Regulatory Impact Assessment in the energy transition era: insights from the UK experience

Independent energy regulators need analytic frameworks to assess and defend their regulatory decisions. This paper critiques the traditional economic recommendation and explains a new approach applied in Great Britain. We find reliance on quantified cost-benefit analysis (CBA) as the dominant metric inadequate, particularly in the context of the clean energy transition. We do so by exploring the theoretical and practical limitations of CBA and the GB energy regulator Ofgem's response to these, drawing on experience of the authors who worked with and for Ofgem. We outline the unavoidable complexities that climate change, in particular, created considering the division of responsibilities between the government and the regulator and describe the major revisions to Ofgem's Regulatory Impact Assessment (RIA) framework that sought to address the resulting challenges. We identify limitations of exclusive reliance on emission targets and the ‘social cost of carbon’ as a tool to include climate change concerns and related unquantifiable impacts in CBA. Given the realities of the purposive energy transition, while aggregated monetised CBA remains an (important) component of RIA, we explain why Ofgem concluded that regulatory decision-making benefits from the structured articulation of other impacts. In particular, Ofgem focused on distributional consequences for energy consumers and a direct analysis of how regulatory decisions may affect the strategic and sustainability dimensions of energy system pathways. Finally, we summarise an application of the expanded Ofgem RIA framework to the regulation and evaluation of electricity interconnector investments, and the outcomes, along with the evolution of Ofgem's RIA framework itself. • Explores limitations of cost-benefit assessment for evaluating energy transition policies. • Explains how British energy regulator Ofgem revised its approach to Regulatory Impact Assessment. • Summarizes Ofgem's revised three-legged framework for Impact Assessment in energy transition. • Shows how revised assessment framework led to big expansion of UK electricity interconnection. • Impact Assessment as Decision-Making under Deep Uncertainty and Risk-Opportunity Analysis.