Ofgem has asked for views on how it should value parts of the gas network if they are repurposed, for example to carry hydrogen or carbon dioxide.
The regulator says that moving to Net Zero will meanthe “existing natural gas network will face a diminishing user base, reducing the need for natural gas pipelines. As a result, it is likely that gas pipelines will need to be safely decommissioned or repurposed”. That could include repurposing assets currently used in natural gas networks, such as compressors/expanders or metering and monitoring equipment, as well as pipelines.
Gas transporter licensees have a regulatory asset value associated with the value of the network assets that they own and they receive a return on investment for it. As regulator, Ofgem determines the ‘allowed revenue’ that gas transport licensees can recover from consumers. If the assets are repurposed the asset value will be transferred on a 1:1 basis to the new owner.
Ofgem says that assets selected for repurposing can be identified, but their assigned value (the book value) is embedded within the overall network’s regulatory asset value (RAV) and thus cannot be easily separated. “An asset repurposing valuation methodology is therefore necessary to derive an appropriate new regulatory asset value from the specific repurposed gas assets.”
Ofgem says an overvaluation of repurposed gas assets will lead to the new network unfairly paying higher network costs, whereas an undervaluation of gas assets will lead to natural gas consumers indirectly subsidising the new consumers. The regulator also says that there is a decommissioning liability associated with gas assets and it is not yet known how this will be treated – although for a CO2 transport and storage networks the licensee has to establish a fund to cover the costs of
Ofgem is asking for feedback on a proposed asset repurposing valuation methodology and which costs incurred before and after the asset transfer should lie with each company. It also asks for information regarding the scope and cost of expenditure required for repurposing natural gas assets for reuse in a future hydrogen network.