Review of Electricity Market Arrangements consultation

The LGA’s Environment, Economy, Housing and Transport Board (EEHT) considers energy supply and distribution to be one of the top three risks to growth, the environment, and the economy. EEHT will be asking representatives of the Distribution Network Operators, National Grid, Ofgem and BEIS to meetings to discuss the role of local government in this once-in-a-lifetime transition.

Councils are whole place leaders responsible for housing, planning, transport, and economic growth. Many councils also have plans to generate renewable energy and develop district heat networks utilising waste heat and therefore play a significant role in local area energy planning.

The UK is currently in the middle of an energy crisis with millions of households being plunged into fuel poverty despite government introducing an Energy Price Guarantee. The UK must accelerate the transition to net zero, energy independence and sustainable economic growth (new homes, jobs, skills, productivity etc).

However, accelerating the transition to net zero and energy independence by electrifying heat and transport brings with it significant risk and challenge. As well as reforming the Electricity Market Arrangements the UK also needs significant investment in a planned expansion of the electricity distribution grid. The enormity of the transition and the multitude of interventions required understandably concerns local government as place shapers. Councils in England are already experiencing development blight due to local electricity grid capacity and as more vehicles turn to electric and more homes install heat pumps, it will only get worse.

As the nation transitions to net zero our energy system will need to transform from the current, predominantly centralised, fossil fuel intensive gas and electricity system to a flexible, decentralised predominantly electrified low carbon system. An effective and efficient system will include demand side management, storage, and a greater level of consumer participation so if this transition is going to be achieved in a cost effective and fair way, then localism will need to be considered front and centre in this journey. Councils will need to play an increasingly predominant role in energy systems planning as the local planning authorities, place shapers, conveners of communities and local partners and asset-owners.

Location, Location, Location, a report by Energy Systems Catapult and Octopus Energy shows that reforms to make the wholesale electricity markets reflect local conditions could save around £3bn per annum by 2035 as the UK transitions to a net zero grid.

Councils need to play a pivotal role in effective energy system planning and operation at the sub national level. Councils, as planning authorities, shape place through the Local Plan making process and through location specific masterplans. These plan making processes shape future land use and with that comes future energy demand. Councils also need to play a pivotal role in the review of electricity market arrangements as the review could have operational consequences further down the line.

Many councils are now looking to develop Local Area Energy Plans and are considering how best to shape place given the likely largescale shift to the electrification of buildings and transport. Councils have been working with Energy Systems Catapult on the development of Guidance on Creating Local Area Energy Plan to ensure plans are deliverable and meet Ofgem’s regulatory standards. Councils, as community leaders, can be positive and influential partners when taking this agenda forward.

However, many councils do not have the resources and technical skills required for detailed energy planning and therefore a far more joined up partnership approach to delivery needs to be considered. One option would be for Distribution Network Operators (DNOs) and Future Systems Operators (FSOs) to place technically competent resources in councils to work with environment policy and planning teams to upskill the authorities and provide a communication link between the bodies.

As the nation moves towards an increasingly electrified and decentralised energy system, local energy generation, energy storage and local area energy planning will become increasingly important in the energy management system, with councils taking a more prominent role both in strategic and spatial energy planning.

The National Grid is creaking and at capacity in many places around the country, blocking local authority ability to deliver economic development, housing, and net zero targets. For example, Torbay Council have two solar farms that are in train. When they were originally conceived the plan was for them to purely service the demand from the local hospital and sewage plant. Advances in technology has meant that there will be a significant over production of power which they can export into the grid. Western Power have given them a back stop date of 2028 when they can take on this additional capacity. One of these solar farms could be up and running by next spring helping with the cost of energy crisis. The Chief Executive and Leader are meeting with senior officers of Western Power to explore this further

Any future framework model will need to recognise the increasing importance of the role councils will play in energy planning for the future with more of a central role. Local government needs to be engaging with the Future System Operator and the Distribution System Operator in addition to the Distribution Network Operator, Regional System Planner and the Gas Distribution Networks if the energy system of the future is going to be flexible, versatile, and fit for future purpose.

The current regulatory framework means that utility providers can only operate reactively to confirmed demand which means they are unable to provide infrastructure ahead of need. As a result, those delivering new housing and commercial developments are often unaware of the additional costs to reinforce grid infrastructure to support their development proposals until after planning permission has been granted. This can then impact on the viability of projects that help to achieve net zero carbon objectives such as the electrification of transport and renewable energy projects. Local authorities can and need to have a role in utility infrastructure planning and delivery (energy and water) to unlock housing development and the low carbon economy. In Greater Cambridge, demand for electricity is set to triple by around 2031 from growth in jobs, homes, and steps to meet net zero carbon pledges – including the move to electric cars and buses, and the reduction in the dependency on gas as a home energy source. To meet this demand, a study undertaken by the local authorities found that there is a need to triple the existing grid capacity or face ‘gridlock’ on planning and delivery. On this basis, the local authorities have taken leadership, engaged with the electricity distribution market, and have approved innovative plans for two new grid substations to reinforce Greater Cambridge’s electricity grid and thus help unlock thousands of new homes and deliver a greener transport network.

While RIIO-ED2 (the current electricity distribution price control) was supposed to remove the legal barrier to anticipatory investment, DNOs appear reluctant. Risk is cited by DNOs as the reason for their business plans focussing on ‘flexibility’ rather than physical infrastructure. Engagement between DNOs and local authorities could make a difference. A distribution equivalent to the successful Contract for Difference in generation could be considered to aggregate risk between under and fully utilised new infrastructure - and encourage DNOs to engage more fully with local authorities and Local Planning Authorities to better evaluate risk by engaging more in the local plan process.

With the spiralling cost of energy and the increasing number of households being plunged into fuel poverty, actions to make the energy system efficient, affordable, and fit for future need to be taken as soon as possible.

The LGA’s Environment, Economy, Housing and Transport Board (EEHT) considers energy supply and distribution to be one of the top three risks to growth, the environment, and the economy. EEHT will be asking representatives of the Distribution Network Operators (DNO’s), National Grid, Ofgem and BEIS to meetings to discuss the role of local government in this once-in-a-lifetime transition.  

Yours sincerely,

Cllr David Renard – Chair

Cllr Darren Rodwell – Vice Chair

Cllr Pippa Heylings – Deputy Chair

Cllr Loic Rich – Deputy Chair

Environment, Economy, Housing and Transport Board