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Fresh RIIO-2 consultation launched as Ofgem preparations gather pace

Image: Ofgem.

Image: Ofgem.

Ofgem has published a new open letter consultation as it ramps up its preparations for the next set of networks price controls.

The consultation, published yesterday, is broad in its nature, seeking initial views on multiple areas such as price control duration, the role networks play in enabling decarbonisation and, critically for network operators, Ofgem’s approach to setting the cost of capital.

It stresses that whilst there is an overarching objective for the DNOs to deliver value for money, this is split over three main priorities of decarbonisation, enabling competition and innovation, and protecting consumers.

And at the same time, the regulator expects the RIIO-2 delivery period to coincide with a “significant, technology-driven revolution” in the energy sector as decarbonisation gathers pace.

This has led Ofgem to conclude that distribution networks are likely to be the “most dynamic” of regulated energy sectors, given the critical role they play and the stakeholders they engage with.

The consultation itself poses numerous questions that seek stakeholder views on areas such as how the price controls should support strategic investment, drive innovation and competition, and support big data environments.

Jonathan Brearley, executive director for systems and networks at Ofgem, said that the networks had a fundamental role to play in the UK’s decarbonisation, but added that the regulator would strike a “tough, fair settlement” that enabled them to go further in decarbonising the economy.

“All our network price controls will pave the way for an affordable, reliable and more sustainable energy system which protects consumers both today and in the future, including those who are in vulnerable situations,” he said.

Ofgem’s open letter and framework consultation is to be followed by a framework decision, slated for Q4 this year. A wider sector methodology consultation is to follow in June next year, ahead of a decision on that element which is currently expected in November 2020.

DNOs will then be expected to submit business plans to Ofgem and RIIO-2 challenge groups in May 2021 before finalising them that December.

The final steps will see decisions on RIIO-2 licences made in February 2023, ready for the price control period to begin in earnest on 1 April 2023.

The consultation closes on 15 October 2019.

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