The document discusses the regulatory challenges of transitioning to low-carbon heat in the UK. It outlines Ofgem's role in regulating the energy sector while protecting consumers and enabling decarbonization. The energy industry faces unprecedented changes like renewable energy growth and electrifying heat. The RIIO framework aims to incentivize network companies to support these changes. Key uncertainties regarding heat include the future role of gas networks, the scale of heat pump adoption, and the potential expansion of district heating networks. Ofgem must consider how these low-carbon heat pathways may impact energy infrastructure and consumers.

1. Regulatory challenges in
the transition to low-
carbon heat
Dr Jeff Hardy
Senior Manager, Sustainable
Development
Ofgem
www.cir-strategy.com/events/heat

2. Outline
1. Ofgem and Sustainable Development
2. The challenge for the energy industry
3. The RIIO framework
4. The heat challenge
1. Future of gas
2. Electrification of heat
3. Heat networks
5. Conclusions
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3. Ofgem
• Ofgem is the Office of the Gas and Electricity Markets. It is the
independent economic regulator in the energy sector.
• In making decisions Ofgem’s principal objective is to protect
existing and future consumers interests, i.e. to ensure value for
money.
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4. Sustainable Development
Our Principal Objective
• To protect existing and future consumers interests...including their
interests in the reduction of greenhouse gases and in the security of
the supply of gas and electricity.
We must have regard to...
• Amongst other things UK and European greenhouse gas and
renewable energy targets
Therefore our role includes a contribution to...
• Enabling timely investment in necessary capacity for the electricity
networks
• Ensuring connection to the electricity networks for new generation
• Eliminating unnecessary regulatory and market barriers to the
economic deployment of distributed energy
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5. Outline
1. Ofgem and Sustainable Development
2. The challenge for the energy industry
3. The RIIO framework
4. The heat challenge
1. Future of gas
2. Electrification of heat
3. Heat networks
5. Conclusions
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6. The energy industry is facing unprecedented
change
De-carbonisation • Renewables / new
generation
• Smart Grids
• Electricity storage
• Electric vehicles
Security of Supply ELECTRICITY
• Different network patterns
NETWORKS
• Electrification of heat
• Energy efficiency
GAS
• Local generation
Ageing Assets NETWORKS
• Demand Side Management
• Carbon Capture and Storage
• Biomethane
• HVDC
Affordability • Skills shortages
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7. Outline
1. Ofgem and Sustainable Development
2. The challenge for the energy industry
3. The RIIO framework
4. The heat challenge
1. Future of gas
2. Electrification of heat
3. Heat networks
5. Conclusions
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8. RIIO – a new approach to regulating energy
network companies
• New regulatory regime to encourage network companies to:
– Play a full role in the delivery of a sustainable energy sector
– Deliver value for money for existing and future consumers.
• Key features:
– Comprehensive consumer-focused outputs on safety,
reliability, availability, environment, connections, customer
satisfaction
– Company business plans to be justified e.g. benefits of
particular approaches including longer term context
– Stakeholder views should inform these business plans and we
expect continuing stakeholder engagement by the company
– Strong incentives to deliver outputs and to innovate.
• RIIO-T1 and GD1 (2013-2021) and RIIO-ED1 (2015-2023) will be
the first price controls to implement the RIIO framework.
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9. Outline
1. Ofgem and Sustainable Development
2. The challenge for the energy industry
3. The RIIO framework
4. The heat challenge
1. Future of gas
2. Electrification of heat
3. Heat networks
5. Conclusions
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10. Scale of the ‘heat’ challenge
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11. Heat technologies
Taken from ENA 2050 Pathways for Domestic Heat Report
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12. Regulatory issues
1. Protecting the interests of current and future consumers
1. The degree to which heat is decoupled from gas
2. The degree to which heat is electrified
3. The future role of heat networks
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13. 1. Decoupling of heat from gas?
• Uncertainty over future of gas
• Scenarios suggest gas use in
decline in domestic sector from
2030...
• ...and that the domestic sector
could be fossil free by 2050
• BUT these are scenarios
Implication:
• Gas transmission and distribution
price controls
image: www.freeimages.co.uk
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14. 2. Electrification of heat
• Uncertainty over speed, scale and
geography of deployment of
electric heating technologies,
particularly heat pumps
• Scenarios suggest less than a
million by 2020...
• ...but up to 8 million by 2030
• Mainly in rural/suburban areas
Implication:
• Significant (smart?) electricity
distribution network
reinforcement required, but when image: www.freeimages.co.uk
and how?
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15. 3. Heat networks
• Significant ambition for heat
networks in high heat density
areas
• Potentially millions of customers
on heat networks
• Waste heat capture driven by
European Energy Efficiency
Directive
Implications:
• Consumer protection
• System balancing role
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16. Outline
1. Ofgem and Sustainable Development
2. The challenge for the energy industry
3. The RIIO framework
4. The heat challenge
1. Future of gas
2. Electrification of heat
3. Heat networks
5. Conclusions
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17. Conclusions
• We live in exciting times
• The pathway to low carbon heat is uncertain, but most routes
have implications for Ofgem
• There is a challenge for network companies to consider future
deployments of low carbon heat (and other technologies) for their
businesses
• The Low Carbon Network Fund (and the forthcoming Network
Innovation Competition) is an opportunity to trial solutions to
manage low carbon heat
• A smart approach could have long term value for consumers
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