DRXGY Drax Group PLC (PK)

By Dieter Holger

The U.K.'s Office of Gas and Electricity Markets laid out a wide-ranging, nine-point plan on Monday to ensure energy networks can affordably power the country under Britain's target of net zero carbon-dioxide emissions by 2050.

The U.K. has already made progress toward its 2050 ambition. Ofgem said emissions have fallen 40% from 1990 levels with almost half of electricity coming from renewable or low-carbon sources last year.

"Britain has come a long way. It has decarbonized faster than any other major economy, but we must go further, particularly on heat and transport," said Jonathan Brearley, chief executive of Ofgem, in prepared remarks.

The regulator said it expects consumers to be hit with extra costs in the short term under the plan, but that "investing in the short term will save money in the medium and long term" and ultimately save consumers "billions of pounds on their energy bills."

"Where the costs of this are met through consumer bills, this will be generally regressive, impacting the poorest hardest," Ofgem said.

Investment in the power sector may need to increase to around 20 billion pounds ($26.4 billion) a year until 2050, up from an average of GBP10 billion between 2013 and 2017, according to the Committee on Climate Change.

In the next 18 months, Ofgem said it will create the next series of price controls to set power company spending over the next five years, encouraging investment in infrastructure, including upgrading the grid so it can power 10 million electric vehicles by 2030 and developing an offshore grid to quadruple wind generation by 2030.

"As low-carbon renewable energy grows and more transport goes electric, the energy system needs to be more flexible to respond to peaks and troughs in both supply and demand," Mr. Brearley said. "Our new price controls for network companies will clear the path for this."

Ofgem said the next price-control periods run from 2021 to 2026 for gas distribution and electric-and-gas transmission, and from 2023 to 2028 for electricity distribution.

Another challenge is cutting energy that heats buildings. Ofgem said "the best way forward is not yet clear" but could involve hydrogen networks and electric heating. In 2017, only 4.5% of the energy used to heat the U.K.'s 29 million homes came from a low-carbon source, the regulator said. Switching to low-carbon heating will require a yearly investment of up to GBP20 billion until 2050, according to the CCC.

Ofgem also said it was reviewing how energy systems are managed to meet net-zero emissions at the least cost, and the role of the current electricity system operator National Grid PLC (NG.LN).

National Grid's U.K. Executive Director Nicola Shaw said in an email that the company welcomed Ofgem's plan and was committed to the net zero target, pledging to cut emissions from heating homes while supporting the growth of renewables and electric vehicles.

"It's critical that the regulator, government and industry are aligned to decarbonize the energy sector in the journey to net zero at the lowest cost to consumers," she said.

Will Gardiner, chief executive of British power company Drax Group PLC (DRX.LN), also welcomed the decarbonization plan. Drax provides around 12% of the U.K.'s renewable electricity and has a goal of reaching carbon negativity by 2030.

"Alongside investment in the network, the U.K. will need to see support for new sources of flexible generation and system stability as more offshore wind is deployed and the heat and transport sectors become more dependent on electricity," Mr. Gardiner said in an email.

Write to Dieter Holger at dieter.holger@wsj.com; @dieterholger

(END) Dow Jones Newswires

February 03, 2020 06:24 ET (11:24 GMT)

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