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Time for a more coherent approach to low carbon in energy networks

Ofgem's RIIO2 regulatory framework - currently out for consultation - will shape - and endorse many tens of billions of new network investment in the period from 2020–28.

At this initial stage in designing the RIIO2 framework, Sustainability First is proposing that serious thought be given by Ofgem, the network companies and others with an interest, to a new and explicit low carbon incentive, common to every network.

Significant funds are of course already available to networks who seek to trial low-carbon innovation. And, within the current RIIO1 price control framework, there are a number of incentives placed on the network companies to promote a variety of environmental outcomes. However, these incentives are relatively fragmented.

We believe that a new low carbon incentive would provide a clear and unambiguous signal to network companies for the decade ahead. It would sit alongside other important drivers in the network price controls - for economic and operational efficiency and for discharge of their wider societal responsibilities in delivering a critical service.

The aim of a new low carbon incentive for the networks would be to:

Give a clear signal from the regulator about the important role of the networks in shaping and facilitating lower-carbon outcomes.

Better align network business drivers with whole systems thinking and national carbon reduction goals.

Reward networks who wish to be flexible and creative in their approaches to low-carbon facilitation (so, where appropriate, to support cost-efficient low-carbon initiatives such as energy efficiency, bio-methane, low-carbon heat or transport). This flexibility is particularly important given the pace of technological change and future uncertainties.

Better align the agenda of the networks – given their geographic footprint – with the low carbon agendas of devolved authorities, towns, cities and other communities.

In practical terms, getting the 'right design' for such an incentive may be quite hard: issues ofquantification,measurement, 'additionality' of outcomes, and even potential gaming by the networks will each need to be addressed to some degree.

But, and important, this is not a reason to try. The RIIO2 framework will set the shape of network investment and activity out to almost 2030. The benefit of flagging the importance now of low-carbon delivery by the networks for the decade ahead is surely unarguable. 

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