Ofgem could put fast-track investment schemes at heart of RIIO3

Ofgem is considering whether its recent approach to fast-tracking investment in electricity transmission networks could become the “new normal” for price controls.

At Utility Week’s Future Networks, Heat and Transport Conference in Birmingham on Tuesday (7 February) the regulator’s director of networks Rebecca Barnett discussed how its approach could evolve for the RIIO3 process, which for gas and transmission companies begins in 2027.

She highlighted how last December the regulator introduced a new streamlined regulatory framework called Accelerated Strategic Transmission Investment (ASTI) which will initially cover 26 projects with a collective value of around £20 billion.

Barnett said: “There’s now more investment than ever going through uncertainty mechanisms. At what point does that start to undermine the ex-ante settlement approach of RIIO? Our ASTI framework for electricity transmission goes beyond any uncertainty mechanism, we effectively set up a parallel framework for the delivery of £20 billion worth of new network at speed.”

She added that the Future System Operator’s (FSO) role in system planning will change the current roles of transmission companies and Ofgem in deciding what to build.

She continued: “So do the ASTI-like targeted reviews or some form of direct procurement, possibly led by the FSO, become the new normal for electricity transmission at least? And given the long term view needed in all of this, is it still useful to have five yearly periodic reviews? Or at least in some areas should we take a different approach?

“We also recognise that RIIO2 has grown to be a substantial regulatory machine which requires effort on both industry and us to operate. So the key question is, is the RIIO framework still a sensible anchor for the wider work? Or has it become a time-consuming tail wagging the dog?”

Ofgem is due to consult on the matter shortly as part of its strategic review into network regulation, having released an open letter last autumn setting out some high-level themes.

Barnett insisted that the regulator is not “seeking change for change’s sake” and that it wants to ensure it keeps pace in the changing energy system, meeting customer needs and low carbon goals.

She added: “So our starting point is there probably isn’t a one size fits all in future regulation. We think there will be sector-specific approaches that best incentivise outcomes.

“The FSO role will impact on what and how we regulate and whole system coordination will be key.”