“Sanguine” about the challenge of decarbonising power and “relatively sanguine” about transport, Dermot Nolan is “far more nervous” about decarbonising heat – and its impact on bill payers.
Speaking at Aurora’s spring forum, Ofgem’s chief executive said decarbonising transport would throw up “challenges of equity”, because some people will benefit from lower costs by using the power system in certain ways.
For example, some people can afford an electric car and enjoy lower fuel costs. Other people cannot, while paying for the infrastructure impact of EVs. “Dealing with the unrest” resulting from such outcomes “will be significant”, Nolan suggested.
Despite that, Nolan is “relatively confident” decarbonisation of power and transport can be achieved.
“I am far more nervous about heat,” said Nolan, with around 83 per cent of the UK population heating their homes via their connection to the gas grid. “Heat is the biggest challenge,” he said. “There is far less certainty that it will be solved.”
The two main options being proposed to tackle heat are hydrogen, “that’s great but it doesn’t really exist at the moment and would require huge changes”, said Nolan; or electrification, which would require far more generation and network capacity, as well as writing off tens of billions of pounds of gas network assets.
Either way, the costs and disruption will be huge.
“Difficult decisions have to be made and transmitted to the public,” said Nolan. “That will be intensely challenging.”
Nolan would not be drawn on whether government’s policy commitment to phase out fossil fuel heating outlined in the Spring Statement was ‘good’ or ‘bad’. He said it was a “second order area” versus the need to tackle heat in existing homes. “It is an important signal, but by itself won’t have a huge effect.”
Ofgem’s remit does not currently include heat.