Energy regulator Ofgem has released a new and more robust framework for the upcoming price control for electricity distribution. The next round of price controls saves customers money while lowering company returns.
The framework is designed to drive energy distributors to prioritise the decarbonisation of their power generation, heating, and transport. Regulations require them to contribute to the economy’s net-zero emission target.
The new framework will further urge companies to observe the flexible use of network capacity. It will also help discover new ways of reaching the decarbonization goal. One perfect example is that of electric vehicles (EVs).
Ofgem has officially confirmed the framework to be utilised for setting the upcoming price control of Britain’s electricity distribution network, or the ‘RIIO-ED2’ price control. It will enable distributors to deliver a net-zero economy through a secure and robust system that comes with the lowest possible cost for customers.
The price controls set by Ofgem determine the revenue that network owners can collect from charges made on a customer’s energy bill.
To come up with the framework for the RIIO-ED2 price control, scheduled to be implemented from April 2023, the regulator has directed electricity distribution companies to set decarbonisation as their focus. It also expects firms to provide secure and robust networks that meet every consumer demand, including those of vulnerable customers.
An electricity distribution network refers to a local grid that transports energy to and from businesses and homes.
The RIIO model ensures that current and future consumers get the service they need at reasonable costs. Ofgem has conducted a consultation regarding the framework via an open letter last August. The approach has recently been published, and is based on the feedback the agency has received.
Ofgem continues to improve its approach to the challenges facing key strategies that electricity distribution networks implement. Now, it’s up to RIIO-ED2’s ability to meet the demands of new sources on local grids, such as with EVs.
It also includes the improvement of allocation, network usage, and its corresponding charges, and adopting flexible solutions (like demand-side response or storage options) to reallocate energy during high-demand periods.
These strategies can enable quick delivery of electricity that might prove cheaper for consumers, as opposed to building new generation and network capacity.
The Ofgem analysis also shows that flexible charging, which entails topping up outside peak times, could power around 60% more EVs using the grid’s existing capacity, versus applying inflexible charging that increases consumption during peak times.
The recommended approach also aims to fund new ventures related to infrastructure helping to answer any anticipated demand. For instance, the charging network allocated for EVs can be expanded despite the uncertainty of future use or need. This approach will protect customers from paying exorbitant fees for underused or unnecessary infrastructure.
Ofgem will hold more consultations in the summer of 2020 regarding the details of its sector-specific methodology designed for the next price control.
Ofgem Executive Director for Systems and Networks Cathryn Scott said that electricity distribution networks play a central role in the transition to a net-zero emissions economy. The society is expected to rely more on renewable energy for energy generation, which will power the country, vehicles, and heating for millions of households.
Scott further stated that Ofgem’s regulatory regime is predictable and stable, which will allow firms to secure the investment they require to contribute to the decarbonisation of the system. It will also help save consumer’s money by lowering returns as much as possible.
RIIO-ED2 will run from April 2023 to March 2028, with many decisions similar to gas distribution (G2) and gas or electricity transmission (T2) methodologies, which is set to run from April 2021 to March 2026. The price control runs for five years, compared to the current price control that was implemented for eight years.