Distribution network operators (DNOs) have set out plans to spend around £23.7 billion over a five-year period in their final business plans for the RIIO ED2 price controls beginning in April 2023.
The figure is up from £23.2 billion in their draft business plans in July but some DNOs have reduced the amount they are requesting.
The £23.7 billion total represents the aggregate of the headline figures for total expenditure (totex) allowances presented by the DNOs, although there are some differences in what those numbers describe.
Northern Powergrid
Northern Powergrid has requested £3,307 million of totex allowances, equating to an annual average of £661 million. This represents a 41% increase over the yearly average for actual and forecast expenditure during the current price control period of £469 million.
The headline figure includes its baseline assumptions for real price effects – additional prices increases for DNOs that are not reflected in the general CPIH measure of inflation that Ofgem has adopted for the RIIO2 price controls. The regulator plans to set a baseline assumption for real price effects that will then be adjusted during the price control period using indexation.
Northern Powergrid’s final business plan assumes 941,000 electric vehicles and 309,000 heat pumps will be connected its network by 2028.
Load-related expenditure amounts to more than £688 million or almost £138 million per year. This is more than five-times the yearly average during the current price controls of less than £27 million.
It notably includes almost £211 million of spending covered by uncertainty mechanisms. Excluding these uncertainty mechanisms lowers the yearly average for load-related expenditure to almost £96 million, although this is still almost quadruple the figure for ED1.
Their exclusion lowers total expenditure in the business plan to £3,096 million and the annual average to around £619 million, with the latter representing a 32% increase over ED1.
Expenditure on non-load-related asset renewal is £678 million, with the annual average rising by 14% to around £136 million.
The plan features £378 million of embedded efficiency, including ongoing efficiency improvements during the course of the price controls of 0.5% per year.
Northern Powergrid said the plan would increase its contribution to the average domestic electricity bill from £90.93 in 2022/23 to £91.88 in 2023/24 under Ofgem’s latest indicative figure for the cost of equity of 4.65%. It said its bill impact would instead rise to £98.58 under its own proposed cost of equity figure of 5.80%.
In the foreword, Northern Powergrid chief executive Phil Jones said: “The plan we have put together, with our stakeholders’ help, for the 2023-28 regulatory period, means changing the way we run our business. We must take a leading role in enabling our region to play its part in meeting the UK’s target of reducing carbon emissions by almost 80 per cent by 2035.
“Our network will be instrumental in facilitating this change, as it sits at the heart of a decentralised, low carbon energy system, and we will be working across that whole system to find innovative ways to deliver on that target. That will be enabled by a significant increase in investment, centred on enabling customers to participate in finding flexible solutions that make for a more efficient transition to the lower carbon world.”
Scottish and Southern Electricity Networks (SSEN)
SSEN has requested totex allowances of £3,994 million or almost £799 million per year.
The headline figure is down by £151 million – nearly 4% – from the £4,145 million of totex allowances requested in its draft business plan. The DNO said this is partly due to the reallocation of spending to uncertainty mechanisms.
For comparison, SSEN said its actual and forecast expenditure over the final five years of the eight-year RIIO ED1 price controls is on track for £3,033 million. On this basis, the final business plan for ED2 represents an increase in spending of nearly 32%.
It does not include SSEN’s baseline assumptions for real price effects which raise the total to £4,229 million.
The final business plan is designed to facilitate the connection of 1.3 million electric vehicles, 800,000 heat pumps and 8GW of distributed generation by 2028.
It features £510 million of load-related investment, more than double the £224 million of expenditure over the last five years of ED1 but down slightly from £543 million in the draft business plan. Non-load-related asset replacement is up from £757 million in ED1 to £1,050 million but down from £1,105 million in the draft plan.
The final plan incorporates £410 million of embedded efficiency – £269 million carried over from ED1 and ongoing efficiency improvements during the course of the price controls of £141 million – or 0.7% per annum.
For customers in its southern license area, SSEN said its average contribution to domestic energy bills would remain flat at £98 if including its consumer value proposition and its anticipated spending through uncertainty mechanisms. For those in its Scottish license area, the company said its bill impact would rise slightly from £159.40 over ED1 to £163 over ED2.
Chris Burchell, managing director of SSEN Distribution, said: “Networks will unlock the electrification of the economy with billions of pounds in investment to create modernised local electricity grids fit for a net zero future. Our RIIO ED2 business plan represents an important and critical step in this journey.
“As energy policy and targets accelerate at pace, it’s critical we invest at the right level now to meet this ambition and avoid a higher cost future. We now need Ofgem to support this aim by providing an agile price control framework which gives the certainty and flexibility required to meet evolving policy and customer needs.
He added: “Our proposals are ambitious, including a sector-leading commitment to a 1.5°C science-based target pathway; balanced, delivering the investment required to enable the energy transition; and affordable, with no planned increase to network charges on customer bills, something we recognise is important in the wider context of overall energy costs.”
SP Energy Networks
SP Energy Networks has requested totex allowances of £3,270 million or just over £654 million per year. This represents a more than 28% increase over the yearly average for actual and forecast expenditure during ED1 of £510 million.
The total is up slightly from the £3,234 million requested in the draft business plan. The headline figure includes £153 million of embedded efficiency but not ongoing efficiency improvements of £48 million – or 0.5% per year – which lowers the total to £3,222 million. It also excludes real price effects.
The business plan assumes the connection of 1.8 million electric vehicles and 1.1 million heat pumps by 2028.
There is £445 million of load-related expenditure, with the yearly average doubling from around £45 million in ED1 to just shy of £89 million.
Non-load-related asset replacement and refurbishment is £584 million or almost £117 million per year. The latter is up by more than 19% from around £98 million per year in the current price control period.
SP Energy Networks said its average contribution to domestic energy bills would fall from £104 over ED1 to £91 over ED2 for customers in its Scottish license area but rise from £124 to £131 for customers in the North East and North Wales.
Frank Mitchell, chief executive of SP Energy Networks, said: “Without this plan, we run the risk of leaving people behind as we move to a low carbon economy. That’s something that absolutely cannot happen.”
He continued: “Our customers want us to be bold as we reimagine the role of the electricity network, the services we provide, and the capabilities of our business. We must match their ambitions, alongside those of the devolved governments and major regional authorities we serve, which have set out their visions to achieve net zero and the targets newly agreed at COP26.
“But we can’t do this by ourselves. To deliver what our communities want, we need the support of our regulator, Ofgem, to modernise, be more agile, and develop a framework that is fit for delivering net zero.”
Electricity North West
Electricity North West has requested totex allowances of roughly £1,791 million. The annual average is slightly more than £358 million – a 33% increase over the yearly average for forecast and actual spending during the current price controls of roughly £267 million.
The total is down from £2,033 million in the draft business plan, primarily due to significant reductions to both load-related expenditure and non-load-related asset replacement and refurbishment.
The headline figure does not include real price effects but does include £112 million of bespoke programmes, the exclusion of which lowers the total to £1,678 million. The DNO said this figure – equating to an annual average of £336 million or a 25% increase in yearly spending – provides a more like-for-like comparison with the other business plans.
The final plan assumes the connection of one million electric vehicles and 120,000 heat pumps by 2030.
Electricity North West has requested almost £138 million of load-related expenditure. This equates to around £28 million per year – almost double the figure for the current price control period of around £15 million per year. However, this is down from £212 million – or £42 million per year – in its draft business plan.
The DNO has requested roughly £289 million for asset replacement and refurbishment or almost £58 million per year. This represents an increase of 17% when compared to the yearly average of £49 million for ED1. The amount is down from £372 million – or £74 million per year – in the draft plan.
The business plan assumes ongoing efficiency improvements of £59 million – or 1% per year.
Electricity North West said under the plan its average contribution to domestic energy bills would fall from £89.75 over ED1 to £77.26 over ED2.
Electricity North West chief executive Peter Emery said: “I want to be very clear. Everything that we deliver in this plan is inextricably linked to the challenge of reaching net zero.
“The climate emergency is the greatest challenge of our age and networks are uniquely positioned to enable the transition as we move away from fossil fuels to low carbon electricity to power our homes, businesses, transport and heating.”
Western Power Distribution
Western Power Distribution (WPD) requested totex allowances of £6,679 million. The annual average of £1,336 million represents a 27% increase over the average for forecast and actual expenditure of £1,050 million per year during ED1.
The headline figure includes real price effects of £309 million and ongoing efficiency improvements of £95 million, without which the total is £6,465 million. This is significant increase from the equivalent figure from its draft business plan of £6,064 million.
This is despite reductions to both network reinforcement and non-load-related network investment since the draft.
The former is down from £999 million in the draft business plan in July to £946 million – or £189 million per year. The new figure represents a more than doubling of the yearly average for ED1 of £91 million.
Non-load-related network investment is down from £1,877 million in the draft plan to £1,842 million – or £368 million per year. The new figure represents a 15% increase when compared to the ED1 yearly average of £320 million.
The final business plan is intended to accommodate at least 1.5 million additional electric vehicles and 600,000 extra heat pumps.
WPD said the plan includes £723 million of embedded efficiency savings in addition to the aforementioned £95 million of ongoing efficiency improvements – or 0.5% per annum – during the course of ED2.
WPD said the plan would see its average contribution to domestic energy bills across its license area fall from £91.62 in 2022/23 to £89.51 over ED2.
The company’s chief executive Phil Swift said: “The future of energy has never been more exciting. WPD is leading an energy revolution: delivering a smart, digitalised electricity grid by 2028, while keeping customer bills broadly flat.
He added: “We are a highly adaptive and innovative business. Since 2015 we have already begun to transform our network, ready to connect more than 31GW of distributed generation on a network conventionally designed for 14GW of demand.
“But that is just the start. Our business plan presents an opportunity to deliver unprecedented digitalisation and innovation to deliver an electricity network to meet the rapidly changing needs of our customers in a net zero carbon future. Crucially, we are leading by example – having reviewed our own business carbon footprint, we are committing to become a net zero business by 2028 – twenty-two years ahead of the government’s schedule.”
UK Power Networks
UK Power Networks has requested totex allowances of £4,639 million or £928 million per year. This is a nearly 10% increase over average forecast and actual expenditure during the current price control period of £847 million per year. It is up from £4,393 million in the draft business plan.
The headline figure incorporates ongoing efficiency improvements of £233 million – or 1% per annum – but excludes real price effects, which UK Power Networks said it expects to increase the overall total by £231 million to £4,839 million.
Load-related spending is up by more than half from £77 million per year in ED1 to £117 million per year or £583 million in total. This is also a slight increase on the £527 million requested in the draft business plan.
Non-load-related replacement and refurbishment is up by 42% when compared to ED1 from £104 million per year to £148 million per year or £740 million in total. This is a much more substantial rise from the £605 million requested in the draft, accounting for a significant proportion of the totex increase in the final business plan.
The final business plan is built around a scenario in which there are 2.6 million electric vehicles and around 300,00 heat pumps in the company’s license areas by 2028, although it put great emphasis on how spending could flex in response to emerging developments.
UK Power Networks said the plan would see its contribution to average annual domestic electricity bills for customers across its licence areas fall from £93 over ED1 to £79 over ED2.
In the foreword to the document, chief executive Basil Scarsella said: “Our business plan is ambitious, well justified and delivers long-term value for money for our customers.
“If society-wide change occurs in line with our baseline plan, which represents the lowest cost pathway to net zero, customers will benefit from an average price decrease of 15% in real terms over the RIIO-ED2 period. But we can also deliver the investment required if the highest case scenario materialises, with an average price decrease of 10% in real terms.”