In recent months questions have been asked around the future of Britain’s gas infrastructure and pressure put on both the Government and Ofgem to address the question of gas network decommissioning.

The UK Government has entered into a legal commitment to reduce the country’s net carbon dioxide emissions to zero by 2050. There are several pathways that have been identified to achieve this goal – one alternative is to pursue widespread electrification with electricity supplied from renewable and other low carbon sources such as nuclear. Another alternative involves the use of hydrogen to displace methane, including potentially for home heating.

These alternatives require significantly different infrastructure. In the case of the former – a massive increase in electricity transmission and distribution networks will be needed, while existing gas networks would become largely redundant. The second alternative would potentially have a lower requirement for new electricity infrastructure and would enable the ongoing use of existing gas networks.

While no policy decisions have been taken to date on any role for hydrogen in decarbonisation, it is looking less likely to be the preferred approach to the decarbonisation of heating, a major source of gas demand, particularly for distribution networks. While the Government has a plan to phase out the use of gas boilers from 2035, this timetable may slip, and various forecasts suggest the use of methane will continue well into the 2040s and even past 2050, meaning gas will still be in use for another two to three decades or more. The Government has no plans in respect of what will happen to gas infrastructure if and when the use of gas is phased out. And since there is no gas network decommissioning plan, there is no funding, and no decision on how the costs will be covered and by whom.

“If decarbonisation of heating by 2050 is successful, there is a high likelihood of stranded UK gas network assets. There will also be some costs associated with the physical disconnection of buildings and decommissioning of the gas grid. Ultimately, consumers bear the responsibility for and risks of these issues,”
– Richard Lowes, Senior Associate, Regulatory Assistance Project

Ofgem is considering whether it should take the lead and begin to apply some of these costs in the next price control period, however it is reluctant to act prematurely in respect of a specific consumer decommissioning charge. But it does recognise that gas assets may have shorter lives as a result of decarbonisation and is considering adjusting depreciation rates to take account of this. This would reduce the regulated asset value, and may require network operators to repay debt and cancel associated swaps to maintain debt covenants such as gearing ratios. These early repayments and cancellations may incur financial penalties, creating additional costs that must be recovered from consumers.

Reducing the asset base will make it harder for network operators to raise capital and enter into interest rate, currency and inflation derivatives. It may impact their refinancing programmes, and, given the long-dated nature of regulated utility debt (10-15 years or longer), this could become a problem almost immediately as network companies attempt to issue debt maturing after 2035. They may find it is not possible to do so, particularly in the absence of a wider decommissioning plan which would limit them to shorter tenors and risk unusually large debt maturities, with the associated refinancing risk, in the mid-2030s.

“While Ofgem is not responsible for energy policy, it does now have duties in respect of net zero delivery. This places the regulator in a difficult position – it needs to structure market rules which encourage decarbonisation but it must also ensure that consumers are not exposed to undue costs, including those which may arise as a result of a lack (or perceived lack) of resilience. If Ofgem fails to act in relation to gas network decommissioning it risks breaching its net zero duties, but if it acts inappropriately or prematurely, it risks destabilising the entire financial model for gas network operators,”
– Kathryn Porter, Consultant, Watt-Logic

Ofgem needs to be very cautious about any changes to the price control methodology. Making such changes in respect of gas network decommissioning while there is still so much uncertainty over the timing of such decommissioning, and in the absence of a wider plan including a funding plan, risks undermining the financial resilience of network companies, raising the cost of debt, limiting the ability of gas network operators to manage financial risks, and restricting their access to capital. That would increase costs to consumers (since the costs of capital are included in network charges) and would create a risk that network companies are unable to finance ongoing network operations prior to any decommissioning.

In this new report, I examine the various forecasts of gas use over the coming decades whether methane or hydrogen, and consider the impact Ofgem’s proposed accelerated asset depreciation could have on the finances of the gas network operators.


The Government and Ofgem are under pressure to address the question of gas grid decommissioning on the assumption that net zero plans will make gas infrastructure redundant. But questions over the realistic timing of decarbonisation and the possible use of hydrogen mean gas networks could continue to be used for decades to come. Premature or poorly defined actions on decommissioning such as accelerated asset depreciation risk the financial stability of gas network operators and threaten their ability to carry out essential ongoing investment.

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