Ofgem Publishes GB Networks Price Control Proposal
Britain’s energy regulator Ofgem on July 30 published its price controls proposal for energy networks proposal (RIIO-2). The regulated industry, represented by the Energy Networks Association (ENA), said the price control "must allow networks to carry on delivering while also being founded on the principles of transparency and stability to provide predictability for investors, innovators and consumers.”
The new proposal, which Ofgem said would deliver over £5bn to customers over its five-year lifetime, would take effect from April 2021 for gas networks and the National Grid (NGrid) power transmission system, and from April 2023 for regional electricity distributors. The price controls set the revenue monopoly network owners can earn from charges to consumers. Ofgem said the default length of the forthcoming price controls will be five years, compared with the eight years of the current RIIO-1 regime.
There is no update to the 3%-5% cost of equity range (the amount the companies can pay their shareholders) at present, Ofgem said, adding that this is the lowest rate ever proposed for energy network price controls in Great Britain. Ofgem estimates this would result in savings of over £5bn for household consumers (or about £15-£25 annually on a dual fuel household bill).
Ofgem has also confirmed that NGrid can build the £650mn grid upgrade to connect the new Hinkley Point C nuclear power station, but said the revenue it will be able to earn from the upgrade will be based in part on its experience in cutting the costs of connecting offshore wind farms to the grid. NGrid plans to start construction in early 2019 in order to meet EDF’s 2024 connection date for the 3.2 GW Hinkley Point C nuclear power complex. Developer EDF however last week announced further delays to start-up of a replica nuclear plant that it is building in France at Flamanville.
New independent user groups and customer engagement groups will be set up by each of the network companies to give consumers a stronger voice in the new price controls. ENA said it looked forward to working closely with Ofgem in the weeks and months ahead on their RIIO-2 proposals.” Open hearings will take place in the spring of 2020 where companies’ spending plans will be scrutinised.
Ofgem is also retaining a funding package in the next price controls for innovation. Technologists, scientists, inventors and innovators will be able to use this funding to solve some of the biggest challenges in adapting the energy networks to a smarter, more flexible energy system.
NGrid said it will now review the detailed decision by Ofgem and consider all of our options prior to Ofgem formally implementing the proposals into our licence later in the year or early 2019. Ofgem's jurisdiction does not extend to Northern Ireland, which has a different energy regulator (Utility Regulator for Northern Ireland, or Uregni).