ReportsandReports - Ofgem's RPI-X@20; next stop RIIO
Ofgem's RPI-X@20; next stop RIIO
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Ofgem's existing regulatory model, now 20 years old, was devised with the goals of driving economic efficiency and ensuring network reliability. In July 2010, Ofgem published its proposed new network regulation methodology RIIO, an outcome of its RPI-X@20 review. The proposal will have a wide-ranging impact on the future of the UK's energy networks, meriting close analysis by all stakeholders.
Scope
- An overview of Ofgem's existing network regulation model in the context of its historical circumstances and evolution
- An assessment of the growing challenges and critiques that the current network regulation model RPI-X is facing
- A guide to the proposed new regulatory framework RIIO outlining its key risks and benefits for investors, network companies, and consumers
- An analysis of the potential impacts on infrastructure investment and regulatory models elsewhere
Given the infrastructure challenges of the 21st century it is now essential for Ofgem to evolve its network pricing model to address the growing need to decarbonize the UK economy. To assist this goal Ofgem's new proposed model encompasses a longer-term approach toward financing and managing energy networks than the regulator's current model.
RIIO will enable network companies to benefit financially from a list of incentives for over-performing on a broad range of outcomes, and aims to distribute the costs of obtaining networks fit for purpose more equitably between current and future consumers. In particular, the role of third party engagement is strengthened.
The proposed network has the potential to become an international example of forward-looking regulation designed to attract the investments required to meet a range of goals. While costs for consumers are ultimately going to increase, maintaining the status quo is not an option.
Reasons to Purchase
- Understand Ofgem's new regulatory proposals and why the changes are absolutely vital to attract investment and improve innovation across the networks
- Develop your opinion on the likely changes facing your utility including the potentials for business opportunities and associated risks
- Formulate arguments for lobbying and campaigning
DATAMONITOR VIEW 2
Catalyst 2
Summary 2
ANALYSIS 3
The role of energy regulator Ofgem has grown to suit consumers and the government's changing requirements 3
For the last 20 years, RPI-X has been a success in terms of delivering a range of benefits to its stakeholders 4
RPI-X has attracted significant levels of private investment into the UK's energy network 4
Customers have for a long time benefitted from low and stable distribution charges as part of their energy bills 5
Stakeholders are also increasingly concerned about whether the existing model is fit for purpose 6
From RPI-X to RIIO: Ofgem is proposing an evolutionary new model to transform the gas and power networks 7
RIIO's key function is to attract investment and business plans with greater long-term perspectives 7
Components of the RIIO model 8
RIIO is strongly oriented toward offering carrots rather than waving sticks for achieving its various goals 8
Network companies have to go beyond capex and deliver a range of tangible and intangible outputs 8
RIIO promises a multitude of advantages for its stakeholders 9
However, change could also entail risks and potential drawbacks 10
To ensure its success in meeting its various goals, Ofgem's proposal relies on feedback from all stakeholders 11
RIIO is an innovative proposal that has emerged through patient engagement with its stakeholders 11
RIIO could become an example of future-oriented regulation to assist the transition to a decarbonized network 11
APPENDIX 13
Ofgem's history of price control reviews 13
Methodology 13
This Position Paper explains Ofgem's proposal, and sets out Datamonitor's views on the issues raised. 13
Ask the analyst 13
Datamonitor consulting 13
Disclaimer 14
List of Figures
Figure 1: Average distribution network charge (€c/kWh) payable by different customer groups in Great Britain, 2005-09 5
Figure 2: Components of the RIIO model 8
Figure 3: Over the years, a number of price control reviews have been implemented for both gas and electricity transmission and distribution networks 13
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