Government and Ofgem must do more on smart grid delivery, say MPs

• Report: The Future of Britain's Electricity Networks
• Energy and Climate Change Committee
• Topical Issues: Energy and Environment

Launching the report, Paddy Tipping MP said:

"Our existing regulatory and policy frameworks, along with the grid infrastructure we currently rely on, were developed to serve the fossil fuel economy of the twentieth century.

"The future looks very different. By 2020 the UK electricity network will need to accommodate a far more diverse energy mix that includes a much higher proportion of renewables that cannot respond so easily to fluctuating demand.

"The only cost-effective response to these developments is the creation of a smart grid that intelligently manages demand and supply across the energy system."

The report considers a number of issues that will be crucial for building a smarter grid.

The Committee raises concerns that Ofgem has granted funding for new grid investment projects before the completion of a fundamental review of how better use can be made of the existing network.

Strategic investment in transmission capacity will be required to avoid delays in connecting new power stations, but the existing regulatory framework may be driving the case for transmission investment presented by the industry at the expense of other more cost-effective options such as greater management of demand for energy.

The Committee highlights the increase in the cost of managing electricity flows across the system in recent years, and finds that this is caused by inherent flaws in the British Electricity Trading and Transmission Arrangements (BETTA).

The report also notes allegations that anti-competitive practices by certain electricity companies may also have contributed to increasing costs. The report welcomes the Government’s decision to enhance Ofgem’s powers to regulate companies in the current Energy Bill and calls for a specific review of the BETTA market.

The Committee is extremely disappointed at the industry’s failure to agree a new transmission access regime that will tackle the queue of 60 GW of generation, a large proportion of which is renewables, waiting to connect to the grid.

The report urges the Department to move quickly to implement a regime that will encourage the sharing of grid capacity and prioritise renewables, whilst also facilitating a greater role for energy demand-side management. It also welcomes Ofgem’s decision to review the industry’s rule-making process, noting the sector "has for far too long forestalled reform in areas such as transmission access".

The report also raises concern at the absence of a "culture of innovation" within the networks sector and calls on the industry to show significant improvement to grasp the huge opportunities that the global smart grid market offers. The Committee welcomes new incentives introduced by the regulator and urges Ofgem to keep these under review with a view to increasing funding.

Finally, the report considers the role of skills in the delivery of a smart grid. It expresses concern at the growing shortage of trained people in the networks sector and warns that without the broad skills of all participants within the sector, the UK faces "a dirtier, more expensive and less efficient future".

The Committee therefore calls on Ofgem to do more to ensure the regulatory framework provides the incentives to invest in skills, and for the industry to play its role.

When preparing a road map to deliver a smart grid, the Committee suggests the Government’s long-term strategy should take account of the following principles:

• the need to avoid locking the UK into a particular outcome for the future energy mix at an early stage—the current framework could preclude the development of a decentralised energy system in the future
• much greater integration and management of energy demand within the energy system, for example, through the more active management of household energy use
• minimisation of regulatory and policy uncertainty for network companies who must invest in network assets
• the possibility of a new industrial structure emerging over time, for example, an end to the separation of distribution and transmission.

The report states:

"The market alone will not be able to achieve these changes—it requires strategic leadership from Government delivering a vision for the future that engages actively both consumers and the energy sector".