Ofgem unveils £20.9 billion plan for low-carbon energy system

4C Offshore | Tom Russell
By: 29/06/2022 Ofgem
Ofgem has released its draft plan for the next electricity distribution price control (known as RIIO-ED2). The five-year programme aims to transform local energy grids to support the transition to what it claims will be a cleaner, affordable, home-grown low-carbon energy system.

Price controls are a method of setting the amount of money (allowance) that can be earned by Distribution Network Operators (DNOs) over the length of a price control. DNOs recover their allowance from network charges to energy suppliers, who in turn pass these costs on to customers through their energy bills. The allowances are set at a level which covers the DNOs’ costs and allows them to earn a reasonable return subject to them delivering value for consumers, achieving their targets as set by Ofgem.

In its plan, DNOs would be tasked with building regional branches of the smarter, greener, more flexible grids to ensure the speedy connection of the growing low carbon technologies required to hit government net zero targets.  

The proposed package totals £20.9 billion and includes £2.7 billion of upfront funding to boost grid capacity. Flexible funding arrangements will also mean that investment can dial up to reflect changing demands over time.

Ofgem stated that it is determined to get the best deal possible for consumers and is proposing tough efficiency targets for the networks along with a sharp reduction in their allowed rate of return. It claims this will lead to less of consumers’ money goes to company profits.

Jonathan Brearley, chief executive of Ofgem, said:  “Ofgem’s job is to ensure energy networks have achievable and affordable plans that will attract the investment needed for a more resilient energy network and achieve the government’s net zero ambition at the least cost to the consumer.

“These are challenging times, and this is the path out of relying on expensive and polluting imported fossil fuels and moving to a home-grown energy system, that exploits the best of modern technology to level out demand and reduce costs for consumers.

“We’re determined to get the best possible deal for consumers and the proposals we’ve published today will mean that substantial additional investment can be made to deliver net zero without placing any further pressure on bills.

“We’re confident that the five-year vision we’ve outlined will help build the world class energy infrastructure needed to connect consumers to reliable, cleaner energy at an affordable price.”

The next electricity distribution price control (RIIO-ED2) will start on 1 April 2023 and run to 31 March 2028. Ofgem is consulting on these Draft Determinations until 25 August 2022.