Last week, the energy regulator Ofgem released its Sector Specific Methodology Decision (SSMD) for the RIIO-3 price control process for 2026-2031, which may be a critical juncture in the path to the UK’s net zero goals.
As reported by Current± last week (19 July), the RIIO-3 price control offers network companies incentives for innovation and securing investment so that they can develop sustainable energy networks at the lowest cost for current and future customers. Doing so will be a key component of the transition to net zero. As such, the decision will be key for businesses to create plans for the future.
Nicola Connelly, CEO of SP Energy Networks, reacted to the decision, stating that it is “important we get this right” and that the company will be “looking closely at the details of the decision”.
“As a country, it’s clear that we need to speed up investment in electricity transmission infrastructure if we are to meet our decarbonisation targets for 2030 and beyond. More than that, investment at the unprecedented scale required can be a powerful spur for economic growth, supporting tens of thousands of jobs in our own business, across our supply chains and for the communities we serve.
“We will continue to work constructively with Ofgem and engage with our stakeholders as we develop our RIIO-T3 Business Plan before submission in December 2024, before Ofgem’s final decision in late 2025.”
Framework ‘must support and enable long-term investment’
Lawrence Slade, chief executive of the Energy Networks Association, believes the next price control framework must “support and enable long-term investment while allowing flexibility to adapt as needed”.
“Today’s decision can lay the groundwork for the government’s clean power mission. To deliver cleaner, secure energy supplies will mean upgrading and, in some cases, building new infrastructure and in turn this will unlock jobs and multi-million-pound supply chains,” he added.
“We’re committed to working with Ofgem to grasp that challenge and will be reviewing the detail of today’s announcement over the coming weeks. The ability to continue to attract and retain investment is vital to success.”
Ofgem stated that its decision, recognising how investment needs will vary as some are determined by National Grid Electricity System Operator (NGESO) and others by the transmission owners (TOs), has distinct elements catering to these different requirements. It said that it has aimed to maintain the stability and predictability of regulation, which is crucial for attracting low-cost private capital that has benefited the sector and consumers.
SSE chief financial officer Barry O’Regan identified the methodology change for the cost of debt calculation as an area that will require “careful analysis alongside other changes to financial measures which have yet to be finalised”.
“The benefits of taking a long-term, strategic approach to investment in Britain’s grid infrastructure have never been clearer. With a new national mission to deliver clean power by 2030 in order to boost energy security and protect future consumers, unlocking the right level of investment during the next price control will be key,” he said.
“It is crucial that Ofgem set an appropriate cost of equity that recognises the high level of risk borne whilst attracting the unprecedented levels of investment required to decarbonise the economy and deliver net zero. Based on our initial assessment, further work is required on the specifics around investability that would enable the UK to compete for finance globally.
“As we continue to assess the details of today’s publication, we look forward to working constructively with Ofgem, the government and wider stakeholders to ensure the future regulatory framework delivers a cleaner, more secure and affordable energy system for current and future generations.”
