Ofgem unveils five-year investment package for renewables expansion

4C Offshore | Tom Russell
By: 30/11/2022 Ofgem
Ofgem has today (30 November 2022) confirmed a five-year investment package for the electricity distribution network companies which it claims will help deliver cheaper more reliable local grids at no extra cost to consumers. 

According to Ofgem, 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.  

Renewable energy sources such as wind, solar, and wave power require changes in the way energy is used and stored to gain their benefits. The price control set out by Ofgem today aims to allow for the scale of investment required without adding to customers' bills.  

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 aims to ensure that this 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. 

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.”