energy

Fair energy costs must include getting to net zero

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The writer is chief executive of Ofgem

Today, Ofgem is setting out how the energy regulator will step up to the UK’s biggest challenge — reducing our greenhouse gas emissions to net zero by 2050 and ending our contribution to climate change.

Our remit is to protect the interests of consumers both today and in the future. That means keeping energy bills as low as possible while investing the money to help build a low carbon energy system for future generations. The balancing act needed to manage these sometimes conflicting intergenerational issues has been brought into sharp focus by activists such as Extinction Rebellion and Greta Thunberg. The thorniest dilemma of net zero is not technical, but deciding who pays for it and when.

Ofgem’s decarbonisation action plan, published on my first day in charge, explains how we will tackle climate change and build a low-carbon energy system at the lowest possible cost to consumers. The regulator is taking an approach which recognises that protecting consumers includes helping to hit the net zero target passed by parliament. This equal commitment to protect today’s citizens and those of the future will be reinforced in every decision we make.

There is not a moment to lose: the next five years are crucial to putting the UK on the path to net zero. Significant progress has already been made. Almost half our electricity came from renewable or low-carbon sources last year. But we must go further and faster and seek to all but eliminate emissions from transport and heating.

There is no firm estimate for the overall bill for consumers. In the short term, making the transition will incur additional costs as new technologies are rolled out. But these can be gradually recouped from energy bills over the decades. The plummeting costs of offshore wind shows that, thanks to innovation and economies of scale, low-carbon energy sources can become cheaper than fossil fuel equivalents. In the long run, the bill for consumers may well be higher if we do not hit net zero than if we do.

We no longer have the luxury of time to explore all options perfectly before deciding to act. Government, industry and Ofgem need to take some risks. Provided energy network companies make the best use of the existing capacity and make a strong business case, Ofgem will consider allowing them to invest in further grid reinforcement so the electric vehicle revolution is not held back by a shortage of charging points.

Ofgem will also have to decide how to distribute the costs we control among different groups of consumers. We will consider whether all electricity consumers, including those who don’t drive or are on low incomes, should pay for the system and network changes we need to support electric vehicles or whether only drivers should foot the bill. Whatever happens, we will ensure that consumers, especially the vulnerable, always have access to affordable energy to heat and light their homes. There will have to be trade-offs but costs must always be reasonable and shared fairly. Putting off action would leave the country an even steeper mountain to climb later — and much higher costs for future generations to bear.

To make the transition to net zero, Ofgem must meet the needs of all users, including industry. That means keeping prices as low as possible and ensuring they receive proper customer service. Public support of climate goals will evaporate if we as an industry are seen to be profligate or neglect their needs.

The UK’s 2050 net zero target is one of the world’s most ambitious. Getting it right will show that saving the planet doesn’t have to cost the earth but can create cheaper sources of energy, new industries and jobs. I call on energy companies, business and consumer groups to help Ofgem and government meet the challenge of net zero to ensure we protect consumers both today and in the future.

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