Strategy and Policy Statement for Energy Policy in Great Britain

The Government is looking at producing a designated strategy and policy statement for energy policy, with a large focus on the path to net zero, energy security, future proofing the UK’s energy system.

The strategy and policy statement for energy policy statement will complement and bring together ideas presented in the following papers: Energy White Paper (2020), Ten Point Plan for a Green Industrial Revolution (2020), Net Zero Strategy (2021), British Energy Security Strategy (2022), Energy Security Plan (2023) and Net Zero Growth Plan (2023).

As the UK drives to become net-zero, the energy network is becoming increasingly diverse and complex. The Future System Operator (FSO) will serve as a central body that is able to over-see, advise, and plan the UK’s energy system.

The FSO will:

• Work alongside Ofgem (the independent economic regulator of gas and electricity markets in England, Scotland, and Wales) to ensure clean energy and net zero infrastructure is developed and delivered efficiently and ahead of the demand, by facilitating competition and innovation.
• Must also understand how the whole energy system works, and how innovative technology, such as hydrogen and CCUS, will impact the current balance.
• Provide independent recommendations from a whole system perspective to Ofgem and the government that inform key policy decisions needed to meet net zero and assess overall energy security.
• Understand how the behaviour of energy providers and energy consumers impacts and influences one another.

Section One: Enabling Clean Energy and Net Zero Infrastructure

Section 1 of the consultation investigates the governments strategic priorities and policy outcomes with regards to clean energy and net zero infrastructure. These are as follows:

Strategic Priorities

• To ensure network infrastructure is reliable, resilient, sustainable, and appropriately connected to other markets.
• To develop electricity network infrastructure ahead of demand to meet the requirements of a decarbonising energy system.
• To drive the development and deployment of renewable/low-carbon technology, and increase opportunities to increase energy efficiency.
• To transition from natural gas to net-zero alternative occurs smoothly and as cost effective as possible, without compromising the supply and cost for consumers.
• To ensure markets are open-minded and anticipate the investment required to reach net-zero.
• To ensure the benefits of investment in clean energy and net-zero infrastructure are felt across the UK.

Policy Outcomes

• To develop the network infrastructure ahead of demand to accommodate the rapid growth of renewable generation capacity and demand from low-carbon technologies.
• To significantly reduce timelines for delivering onshore transmission network infrastructure and halve the end-to-end process by the mid-2020s.
• To prepare gas networks for the transition to low carbon fuels such as hydrogen.
• To significantly increase the visibility of network data used to inform network operators and consumers, and drive innovation.
• To significantly increase the deployment of low carbon heating (e.g., heat pumps) by 2035, with all new installations being capable of net-zero.
• For heat networks: To enforce carbon emission limits, to require evidence of compliance with technical standards, to maintain consumer protection and to enforce the licensing regime for heat network developers.
• To develop and implement an effective regulatory framework for carbon capture, usage and storage (CCUS), that enables the deployment of four initial CCUS clusters by 2030.
• To produce a sustainable funding model that ensures private investment into innovation does not distort the market.
• To remove barriers to multi-purpose interconnectors and other hybrid/novel assets.
• To ensure strategic network plans take a whole system approach with emphasis on deliverability, economic cost, and environmental and social impacts.
• To ensure the flexibility of demand and system benefits provided by different low-carbon energy technologies can be sufficiently monetised by the providers of that flexibility.
• To ensure new generation and demand projects critical to net zero can connect to electricity networks in a cost effective and timely manner that meets the needs of the customers.

Section Two: Ensuring Energy Security and Protecting Consumers

Section 2 of the consultation investigates the governments strategic priorities and policy outcomes with regards to energy security and energy consumers. These are as follows:

Strategic Priorities

• To produce an energy system that is secure and resilient to supply shocks and external changes in the international environment.
• To produce an energy system that protects both domestic and non-domestic consumers.
• To improve the retail market and make it more resilient, investable, and supportive of the transformation of the energy system.
• To ensure energy wholesale markets are competitive, transparent, and liquid.

Policy Outcomes

• To ensure the gas and electricity systems are secure and resilient against a full range of threats that may occur at present and in the future.
• To restore consumer confidence in the energy retail market.
• To increase the financial resilience of the energy supply market participants.
• For Regulators to ensure that licensed bodies fulfil their obligations, through compliance and enforcement measures.
• To improve existing investment market mechanisms (e.g., Capacity Market and Contracts for Difference) and minimise the overall costs to consumers while maintaining a secure energy supply.
• To distribute the costs of transitioning to net zero fairly amongst consumers and keep the costs minimal.

Section Three: An Energy System Fit for the Future

Section 3 of the consultation investigates the governments strategic priorities and policy outcomes with regards to future proofing the UK’s energy system. These are as follows:

Strategic Priorities

• To ensure the energy system is flexible at a national and local scale, and the deployment of energy smart appliances grows.
• To deploy efficient digital infrastructure to enable a smart, digital and secure energy system.
• To effectively govern the transition to net zero.

Policy Outcomes

• To deploy competitive, coordinated, and effective flexibility markets which are open to all technologies, energy efficiency improvement opportunities and demand-side solutions.
• To drive Britain to have the lowest wholesale electricity prices in Europe by 2035 while driving long term economic growth and strengthening the UK’s energy security and independence.
• To develop a policy to enable investment in large-scale, long-duration electricity storage.
• To reform the energy code governance to support the move to net zero.
• To implement the measures from the joint Government-Ofgem Smart Systems and Flexibility Plan (2021), Energy Digitalisation Strategy (2021) and commitments from the published joint response to the Energy Digitalisation Taskforce.
• To establish the Future System Operator as soon as practicable.
• To mitigate cyber security, grid stability and consumer protection risks related to the uptake of demand side response (DSR).
• To effectively cooperate with the EU at a regulator and technical level to support the aims and obligations of the EU-UK Trade and Cooperation Agreement.

The consultation presents 3 main questions:

1. Does the strategy and policy statement identify the most important strategic priorities and policy outcomes for government in formulating policy for the energy sector in Great Britain? If not, please provide details of the priorities that you think should be included.
2. Does the strategy and policy statement effectively set out the role of Ofgem in supporting government to deliver its priorities? If not, please identify where these expectations could be made clearer.
3. Given the Future System Operator does not exist yet but will need to have regard to the strategy and policy statement once it does, do you consider that we have effectively reflected the Future System Operator’s role in this document? If not, please identify where these expectations could be made clearer.

If you wish to respond to the consultation, you can respond online at here. Or submit your response via email to: strategyandpolicystatement@beis.gov.uk. The consultation closes on the 2^nd August 2023. To speak to the Swan Energy team, please click here.