RIIO-2 Annual Iteration Process 2023 for the Electricity System Operator
Reports, plans and updates
- Publication date
- Industry sector
- Transmission Network
- Distribution Network
This page contains the results of the 2023 Annual Iteration Process (AIP) for the Electricity System Operator (ESO) under the RIIO-2 network price controls.
The AIP updates Allowed Revenues across network price controls for the next regulatory year (2024/25). This page contains the results for the ESO price control only.
Special Condition 5.2 in the ESO’s licence provides for the Gas and Electricity Markets Authority (‘the Authority’) to do the following by 30 November or as soon as is reasonably practicable after 30 November:
(a) carry out the Annual Iteration Process for the ESO Price Control Financial Model (PCFM) (as each of those terms are defined in Special Condition 1.1 of the special licence condition); and
(b) give the licensee at least 14 days’ notice before it publishes the value of Adjusted Revenue term (ADJRt) and the SO Internal Allowed Revenue term (SOIARt) in accordance with the calculation set out in Special Condition 4.2 (System Operator Internal Allowed Revenue).
The reason for the delay to the publication of this AIP beyond 30 November is to allow for a decision published on 18 October 2023 to take effect relating to licence modifications to the ESO licence special conditions, to implement funding arrangements for the transition to a Future System Operator (FSO). This delay is also to include the inflation data published by the Office for Budget Responsibility (OBR). The OBR typically publishes its autumn inflation forecast in early November, however this year the publication was delayed to 22 November to coincide with the autumn statement. The affected licensee has agreed with our proposal to delay the AIP publication date such that the licence modification will be effective and to reflect in it the latest inflation forecast.
The Authority gave the ESO notice of the value of ADJRt and SOIARt on 27 November 2023.
The ESO agreed with the notice, as issued.
The reason for and effect of this publication is to revise the PCFM Variable Values to re-calculate the values for the terms listed at paragraph (b) of this webpage.
The published values for SOIARt following the November 2023 AIP are shown within the ESO Price Control Financial Model published on this page.
WACC allowance model
The RIIO-2 Price Controls include an allowance for the licensee’s estimated Weighted Average Cost of Capital (WACC), which is calculated in accordance with the provisions of the ESO Price Control Financial Handbook.
The model used to calculate the cost of debt and risk-free rate values that have been used for the 2023 Annual Iteration Process for the ESO Price Control Financial Model, is published on this page.