Investing in Electricity Networks

Decarbonising the GB electricity system requires targeted infrastructure upgrades and a whole system approach across all utilities and networks.

Electricity networks across Great Britain are core to achieving an energy transition that delivers an affordable, reliable, and net zero carbon future. With a focus on customer service, electricity distribution network operators (DNOs) are already delivering £300 million of green recovery network upgrades to facilitate low carbon technology developments.

The draft business plans for all six DNOs were recently published, requesting a total spend of £23.2 billion over the five-year RIIO-ED2 price control period from 2023 to 2028. Some standard themes are evident across each of these, namely: network resilience, vulnerable customers, net zero, flexibility, and local renewable generation.

There is a noticeable spectrum of proposed total expenditure (totex) across each of the DNOs, with an increase on the equivalent ED1 average ranging from 7% (UK Power Networks) to 53% (Electricity North West). Even more so, the estimates for average annual contribution to household energy bills predict a real terms decrease of 10% for the UK Power Networks baseline plan and a 7% increase for SP Energy Networks customers in North East England and North Wales. SSEN Distribution appears to be an outlier, with no predicted impact on customer charges for ED2 due to a proposed 0.5% year-on-year efficiency gain and other embedded efficiencies, despite a 36% increase in requested totex compared to the ED1 cycle.

At this point, it’s hard not to be unsure about what investment will be approved for this integral period of the energy transition. Halfway through the ED1 price control, Ofgem cut £200m from the remaining DNO spending allowances due to prior underspend and following the RIIO-ED1 reopener mechanism for additional funding in 2019, Ofgem rejected over 85% of the requested £322 million on the basis that it was not justified or would provide poor value for money.

Delivering a sustainable future

It’s clear that the existing ‘flexibility-first’ approach of GB networks will need to continue through RIIO-ED2, particularly as it’s anticipated that by 2030 there will be an up to 20 times increase in community-owned renewable energy projects connected to the grid, and millions more consumers using electric vehicles and installing heat pumps. However, UK Power Networks emphasizes the uncertainty in predicting the rollout of low carbon technologies, particularly given that only 20% of the ED1 forecast has been achieved.

DNOs have long had a focus on providing support for customers, particularly those who live in vulnerable circumstances or suffer the impacts of fuel poverty. The significant transformation expected over the next decade will directly impact the lives of individuals and communities, from mobility to healthy homes.

Continued collaboration and co-creation with customers and wider stakeholders will ensure the business plan submissions are reflective of the wants and needs of all customers and that a future energy system can deliver a just transition with benefits for everyone.

Green recovery

Electricity provides the foundation for adopting low carbon technologies on the journey to net zero emissions and plays an integral part in the decarbonisation of the wider utilities sector. To deliver a net zero future that creates long-term employment, encourages economic growth, and enables all consumers to access the benefits, a systemic approach across all utilities and networks is required.

This whole system thinking is also relevant to finance, with new developments around whole electricity system costs. A decarbonised energy system has new value streams and a different cost base, incorporating system management, network costs, required storage, and the value of flexibility. Generation assets and demand side technologies must be given equal weighting in policy and regulatory development.

As part of global plans for the green recovery, there are clearer incentives emerging for investment in low carbon technologies and smart energy systems. The RIIO-ED2 business plans are an important step in preparing for a flexible energy system; however, in addition to investment in expanding the capacity of electricity networks, there needs to be a focus on innovating how we deliver and utilise infrastructure and new low carbon technologies.

Expanding on the existing green recovery investment, RIIO-ED2 must facilitate continued investment in targeted local grid upgrades to help unlock the benefits of a smarter energy system for everyone.

Are the draft RIIO-ED2 business plans ambitious enough to meet the scale required for the energy transition?