Ofgem confirms local electricity networks price control for 2023 to 2028
Press release
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- Distribution Network
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- Investment confirmed for six electricity distribution network companies, covering fourteen local networks
- Networks expected to provide more benefits by lowering returns to investors and driving more efficiencies within their companies
- The 2023 to 2028 price control is critically focused on drive to move away from importing fossil fuels and our reliance on expensive gas
- Grid capacity to be boosted, paving the way for cheaper greener energy as more products become reliant on electricity
Ofgem has today (Wednesday 30 November 2022) confirmed a five-year investment package for the electricity distribution network companies to help deliver cheaper, cleaner, more reliable local grids at no extra cost to consumers.
A key requirement of the plan will be for networks to focus the investment on supporting the move away from a high dependence on imported fossil fuels, towards using more homegrown, cleaner, cheaper, and secure sources of energy.
The potential of renewable energy sources such as wind, solar, and wave power require changes in the way energy is used and stored to gain their benefits and the price control set out by Ofgem today, will allow for the scale of investment required without adding to customers' bills.
Akshay Kaul, Ofgem Interim Director, Infrastructure and Security of Supply Group, said:
“The investment set out today delivers value for consumers, safeguards security of supply and helps ensure Britain is no longer at the mercy of international energy prices or geopolitical events. We’ve set the initial amount of investment that local electricity distribution network operators can make in the 2023 to 2028 period, with every pound representing value for money for consumers and no increase in bills.
“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.
He added: “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 has ensured that this major investment can be delivered without any increase in network charges on bills, which will remain at an average of £100 per year per bill-payer, despite the increased investment.
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.
Note to editors
- Ofgem is anticipating some major changes to the energy system over the next few years including:
- Increased use of renewables including wind, and solar energy, backed up by expanded nuclear and potentially hydrogen generated energy – all of which will require connections to the grid to enable the energy they create to be transported to where it is needed
- Increased demand for electricity because of an anticipated rise in electric heat pumps for homes and electric vehicles (EVs) on roads with the Government decreeing in 2020, an end to the sale of new petrol and diesel cars by 2030.
- Increased use of smart and digital technologies, enabling flexibility and potential savings for consumers who will have more control to plan their energy use through regularly updated peak and off-peak rates in line with when generation is higher or lower
- Potential for consumers to sell electricity back to the grid when energy is low, from sources such as EV (Electric Vehicles) batteries
- The creation of an independent Future System Operator (FSO), working as a strategic planner for the GB (Great Britain) energy system, alongside a reformed set of local energy institutions, playing a key role in local energy planning and distribution system operation
- Networks have also been mandated to deliver improvements in their resilience and response to extreme weather events. They will also be required to deliver an improved customer service with additional protections for consumers living in vulnerable circumstances
- Using flexible and adaptive regulation to drive the necessary investment and encouraging new approaches to managing local systems, which avoid unnecessary increased network charges on bills, will help keep the costs of the low carbon transition as low as possible for consumers.
- The RIIO-ED2 investment will not cost customers any more than they are paying already, with the average network costs for local electricity grids, remaining at around £100 per billpayer. This is achieved by cutting network company profits and increasing the efficiency of their running costs, requiring them to do more for less.