Page 16 - Gi flipbook August 2018

REFLECTING

ON RIIO

A pro-innovation and

price paradise or room

for renovations?

By Selina Hinchliffe, Partner at national UK law firm
Browne Jacobson and Andrew Douglas, Legal Assistant
in the energy sector team

IIO-1 (Revenue= ARE THE RIIO-1 PRICE
Incentives + Innovation + CONTROLS WORKING?
Outputs) was introduced In order to evaluate the extent the
by Ofgem in the wake of price controls are working, it is
R the global financial crisis necessary to review how the price
in order to control the pricing of gas controls have affected consumers
and electricity by the energy and the energy networks.
networks. Monopolies of these In a report carried out by Ofgem in
resources exist because of no direct 2016/17, customer satisfaction ratings
competition in these networks, across local gas and electricity
allowing for energy prices to be networks exceeded eight out of 10. A
dictated. Therefore, consumers reduction in the number (48 per
would not benefit from lower prices cent) and length (58 per cent) of
and rises in quality that occur in power cuts since 2001 and either
healthy competitive markets. RIIO-1 stable or reduced network consumer
was designed to artificially create costs are likely to be contributing
free market conditions, ensuring the factors. Almost 540,000 new
networks a level of income that customers have been connected to
covers their costs while maintaining the gas distribution network since
satisfactory profit margins. In turn, 2008 and Ofgem’s Fuel Poor
they adhered to the requirements of Network Extension Scheme has
Ofgem – delivering value to enabled 97,000 households to
customers, ensuring fair practice and access cheaper heating as a result.
meeting Ofgem targets. Today, national network costs are
This article will critically analyse almost a fifth lower than when the
the major aspects of RIIO-1 and electricity and gas sectors were
determine whether or not it has been privatised in 1990 and 1986
successful in regulating the pricing of respectively. Therefore, it is evident
gas and electricity supply and that price controls are benefitting
promoting innovation within the the consumer.
energy networks. It will then Along with consumer savings,
consider the prospects of RIIO-2 and energy networks have been able to
the subsequent role of Network achieve substantial profits as well as
Innovation Allowance (NIA) and continued reinvestment into the
Network Innovation Competition (NIC). networks. In light of the reported

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