UK’s 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 decarbonisation of their power generation, heating, and transport. They are required by regulation to contribute to the economy’s net-zero emission target.
It will further urge companies to observe the flexible use of network capacity and discover an anticipatory or new investment that supports decarbonisation. One perfect example is that of electric vehicles.
Regulator Confirms Framework
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 is made to enable distributors to give a net-zero economy through a secure and robust system that comes with the lowest cost for customers.
The price controls set by Ofgem determines the revenue monopoly 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 decarbonization as a significant objective. It also expects firms to provide secure and robust networks that deliver 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. The Ofgem has conducted a consultation regarding the framework via an Open Letter last August. The approach it recently published is based on the feedback the agency has received.
Developing a Practical Approach to Challenges
Ofgem continues to improve its approach to the challenges facing key strategies that electricity distribution networks employ. It involves the RIIO-ED2 price control’s ability to meet the demands of new sources on local grids, such as with electric vehicles.
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 consumption 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 up around 60% more electric vehicles using the grid’s existing capacity versus applying inflexible charging that increases consumption during peak times.
The recommended approach also aims to fulfil anticipatory investment, which refers to new ventures related to infrastructure that helps to answer any anticipated demand. For instance, the charging network allocated for electric vehicles 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 for its sector-specific methodology to be implemented 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 the generation of electricity that 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 attain the investment they require to contribute to the decarbonization of the system. It will also help save consumer’s money by lowering returns as much as possible.
The 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 for April 2021 to March 2026. The price control runs for five years, compared to the current price control that was run for eight years.