
A spokesperson for Perth-based SSE’s distribution business said it would input constructively into Ofgem’s review.
The spokesperson added: “Local electricity networks will be at the heart of the just transition to net zero. We have ambitious plans to build our distribution system operation (DSO) capabilities in the years ahead and help deliver the smart, flexible system at pace and with the needs of customers and communities at the forefront.”
A ScottishPower spokesperson said the Glasgow-based group had put forward ambitious proposals for digitalising the grid, increasing the amount of capacity available through greater use of flexibility, and deploying active network management to balance power from embedded generation on congested distribution systems.
“We’ve consulted widely on our plans and have set up an independent panel to review our investment proposals, which we believe will provide £370m of direct benefits to customers over the 2023-28 period,” added the spokepserson.
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In March last year Ofgem said the rates of return on investment that electricity networks operators would be allowed to generate would be cut by over a third to 4.4 per cent from April 2023.
Chief executive Jonathan Brearley said then: “These financial arrangements will significantly cut investor returns to make sure consumers pay a fair price for energy whilst networks attract the investment they need to be safe and green.”
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