Six electricity distribution network companies, covering fourteen local networks have had investment confirmed from Ofgem. These networks will benefit from lowering returns to investors by driving more efficiencies within their companies. A key requirement of the plan will be for networks to focus the investment on using more homegrown, cleaner, cheaper, and more secure sources of energy by moving away from a high dependence on imported fossil fuels or expensive gas.
Ofgem has ensured that this major investment timeline of 2023 to 2028 can be delivered without any increase in network charges on bills, which will remain at an average of £100 per year per bill-payer.
Akshay Kaul, Ofgem Interim Director, Infrastructure and Security of Supply Group, said:
“The economics of energy have shifted with home-grown cleaner renewables like wind and solar energy proving cheaper than costly imported gas. Together with more nuclear and potentially hydrogen fuelled power, these renewables will contribute to a lower carbon energy mix, better protected from geopolitical events and energy price shocks.
“These new low carbon sources of generation will also need to be connected to an expanded electricity network to meet the growing demand for electricity with millions more electric heat pumps in homes and electric vehicles (EVs) on the road expected over the coming years.
“We’ve carefully considered all the work that will be required and set the budget for the networks, accordingly, driving the increase in capacity needed for net zero as well as delivering more reliable and resilient networks, at no extra cost to consumers.”
Known as RIIO-ED2 (Revenue = Incentives + Innovation + Outputs for electricity distribution), the package sets the level of investment Ofgem allows local electricity distribution networks (DNOs) to make in the 2023-28 period. The cost of the work is recouped through the network charges on consumer bills and by limiting network profits and increasing efficiencies.
Ofgem’s RIIO-ED2 Final Determinations follow on from its Draft Determinations published in the summer, taking account of all stakeholder feedback received in response to the consultation.
These Final Determinations will be followed by a statutory consultation on the licence modifications required to implement the RIIO-ED2 settlement in December 2022 followed by confirmation of the licences and associated price control financial instruments in February 2023.
The RIIO-ED2 price control will commence on 1 April 2023.