On 4 September 2021, Ofgem published a report (the “Report”) outlining its priorities to ensure a smooth transition to electric vehicles (“EVs”), in support of the Government’s pledge to phase out petrol and diesel cars and vans by 2030.
EVs are expected to need 65–100TWh of electricity annually by 2050, an increase of 20–30% over those on the road today and therefore represent a significant challenge and opportunity in respect of our overall energy system.
Ofgem’s responsibilities include a statutory duty to protect the interests of energy customers, including their interest in greenhouse gas reductions. Its role supporting the Government’s 2030 commitment is crucial in order to guarantee that the system has the capacity to support the EV transition without incurring onerous costs to customers. The Report outlines Ofgem’s four key priority activities over the forthcoming years.
The first two priorities relate to electricity networks while the third and fourth relate to technology roll-out and adoption.
- Ofgem will ensure the GB electricity network is prepared for EV adoption by focusing investment in specified areas at relevant times, whilst minimising the costs of new infrastructure.
- Ofgem will work to reduce barriers to network connections by ensuring efficient processes are in place at the necessary times to reduce connection charges. This will include incentivising improvements to the connection process through the electricity distribution price control regime for 2023-2028 (“RIIO-ED2”).
- The third priority is to enable rapid development and uptake of smart charging and V2X technology. This will involve Ofgem offering market incentives to providers, and working with the Government to ensure any barriers to development are removed as efficiently as possible. We have covered V2X technology in our previous Law-Now, ‘Are vehicle-to-X energy technologies the future? BEIS calls for evidence’.
- The fourth priority is twofold and concerns consumer participation. It includes supporting the development of innovative products, coupled with consumer awareness and confidence, to boost consumer engagement, and ensuring consumer protections keep up with technological and business model developments. See our previous Law-Now articles on the developments in this space: ‘EV consumers in the driving seat: OZEV launches consultation on the consumer experience of EV chargepoints’ and ‘UK transport decarbonisation strategy: Impact for road transport’.
We discuss Ofgem’s priorities and proposals in more detail below.
Priority 1: Ensure the network is prepared for EV adoption
The rapid introduction of EVs will inevitably mean an increased demand on the GB electricity network. Further, developers already face high connection costs and capacity constraints for installing EV charging infrastructure in some areas. A key challenge for Ofgem to address this is identifying where and when EV uptake is likely to happen. Ofgem intends to use proposed uncertainty mechanisms in RIIO-ED2 to ensure that distribution network operators (“DNOs”) are incentivised to make long-term network investments and cater for increased demand where it is needed while being as efficient as possible, with respect to both time and cost.
In anticipation of RIIO-ED2, Ofgem is now requiring DNOs to forecast EV adoption. It is encouraging DNOs to work with stakeholders, such as local government, to help determine forecasts and the need for local public charging infrastructure. Ofgem is keen to minimise network investment costs to ensure cost to the consumer is as low as possible. Identifying exactly when and where investment is needed by forecasting EV adoption is essential to this.
Ofgem references the incoming investments in GB energy networks through the transmission price control 2021-2026 (“RIIO-T2”) and electricity distribution price control RIIO-ED2 regimes. Further, in May 2021, it announced an additional investment of £300 million, as part of the RIIO-ED1 Green Recovery Scheme, of which half will be used to develop new EV charging infrastructure such as cabling and substations that will provide the network capacity.
Priority 2: Reducing barriers to network connections by ensuring efficient and timely process and proposals to reduce EV connection charges
A main priority for Ofgem is ensuring EV connection customers requiring larger scale, higher voltage, connections do not face significant barriers. Two concerns identified are the cost of connecting to the network, and the pace and difficulty of the process of connection.
Ofgem identified that 47% of larger connection customers cited the level of upfront cost as an issue they experienced with new connections to distribution networks. Currently, developers seeking to connect to the network must pay for any reinforcement required to the existing network at the same voltage level or the one above. For larger connection customers this can result in excessive costs and may result in customers delaying or deciding against installing EV charging infrastructure. Ofgem will publish its Final Access and Forward-Looking Charging SCR decision by the end of 2021 in an attempt to eliminate this cost barrier, with plans to implement changes from 2023. We covered these plans in our previous Law-Now, ‘More change for network charging – Access and Forward-looking Charging Significant Code Review and proposal to review market competition’.
Ofgem has also identified the time taken for customers to connect to the network as a barrier. Whilst accepting that there have been recent improvements in DNOs performance, with time taken to connect improving by 27% since 2013, Ofgem believes there is still room for significant improvement. To address this, it will incentivise DNOs to reduce connection times for customers seeking a small, or minor, connection to the distribution network. For larger connections customers, it will require DNOs to create and implement a strategy which meets customers’ expectations of more timely and efficient connections.
Priority 3: Enabling rapid development and uptake of smart charging and V2X technology
As the rapid transition to EVs could put pressure on the electricity network at certain times, smart charging will be a key factor in ensuring the network is not overloaded, shifting demand away from peak periods and utilising renewable power sources. We have covered smart charging in our previous Law-Now, ‘The future is smart: the Government’s response to the electric vehicle smart charging consultation’.
Most EVs today are not taking advantage of smart charging due to a number of factors that Ofgem are looking to address:
- not every chargepoint is ‘smart’;
- there is a lack of incentives to smart charge; and
- there are a lack of smart charge tariffs available from suppliers.
In response, the Government have committed to implementing legislation later this year to mandate that all new private home and workplace chargepoints under 50kW have smart functionality, and to incentivise users to charge off-peak through personalised default charging. Ofgem has also belated confirmed its intention to implement market-wide half-hourly settlement (“MHHS”). In August 2021, it published decisions about the governance framework and proposed obligations to be placed on suppliers to ensure that MHHS implementation happens in a timely and effective manner. Ofgem is also requiring suppliers to be able to offer Time of Use tariffs by 2025 to further incentivise the development of new products.
The development and utilisation of vehicle-to-X (“V2X”) technology will also be a significant factor in enabling the energy system to cope with the EV transition. The Report cites that National Grid ESO recently reported V2X could provide a demand reduction at the winter peak of between 8GW and 20GW by 2050. V2X could provide an effective network balancing solution by offering distributed battery storage that would complement the grid scale storage that is currently being developed.
Ofgem have, however, identified significant barriers in V2X adoption. The cost of V2X chargepoints are significantly higher, ranging between £3,000 and £4,000. Furthermore, the technology currently integrated in chargepoints may not support V2X due to the protocols and cables used being unable to export power back to the grid.
To address these barriers, Ofgem will publish a joint policy statement with BEIS in 2022 to investigate chargepoint interoperability and drive consumer engagement with smart charging. The statement will also advise on how to improve the flow of bidirectional data between chargepoints and operators, aggregators and the electricity network. Furthermore, Ofgem will collaborate with BEIS to produce clear technical guidance on how the industry should comply with upcoming regulations on smart charging.
Priority 4: Consumer Participation and Protections
As a consequence of the EV transition, developing the electricity network and incentivising the offering of new products and tariffs, Ofgem wishes to ensure that relevant protections will be implemented to ensure that consumers are protected in the rapidly evolving market. Effective regulation will help to increase competition, reduce costs, and deliver increased benefits to consumers. A challenge for Ofgem is the inability to determine its trajectory. Substantial developments and emerging products may create new risks for customers that Ofgem and the wider sector are unable to anticipate.
The Report does not specify exactly how this will be accomplished, but Ofgem will publish a Retail Strategy which will detail how best to support consumer participation and ensure their protection. It has committed to working with BEIS to identify gaps in the current framework of consumer protections for EV owners, and potential solutions.
Recent reports from both the House of Commons Transport Committee and the Competition and Markets Authority have specified that EV charging must be convenient and affordable as covered in our CMS EV Round-up. Ofgem will work with the Government to ensure fair pricing of offerings and new tariffs, including examining the role of Third-Party Intermediaries (TPIs) and price comparison websites.
As transport contributes the largest share to greenhouse gas emissions, it is vital for GB to reduce emissions of the sector in order to successfully meet the 2050 climate change targets. The investment needed to ensure the rapid uptake of EVs is a key challenge, especially as there will be difficulty in anticipating where the uptake will be most prevalent and at what stages. The cost is not only attributed to introducing new technologies and network capacity, but also retrofitting technology currently in situ – for example, ensuring chargepoints are capable of smart charging and are accessible.
As an unprecedented transition that needs to be accomplished as quickly as possible, effective cooperation between Ofgem, the Government, and the wider EV industry will be vital to ensure success. Policy, technology and roll-out of EV charging infrastructure are all developing at an accelerated pace. Ofgem will be keen to be seen to be enabling this accelerated roll-out while also striking a balance of ensuring consumer protection.