Why distribution network investment matters for affordability and energy security

Recent events in the Middle East have had a big impact on international gas and oil prices, reigniting serious concerns around affordability, Great Britain’s energy security, and our vulnerability to geopolitical events through our exposure to fossil fuels. EDF believes that the best way to reduce our exposure to volatile fossil fuel prices, develop greater energy security, and lower consumer bills over time, is through increased domestic electrification.

Both the previous and current governments have intervened in reducing household bills, with the Starmer government axing the Energy Company Obligation Scheme (ECO) and moving Renewables Obligations subsidy costs to general taxation, reducing average annual household bills by £150 compared with what they otherwise would have been. Burnham’s government has expanded on this to cut VAT to 0% on electricity bills for six months from October. These short-term moves are welcome, but we believe the long-term answer is more domestic electrification. For example, electric vehicle (EV) drivers are saving more than £1,100 in fuel costs, compared with running a petrol car¹. Electrified households will also be insulated from wider energy gas price spikes, with a 30% increase in gas and oil price only leading to a 1.7% increase in annual bills for electrified households, compared to a 13.5% increase for dual-fuel households².

Having more consumers electrify their homes and using more Low Carbon Technologies (LCTs) like electric vehicles (EVs) and heat pumps will help to spread the cost of the required generation and network investment across a wider, more electrified consumer base. We recently set out how electrification can also be a driver of competitiveness, investment and growth in the economy more widely.

In this blog, we explore why investment in the electricity distribution networks is critical for nationwide domestic electrification, and why Government and Ofgem should do more to accelerate domestic electrification efforts, whilst balancing current consumer affordability challenges.  

Back in May, Ofgem⁵ gave DNOs a steer on the types of investment DNOs should make for their networks during ED3. Later this year Ofgem will review the DNOs’ business plans for the ED3 period and agree the trajectory of network investment.  

To avoid sharp increases in consumer bills it is important that this network investment moves at the same pace as LCT deployment. Network investment costs are passed onto consumer bills, and more electrified homes will help spread the cost of this investment. If we invest too late, homes may face barriers to connecting and using their LCTs. But if we invest too early, consumer bills will rise before new demand can connect to spread the costs over a wider base. This is the key trade-off Ofgem will need to make. It is like hiring a private coach for a trip: the fewer people who travel, the more money each person has to contribute to cover the vehicle. 

Ofgem have set out various positions for DNOs to consider in their business plans. We support many of Ofgem’s positions, for example:

• Moving to a ‘Build and Flex’ strategy, ensuring the network captures the benefits of consumer flexibility, whilst controlling the cost of necessary network upgrades.
• Proposals on stronger connection incentives, and the need for DNOs to deliver a proactive unlooping programme, both of which will help to speed up LCT uptake.
• Requiring DNOs to publish a ten-year Delivery Strategy, looking much further into the future.

However, a key position from Ofgem is that it expects the DNOs to use the National Energy System Operator (NESO)’s new transitional Regional Energy Strategic Plan (tRESP) publication⁶ to guide the scale and timing of investment.

The tRESP is an attempt to provide an independent, coordinated, and consistent view on the future needs of electricity distribution networks in GB. The tRESP is used as a bridge to the ‘full’ RESPs that NESO expects to produce by the end of 2028. 

We are concerned that the tRESPs appear to be forecasting a higher LCT uptake than is happening in practice. On heat pumps, we have seen reduced annual targets in the Warm Homes Plan, alongside clear industry trends that show we are not on track meet NESO’s and the Government’s ambitions. Further headwinds for EV uptake include changes in vehicle excise duty (VED), and the Department for Transport’s review of the Zero Emission Vehicle Mandate⁷, which may see annual EV sales targets rise more gradually than previously anticipated.

As set out above, a gap between forecast network investment need and reality could raise overall consumer bills through investment coming too early. To bridge this gap in LCT uptake will be a monumental task requiring careful management and policy support.

The underlying ambition in the tRESP is what we should be aiming for, but we are not on course to match it. We have considered ways to address this.

Increase the pace of LCT adoption

Re-align investment plans with real uptake

The next few years will be a critical window of opportunity for GB’s energy industry to speed up domestic electrification. The good thing is that there is a strong drive to electrify because of the expected benefits for energy security and to mitigate long-term affordability concerns. For this vision to be fully realised, this drive must be met with an appropriate policy environment from Government and Ofgem.  

With the right level of government support to speed up LCT connections, and the right regulatory environment created by Ofgem to incentivise build whilst strictly controlling costs, this can ensure distribution network investment is more closely aligned to consumer behaviour. Aligning these factors correctly will help GB get closer to an ‘Electric Britain’ that can deliver energy security and lower bills to customers in the long run.