David Watson

Who should pay for the costs of the gas network as demand falls? The Government have issued a call for evidence on the topic, with views requested by 23rd December. Some thoughts 🧵

That means the evidence submitted is likely to decide how the options are weighted. Ofgem called the disconnection arrangements "transitional" last week, so the long-term answer is what protects recovery beyond it.

Who should pay for the costs of the gas network as demand falls? The Government have issued a call for evidence on the topic, with views requested by 23rd December. Some thoughts 🧵

My reading is that a hybrid approach comes out warmest, on the basis that this is the only approach with a worked example: gas consumer funding now with other mechanisms triggered if affordability thresholds are reached.

Who should pay for the costs of the gas network as demand falls? The Government have issued a call for evidence on the topic, with views requested by 23rd December. Some thoughts 🧵

The call for evidence, signaled by Ofgem's disconnections report last week, covers network investment and disconnections together. It gives no preferred option but sets out four approaches to test...

Who should pay for the costs of the gas network as demand falls? The Government have issued a call for evidence on the topic, with views requested by 23rd December. Some thoughts 🧵

Costs are recovered gas customers today through the per unit cost of gas. As customers start to electrify their demand and disconnect from the gas network those costs will be spread over a smaller customer base, increasing the cost per unit for those that remain connected.

Who should pay for the costs of the gas network as demand falls? The Government have issued a call for evidence on the topic, with views requested by 23rd December. Some thoughts 🧵

Ofgem aims to have a single framework covering disconnections from the gas network in place from 2031. It has said little about what that framework will contain however, and much remains to be decided 🧵

Ofgem expects industry to bring forward proposals on handovers between suppliers and gas networks, and says it will act itself if none arrive. It also encourages networks to put safety reforms to the Health and Safety Executive.

Ofgem aims to have a single framework covering disconnections from the gas network in place from 2031. It has said little about what that framework will contain however, and much remains to be decided 🧵

And the cost of disconnections from the gas networks could therefore add anywhere between 0.2% and 9.3% to a gas bill (at typical consumption) by 2034/35 if nothing changes. That's either a little or a lot. And Ofgem want the sector to get ahead of this now, just in case.

Ofgem aims to have a single framework covering disconnections from the gas network in place from 2031. It has said little about what that framework will contain however, and much remains to be decided 🧵

Unsurprisingly, ~77% of recorded disconnections go through this second route. Ofgem calls the funding approach for this 'transitional', and only workable while disconnection volumes stay low.

Ofgem aims to have a single framework covering disconnections from the gas network in place from 2031. It has said little about what that framework will contain however, and much remains to be decided 🧵

Secondly, the customer has the meter removed and the supply is left safe. If no meter is fitted within twelve months, the health and safety regulations require the supply to be closed off or the pipework disconnected, and the network usually carries out the work.

Ofgem aims to have a single framework covering disconnections from the gas network in place from 2031. It has said little about what that framework will contain however, and much remains to be decided 🧵

Ofgem's final report, published yesterday, says the current arrangements were not designed for a declining gas network. When a customer disconnects from the gas network today, for example after they have electrified their heating, there are two ways to do it...

The Prime Minister Andy Burnham yesterday said he has asked the Chancellor and Energy Secretary to look at removing standing charges from gas bills. No decision has been made, but the direction is clear. 🧵

Overall, the economist in me sees the recovery of fixed costs through a variable rate as a problem. The impact will on average be positive for low-income homes, but at the margin there is the risk of real harm.

The Prime Minister Andy Burnham yesterday said he has asked the Chancellor and Energy Secretary to look at removing standing charges from gas bills. No decision has been made, but the direction is clear. 🧵

The Price Cap sets elec at 26.32p/kWh and gas at 7.97p/kWh, a ratio of 3.3. Shifting the gas standing charge to the unit rate will mean 9.11p/kWh, a ratio of 2.9. We could therefore expect a heat pump running at 300% efficiency to have lower running costs than a gas boiler.

The Prime Minister Andy Burnham yesterday said he has asked the Chancellor and Energy Secretary to look at removing standing charges from gas bills. No decision has been made, but the direction is clear. 🧵

Ofgem themselves flag this in their research - low-income households with medical needs that force high energy use are the group of greatest concern. Poor-quality, low energy-efficiency homes add to the risk.

The Prime Minister Andy Burnham yesterday said he has asked the Chancellor and Energy Secretary to look at removing standing charges from gas bills. No decision has been made, but the direction is clear. 🧵

On Ofgem’s typical gas consumption of 9,500 kWh/year full removal of the standing charge will shift ~£108/year/customer of fixed costs onto variable unit rates, or ~1.14p/kWh.

The Prime Minister Andy Burnham yesterday said he has asked the Chancellor and Energy Secretary to look at removing standing charges from gas bills. No decision has been made, but the direction is clear. 🧵

Ofgem looked at this in Nov23, modelling a 50% shift of the fixed costs the standing charge recover to the variable rate for gas. They found 3.7m low-income customers gained ~£13/year. They also found 1.8m lower-income households lost an average of less than £1/year.

The Prime Minister Andy Burnham yesterday said he has asked the Chancellor and Energy Secretary to look at removing standing charges from gas bills. No decision has been made, but the direction is clear. 🧵

The decision this morning to approve Jackdaw is a good one. 🧵

There are genuine downsides. At peak, I make Jackdaw roughly 2.5% of UK demand , with about eleven years of life. It will not lower prices, and may now be too late to impact this winter.

The decision this morning to approve Jackdaw is a good one. 🧵

The platform is largely built, and the gas lands at St Fergus rather than arriving on any ship passing through the Straits of Hormuz. With Qatari LNG disrupted and UK gas near 200p/therm in September, supply that avoids chokepoints is valuable.