The unprecedented challenges of making the transition to a low carbon economy and securing supplies as efficiently as possible has led Ofgem to introduce the biggest change to the regulatory framework for 20 years.

Ofgem's new performance-based model, RIIO, seeks to ensure consumers get the necessary investment in Britain’s pipes and wires for a fair price.

Ofgem estimates over £200 billion needs to be spent in the next 10 years to secure supplies for consumers and to move to a low carbon economy. Of this, around £32 billion will need to be spent on pipes and wires against an industry worth £43 billion today, an increase in value of 75 per cent – and a doubling of the rate of investment from the previous 20 years.

New sources of generation, whether large-scale wind, gas or nuclear plants or small-scale renewables and home-based microgeneration, will require not only a step change in investment,


but smarter networks to make sure Britain is rewired to meet these more complex challenges. Moves towards electrification of transport and heat will further increase the need for smart grids.

In order to attract efficient investment, Ofgem's new performance based RIIO model for price controls rewards companies that innovate and run their networks to better meet the needs of consumers and network users. It does this by setting longer eight-year price controls, offering incentives focused on delivering results, and expanding the £500 million Low Carbon Network Fund to encourage the growth of smart grids.

Ofgem estimates the RIIO model could cut the cost of investment to consumers by £1 billion compared to the previous regulatory framework in the next ten years.

Ofgem's Chief Executive, Alistair Buchanan, said: "£32 billion of the £200 billion investment challenge Ofgem has identified falls to the regulated energy networks and is within our statutory remit. That is why Ofgem's new performance regulation model, RIIO, will ensure we attract this investment, but at a fair price for consumers.

"The RIIO model will ensure that efficiency and innovation are hard-wired into the network companies. This means the benefits of the green economy, like more skilled jobs delivering smarter networks to allow householders to run solar energy and other types of microgeneration, will be delivered. However there will be no gold plating of the networks at customers’ expense.

"RIIO also gives consumers and network users a bigger voice in what they want network companies to deliver and then rewards companies that take the initiative and deliver this efficiently, while financially penalising laggards and subjecting them to closer regulatory scrutiny."

(CD)