Networks and Ofgem need to tread a delicate balance

Regional flexibility | network companies and Ofgem need to tread a delicate balance

The third in the series of research papers from Cornwall Insight in partnership with Complete Strategy and Shakespeare Martineau has been released. Future Networks – RIIO2-ED2 investigates the interaction of regional flexibility markets with network company price controls.


Key findings of the report are:

  • The transition from Distribution Network Operator (DNO) to Distribution System Operator (DSO), where electricity is actively managed at a distribution level, presents a new set of challenges for Ofgem.
  • Ofgem will need to seek to address these challenges in the next electricity distribution price control RIIO-ED2*.
  • In particular, Ofgem will need to decide the extent to which the regulatory framework facilitates or drives the transition to DSOs.


Stuart Cook, Managing Director at Complete Strategy, said:


“Ofgem and the industry are approaching RIIO-ED2 in the context of considerable uncertainty. As DNOs transition to become DSOs, both the destination and the pace of change are unclear. For the benefit of the transition to be fully realised by customers, the regulator will need to push against the boundaries of historical regulatory practice and work with the industry to promote innovation.”


Andrew Enzor, Senior Consultant at Cornwall Insight, said:


“Work on the RIIO-ED2 price controls comes at a crucial time for the development of regional flexibility markets. If implemented well, developments to the existing price control structures could enable those markets to flourish, providing greater optionality to network companies in developing their networks.


“However, there is also the risk of poor long-term outcomes if decisions made now constrain future opportunities. The network companies and Ofgem have a delicate balance to tread, maintaining highly reliable networks while minimising costs in the interests of end consumers.


“Ultimately, harnessing that flexibility from a wide user base will be in the interest of all consumers and the network companies themselves.”

*RIIO-ED2 – A developing policy framework for the next price control for electricity Distribution Network Operators under the RIIO (Revenue = Incentives + Innovation + Outputs) framework

Networks and Ofgem need to tread a delicate balance – Kindly provided by Cornwall Insight

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