An International Review of Energy Delivery System Policy & Regulation

On 21 April, the Canadian Gas Association and Electricity Canada released a flagship report, Net Zero: An International Review of Energy Delivery System Policy and Regulation for Canadian Energy Decision Makers which presents international case studies and a roadmap for Canada to amend and update utility regulatory policy and legislation. The report also received financial support from Natural Resources Canada and was written by Gattinger and Associates. It draws utility legislative and policy reform insights from three countries including Australia, the UK and the United States (New York State). I contributed a case study on the GB de-carbonisation journey for this report.

Many of the conclusions of this report can be applied in Britain – perhaps unsurprisingly since the British experience informed some of the thinking – but it would be wrong to conclude that any of the case study jurisdictions has implemented a coherent and functional net zero strategy. In each of the regions studied, there is an excess of ambition over achievement, although Britain has a distinct advantage in that its strongly centralised system of government lends itself better to nation-wide policy mandates in a way that is more difficult in a federal system.

The key findings of the report are:

• There is a pressing need for well-articulated and coordinated high level energy policy;
• The 2050 goal will require high levels of active and ongoing cooperation among all relevant governments and regulatory agencies;
• There must be full integration of all energy system requirements – integrity, affordability, emissions management and social acceptability – into decision processes from beginning to end;
• There is a vital need to expose consumers and citizens to the realities of energy transformation: costs and risks as well as opportunities and benefits;
• It will be essential to place most individual project approvals or detailed policy and regulatory decisions in the hands of experts with close to the ground understanding;
• The focus should be on results – constantly reducing emissions while sustaining well functioning energy systems;
• Durable public support for energy system transformation will need to rest on open, inclusive, transparent policy, planning and approval processes, engaging communities and citizens from beginning to end;
• Policy and regulation need to encourage innovation in technologies, business models, management systems and regulatory systems.

“None of this is rocket science. It is, in fact, much more complex than rocket science because it rests primarily on the untidy and unpredictable behaviour of individual humans and their governance and business systems. Much will not go as planned, there will be mistakes, and the goal of 2050 may prove elusive. But decisive and durable moves toward much lower emissions are possible – and that is the point. On the paths leading there, policy makers will be called upon to act in ways that have virtually no precedent; policy business as usual is not an option if net zero by 2050 is to be considered even a possibility,”
– Gattinger and Associates

It is interesting that in each of the jurisdictions covered there are moves away from market-driven solutions to centrally planned solutions. After I submitted my contribution to this report, the UK Government and Ofgem announced the nationalisation of the gas and electricity system operation businesses of National Grid, and the creation of a combined “Future System Operator” in a move that reverses previous privatisations. Similar trends have been observed in Western Australia, where since 2021, there has been a shift away from privatisation and de-regulation, alongside a co-ordinated effort to address the implications of de-carbonisation. In New York, energy policy is evolving from a focus on promoting clean energy when economically efficient to a “planning-centric” model aimed at achieving emissions targets.

Of course, the bulk of the work for this study was carried out prior to the invasion of Ukraine. Even before this, concerns over affordability and security of supply were growing, but now these are becoming more pressing, reducing the flexibility of governments to drive further de-carbonisation which increases costs to consumers and/or taxpayers. Even if the claims around renewables reducing energy costs were true (which so far they do not), the development of more subsidised renewable generation increases costs to consumers/taxpayers immediately while any benefits would take years to be realised. Set against a current cost crisis, this will become increasingly unpalatable, particularly since energy costs are not the only costs which are rising.

In Western Australia, security of supply and affordability are already clearly prioritised above climate goals by policy-makers. A similar shift is likely in Britain as capacity margins fall and costs to consumers rise – indeed there is already evidence of this as the Government has reportedly written to the operators of the UK’s last remaining coal-fired power stations asking them to keep them running longer than planned. The Government is apparently also considering asking EDF to re-consider the closure of Hinkley Point B (interestingly this article in the Guardian suggests the newspaper has heard that Torness and Heysham 2 might close earlier than expected, something I have also been warning about given their high number of operating hours).

As part of my study, I examined public attitudes to net zero. There has been a significant drop in the number of people considering climate change to be a key issue recent months. Although the Ipsos MORI key issues survey did not ask why, there are two likely reasons: the first is a natural decline after COP-26 in October 2021, which was hosted in the UK and attracted a great deal of media coverage which was not sustained, and the second is that since then, concerns over the cost of living, in part driven by rising energy costs have become more important to the public.

In a recent survey for Net Zero Watch conducted by Savanta ComRes, 70% of Britons said they were concerned about the financial impact of increased energy costs, while 58% said they would not be willing to pay higher taxes on their energy bills to help reach net zero targets. Two thirds of UK adults also said the public has not been given enough of a say on net zero policies, and 60% believe they won’t benefit from government’s environmental subsidies such as the grants for heat pumps and EVs. Some commentators are referring to net zero policies as a possible “Poll Tax” moment for the Government, referencing the most unpopular policy of the 20th century, which brought down Margaret Thatcher. If up to 40% of consumers fall into fuel poverty next winter, as suggested by the CEOs of the UK’s largest energy suppliers, this will not seem particularly far-fetched.

Concerns over affordability are not just affecting domestic consumers, they also affect industrial users. I am also increasingly hearing from industry colleagues about growing worries among energy intensive users that they may face involuntary curtailment next winter in order to maintain security of supplies for the domestic sector. In other words, not only are the worried about the high cost of energy, they are worried they may have their access to energy restricted. The short-term solutions to this lie in the installation of primarily diesel-fuelled gensets that can be rented and brought to site quickly (if they are available). Of course, there have also been supply disruption in the oil industry, not least as a result of environmental activism, but it must be tempting for industrial users to want to spread their risks by installing back-up generation, and solutions such as solar panels are less effective in winter, when the supply concerns are highest, and may in any case be unavailable due to supply chain issues.

After an extended period of calm, the energy markets have entered a significantly more volatile phase in terms of both prices and energy security. As the Canadian report highlights, these concerns are not specific to Britain, but are manifesting around the world, due to the increasingly global nature of energy markets, and the similarities in de-carbonisation approaches taken. Of course, different regions also have local concerns, which I will describe in the next few posts in which I will take a close look at the report’s case studies, but the overall recommendations around energy policy integration and co-ordination, maintaining the integrity of energy systems, and transparency with consumers/taxpayers are relevant to all markets.