Meeting net zero - Options for network company highly anticipatory investments in a post-COVID-19 environment
Our report ‘Meeting net zero [ 1.5 mb]’ looks at the options for network companies when considering highly anticipatory investments. The report is based on 2 pieces of research by Europe Economics. The first research was undertaken just before the coronavirus pandemic hit globally. Further research was commissioned to refine the options for these investments in light of the COVID-19 situation as the risks and consumer demand relating to infrastructure investments may have changed considerably.
Likely economic changes as a result of COVID-19 may mean that:
Reductions in the demand for energy may weaken the case for highly anticipatory investments
Customer willingness to pay for improvements to the quality of service or the environment may be lower
Affordability issues may be especially important given that many more households are struggling financially
The case for applying real options analysis is especially strong in the current context with the value of the real option to wait now likely to be higher
Cost and benefit analysis to value highly anticipatory investments will need to accommodate different COVID-19 scenarios and the ranges for estimated impacts are likely to be wider
When considering the allocation of risk between infrastructure companies and consumers in a post-COVID-19 environment, companies may need to take on a higher percentage of the demand risk as many customers may be less able to bear the risk. Companies will also need to look closely at the distributional impacts on particular customer groups, including whether more risk could be borne by future consumers or by current consumers with higher incomes.
Our summary report, 'Meeting net zero [ 1.5 mb]', includes a table of the 15 different anticipatory investment mechanisms along with an assessment of their suitability addressing potential COVID-19 impacts. The 2 original research reports are available here:
Our ‘Meeting net zero’ report should contribute to the debate on how to invest in our country’s infrastructure to meet net zero goals in a post-COVID-19 environment. We believe this report is directly relevant to the network price controls in Great Britain, in particular to the developing electricity distribution price control (RIIO-ED2).