ENA: How can the Spring Budget support the delivery of smarter, more innovative electricity networks? 

David Boyer, Director of Electricity at the Energy Networks Association, outlines what is required for government to accelerate its decarbonisation of energy plans.

In Energy Networks Association’s submission to the 2023 Spring Budget, we set out the policy changes that will help ensure that Britain’s energy networks evolve as our economy decarbonises. Specifically, to ensure that the UK fully benefits from innovative and smart networks in that transition, there are four policy changes that are needed in the Spring Budget. 

But first, why are smart networks important?  The smart power revolution is as much an economic revolution as it is an energy or environmental one. Demand-side response, smart electric vehicle charging and heat pumps in themselves provide opportunities to keep energy costs down by flexing usage away from peak times and high carbon generation sources. They will allow us to connect new and low carbon technologies to the grid more quickly, powering the UK away from the international fossil-fuel markets, which have been a core driver of recent bill increases and inflation. Smart networks and flexibility markets also provide the opportunity to free up additional capacity in existing network infrastructure and to reduce the need to build new network infrastructure. All of this will help keep network costs down as well as energy costs. 

According to the National Infrastructure Commission, by 2030, smart energy technologies using new flexibility markets could save the equivalent of £300 a year for households in Great Britain. And £8bn a year could be saved by networks investing in innovative low carbon technologies that allow them to avoid building new network capacity which might otherwise be unavoidable. 

But the economic opportunity from smart networks is not just a matter of keeping bills down. Smart networks and flexibility markets create new sources of revenue for businesses, growing their productivity and improving their competitiveness.  And importantly, a UK that is leading in smart technologies and the net zero transition will grow in jobs, expertise, and economic strength on the global market. Preparing our onshore electricity network to meet net zero requirements could support 50,000 – 130,000 full time jobs by 2050 and our analysis suggests these jobs could contribute between £4-11bn to the economy in 2050.

But these are new challenges and new technologies that need to be developed and deployed at pace if we are to decarbonise our electricity system by 2035. Network innovation funding is key to delivering all these benefits. According to the Government, UK research and development investment is 1.7% of GDP while average spend in OECD countries is 2.4%. Between 2013 and 2022, energy network companies invested a total of £660m in Network Innovation Allowance funding across 1,285 projects, and in 2020/1, 88% of all network innovation projects involved collaboration with third parties.  But the continuation of these successful innovation programmes is not yet confirmed by government and the regulator.

So, what can the government’s Spring Budget do to help unlock all of that economic potential, by helping network companies to innovate and grow new smart energy markets?

First, it should introduce new financial support, allowances, incentives or business models to reduce the upfront costs of introducing smart ‘behind the meter’ low-carbon technologies for households and businesses.  

Second, it should ensure that any new low-carbon technologies installed in homes and businesses should be mandated to be of the right standard so they can take part in flexibility markets run by network companies. 

Third, it should introduce a licence requirement on energy suppliers to offer flexibility services to households. Many suppliers have already started, but every customer across Great Britain should be able to benefit from this technology. 

Fourth, Ofgem should either confirm the extension of the Network Innovation Allowance beyond 2026 or confirm its intention to develop a successor allowance of a similar nature.

With these four changes, Britain’s energy networks can help ensure that our wider economy reaps the benefits of decarbonisation in a smarter, more innovative way.