Vulnerable customers must be put “at the heart” of local electricity networks’ transformation into distribution system operators (DSOs), a charity has urged in its response to a consultation on the RIIO ED2 price controls.
National Energy Action (NEA) welcomed Ofgem’s proposals to introduce a new incentive for distribution networks operators (DNOs) to develop and deliver strategies for meeting the needs of their vulnerable customers, but said there was a “lack of detail” on how these strategies would be incorporated into their future role.
The organisation was responding to Ofgem’s sector specific methodology on the RIIO2 price controls for electricity distribution beginning in April 2023.
NEA embraced the proposal for a single output delivery incentive (ODI) for vulnerability following “the rejection of many vulnerability ODIs and confusion over the new use-it-or-lose-it allowance” in the draft determinations for the gas distribution sector. It said the proposed value of the incentive at plus or minus 0.5 per cent of base revenue would be more suitable than the “low sums” offered by the vulnerability allowance for gas distribution.
“However,” it added, “Ofgem must take action to ensure that DNOs have the confidence to invest in their vulnerability strategies, given that they will only receive the reward or penalty in an ex post fashion.”
NEA said networks must receive early feedback at the draft determination stage and performance assessments during and after the price control: “Without this, and because of the ex-post nature of the incentive, we are not confident that DNOs would fully commit to their plans.”
The charity also praised Ofgem’s proposal to introduce an overarching license obligation on DNOs to treat all of their customers fairly, describing it as “a good start”. But it said there should likewise be a requirement on networks fully consider the concerns of vulnerable customers as part their transition to a DSO model, “integrating them into the solution at the start, rather than fixing unintended consequences with add-ons at the end.”
“NEA fully believes that DSOs of the future should have a core responsibility to ensure that their work to protect vulnerable customers and integrate them into solutions is as important as cultivating and adopting their operations to adjust for the growth of EVs and heat pumps.
“…Ofgem must work to consider how that the full-scale adoption of these options we note above can be achieved in the next price control. This will not be achieved through broad incentives, but by more prescriptive baselines and expectations.”
It said the regulator should introduce a new mechanism to allow low-income households to upgrade their connection at no upfront cost.
Furthermore, the NEA said the price controls must “fully consider” the effect of Covid-19 on household finances and the affordability of energy, stating: “There is a reasonable chance that the impact of this on consumer will be more material than the impact of decarbonisation for the period of the GD2 price control.”
The charity urged Ofgem to reconsider its previous decisions concerning direct interventions by DNOs to improve the energy efficiency of customers’ homes and said the efficiency of behind-the-meter appliances should be considered as part of their strategies for reducing energy losses.