Ofgem confirms price controls methodology for RIIO-ED2

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Ofgem has confirmed its methodology for setting the next price controls for Great Britain’s local electricity distribution networks, known as RIIO-ED2, which run for five years from April 2023.

This follows last week’s confirmation of the major investment programmes for the transmission, gas distribution and Electricity System Operator (ESO) price controls starting in April next year.

Ofgem’s Chief Executive Jonathan Brearley commented on the announcement: “Local electricity networks will be at the forefront of meeting the climate change ambitions laid out recently by the Governments in the UK, Scotland and Wales.

“They will need to make sure the right arrangements are in place to support the capacity and charging infrastructure that will drive the electric vehicle revolution and the solutions needed to provide cleaner energy for heating our homes.

“This will require a more modern, smarter, digitally enabled grid that evolves in line with rapidly changing demands and maximises the benefits from all available energy assets.

“Our approach to our price control for electricity distribution will encourage the investment needed to deliver these ambitions while maintaining world class levels of reliability and keeping costs as low as possible for consumers.”

As Britain moves to greener forms of heating and transport and more households and businesses produce their own local clean energy, local networks will have to expand their role and capacity to manage new sources of demand and an increase in electricity flowing through the grid.

Ofgem has confirmed that its proposed 2023 price control for electricity distribution networks will:

  • Support strategic investment to deliver net zero emissions targets ensuring companies can increase capacity to support growing demand, for example providing more charge points ahead of an anticipated uptick in electric vehicle use, with appropriate protections in place for consumers.
  • Require electricity distribution networks to grow their capacity using ‘flexible’ solutions where they can, such as battery storage or smoothing peaks in demand, before building expensive new network capacity.
  • Increase digitalisation of the energy system, requiring electricity network companies to better share and coordinate data on local energy use – including sharing this with flexibility providers.
  • Ensure the companies support an accelerating and increasingly decentralised energy market, requiring new Distribution System Operation (DSO) responsibilities, with enhanced capabilities in planning, operation, and market services.
  • Retain ‘a strong innovation stimulus’ through direct funding and access to the new £450 million Strategic Innovation Fund, with more if needed, to drive the decarbonisation of power, heat and transport at a lower cost than current technology allows.
  • Maintain the current high levels of reliability and customer satisfaction while making sure that the most vulnerable consumers get additional support when they need it.
  • Ensure less of consumers’ money goes towards network companies’ profits, and more towards investing in network capacity to fight climate change.

Ofgem has also been exploring measures to bring forward energy network projects that drive green recovery and decarbonisation, for example increasing grid capacity to support new connections or upgrading grids to support green energy.

Around £80 million of shovel-ready projects have been boosted to start in 2020, increasing capacity to support new connections, including a new vaccine centre, as well as preparing the grids for net zero and the predicted growth in electric vehicles.

Work is ongoing with the networks to develop further opportunities to stimulate low risk, low carbon strategic investment to support net zero and future users’ needs in line with Government priorities. Further information on these options is expected early in 2021.