The Road to RIIO-2

What is RIIO-2? RIIO is Ofgem’s regulatory framework for energy network companies and stands for Revenue = Incentives + Innovation + Outputs. The “2” refers to the fact that this will be the second version of this framework.

RIIO2 is currently in its consultation period, with Ofgem seeking views on how best to regulate the energy network companies. But what does it all mean?

1. RIIO-2 is the successor to RIIO-1, and RIIO-1 worked

Networks have delivered value for money and innovation during the RIIO-1 period:

  • Power cuts are 50% less likely than 15 years ago and electricity transmission reliability is currently 99.9999%
  • Gas reliability is at 99.9998%, with the average customer likely to experience a gas supply interruption only once every 40 years
  • Over the RIIO-1 period, the Energy Network’s portion of consumers’ bill has dropped, or is forecast to drop. Despite the growth in network size and increase in type and scale of work, this shows that the networks are delivering value for consumers.

2. RIIO-2 needs to maintain momentum on renewables

The energy networks have already helped deliver a transformation in renewable energy through innovation and investment. The level of solar on grid now was – until just a few years ago – not expected to be available until 2030.

  • This transformation happened because of significant investment by the energy networks and we’ll need the same effort again if mass take-up of electric vehicles is to become a reality. Around £100 billion of investment has been delivered by network companies since privatisation (Source: Ofgem, RIIO-2 Factsheet).
  • Therefore, it is critical that RIIO2 allows this investment to continue, helping put more money into creating a truly agile, flexible grid fit for the future.

3. RIIO’s biggest success was the unleashing of innovation projects which places the UK in the lead globally

The incentives for network innovation have delivered real results with pilot projects taking place all over the country:

  • Northern Powergrid and Nissan’s Vehicle-to-grid pilot; Electricity North West’s CLASS voltage reduction scheme; Wales and West Utilities’ hybrid heating systems (Project Freedom); Cadent’s gogreengas programme to turn household waste into usable domestic gas.
  • These innovation projects are vital for keeping costs down. Smart electricity network solutions have already delivered £1bn of savings to customers and could help deliver £1.7bn of saving per annum by 2030

4. RIIO-2 can deliver for consumers by focusing on price controls

We know that the price control mechanism from RIIO-1 worked.

  • Price controls are the right model to protect consumers.
  • We want to evolve RIIO for the next phase, focusing on:
    • the introduction of customer panels to keep the performance of the price control under review throughout its duration
    • enhanced transparency in the reporting standards set by Ofgem so that network companies are able to provide reports on financial performance that is accessible to everyone and
    • the continued focus on delivering innovation in the next price control period.

The Ofgem RIIO Price Control Factsheet can be found here

 

 


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