Page 18 - Gi flipbook August 2018

Reflecting on RIIO

profits of £7.5 billion made by energy
networks, Citizens Advice has said that
the networks are underperforming and
called for a customer rebate. However,
based on the previous information,
this allegation would appear false.
Nevertheless, Ofgem has stated that
tighter price controls will be
considered for RIIO-2.
HOW HAS RIIO PROMOTED
INNOVATION?
From an economics perspective, it is
argued that if prices are pushed too low
this will have an adverse effect on the
quality of the good/service supplied.
Currently, price controls on energy
networks have resulted in industrial
innovation. The large profits
generated have led to continual
network investment. Although
Citizens Advice has said that recent
profits are unjustifiable, there is clear
indication that this money has been
reinvested in innovation within the
networks. A key example of this is the
replacement of over 38,000km of local
gas mains since 2007. Ofgem has also
promoted innovation through the NIA
and NIC funding. The money was to be
made available on a short term basis to
encourage the networks to start
undertaking innovation development
projects, look for low carbon solutions
and to drive efficiencies on the
networks for the benefit of customers.
Many of the networks have benefited
from NIA and NIC funding, which has
been used to fund innovative energy of NIC funding for gas projects to just CONCLUSION
projects across the sector. An excellent £20 million per annum, some are So far, RIIO-1 has been successful in
example that benefits the environment wondering whether RIIO-2 will slash promoting innovation and ensuring
is the collaborative HyDeploy project, funding further to push networks to lower prices of energy for consumers.
which is exploring the potential of reinvest their profits. There is a real concern that tougher
injecting zero-carbon hydrogen into the Although price controls under RIIO price controls, likely to arise in RIIO-2,
natural gas network. From our analysis, last for eight years, there will not be could create a hindrance to the
it is evident that the NIA and NIC transition concurrently to RIIO-2. The current progression of high levels of
schemes have promoted innovation and current price controls for gas innovation by energy networks.
that the networks have been driven to distribution and transmission will end Further clarity is required from Ofgem
pursue innovation themselves. The on 31 March 2021. The future of price of the role of NIC and NIA in RIIO-2 in
obvious challenge now is ensuring that controls are anticipated to become the light of the predicted tougher
innovation can be implemented as tougher as a result of recent profit price controls and recent controversy
everyday business practices. controversy and the UK government’s involving energy networks’ profits. The
decarbonisation policies. Ofgem’s big question on everyone’s lips is: Will
RIIO-2 THE FUTURE OF Jonathan Brearley has promised that the networks be expected to fund this
INNOVATION AND PRICE tougher price controls are forecast for innovation themselves? What impact
CONTROLS energy networks, requiring lower costs will this have on collaboration within
Ofgem’s open letter on the RIIO-2 and better service quality from the sector and profit lines? ■
framework made no indication as to network companies. Currently, there is
the role of the NIA and NIC schemes no indication how tough these price ■ Browne Jacobson LLP is a national
in the future framework. With the controls will be, but they should not law firm with offices in Birmingham,
recent controversy over the high level be at the expense of preventing energy Exeter, London, Manchester and
of profits achieved by energy networks from continuing their current Nottingham. For more information,
networks, and a reduction in the level levels of innovation in the sector. visit www.brownejacobson.com

18

ReflectingOnRIIO.indd 3 19/07/2018 12:47