Utility regulators ‘need new powers if UK is to tackle climate change’

The UK will fail to reach net zero greenhouse gas emissions by 2050 if its regulators – including energy regulator Ofgem – are not given new powers to ensure utility companies invest in sustainable infrastructure. So says a new report: Strategic investment and public confidence published by the National Infrastructure Commission (NIC).

The report considers the need for extensive strategic investment in each of the energy, telecoms and water services sectors to reduce emissions, improve digital connectivity and build resilience as floods and drought become more likely – and the role of regulation in delivering them. The Commission concludes that, while the current model has mostly achieved what it was set up to do, it has created a culture of short-termism.

The regulatory model’s excessive reliance on utility companies for strategic direction means that the long-term investments needed to meet challenges such as climate change have not been sufficiently prioritised. As a result, the system must be updated to facilitate a scale of transformation it was not designed to deliver.

Among its recommendations is a proposal for new duties for the regulators – Ofgem, Ofcom and Ofwat – to promote the achievement of net zero and improve the resilience of the UK’s infrastructure. This shift will be essential to enable the delivery of major new projects to mitigate climate change. At the same time, regulators must use the price and market controls at their disposal to balance the needs of consumers and investors and ensure the market operates fairly.

Chair of the NIC, Sir John Armitt, said: ‘The government has committed the UK to net zero by 2050, but if regulators aren’t equipped with a new duty to specifically reach this target, then it is simply unattainable. The regulatory system must adapt to meet the demands of the future – and the great challenge we face to bring down emissions and build resilience against increasingly frequent extreme weather. If ministers are serious about a low carbon revolution, they must act quickly and decisively to modernise regulation.’

A week before the NIC released its report, Ofgem released its annual State of the Market report, which said that, while the UK continues to be a global leader in cutting greenhouse gas emissions, progress is slowing. Greenhouse gas emissions have fallen by 42% since 1990, more than any other large advanced economy, due largely to the decarbonisation of electricity generation. However, last year saw the smallest reduction in emissions since 2012 – just 2.5%, down from a 3% fall the previous year.

Separately, competition in Great Britain’s retail energy market continued to develop in 2018–19. Medium-sized suppliers benefitted the most from record switching rates, swelling their market share by 7% in electricity and by 5% in gas to over 20% of consumers overall. They also gained customers who were transferred to them under Ofgem’s safety net after a number of smaller suppliers failed and exited the market.

At the same time, the market dominance of the six larger suppliers continued to weaken as they lost 1.3mn customers and saw market share fall to around 70% of consumers, compared to around 75% the year before, said Ofgem.

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