Mark Sprawson: How will ED2 strike the balance between keeping prices down..?

Each new price control that comes along for network operators always feels like it presents a different challenge. But the upcoming RIIO-ED2 truly feels like the dawn of a new era for the sector.

We’ve got the transformational change from DNO to DSO and everything that this entails set against the backdrop of the UK moving to Net Zero. More so than normal, all eyes will be on the RIIO ED2 consultation and the direction of travel that Ofgem takes.

A distribution network exists, fundamentally, to serve its customers. In the past, this has meant providing levels of performance adequate to meet the needs of passive customers; those people who just want to know the power will be there when they flick the light switch. It has also meant managing assets efficiently and catering for expected demand growth. Increasingly this ‘demand’ growth should also consider ‘renewable generation’ growth and the adoption of flexible connections and active management of networks to facilitate this is now firmly embedded in business as usual.

But what about the drivers in ED2? Increasing volumes of connections of new types, such as electric vehicles, storage and heat pumps will undoubtedly pose challenges. There will be increased pressure on price; something we have already seen in previous RIIO2 announcements. There will be the need to act as a neutral facilitator of local energy markets (part of the role of a DSO), something that DNOs will need to adopt new skills and processes to achieve. Plus, the need to cater adequately for the changing role of some customers to prosumers.

However, some key points to note here are that only some customers will want to participate in the market and act as prosumers. It’s equally important that DNOs (or DSOs) should still meet the needs of the passive customers we mentioned earlier. It’s vital that costs for those people who still want to just flick that switch and the lights come on do not go up to cater for the active participants.

It’s also essential that all of the ED2 activity be viewed through a lens of: “how does this help us reach Net Zero”?  Networks can be a fantastic enabler of Net Zero and need to be encouraged and supported to do so. Recent polls have suggested that stakeholders see this as the most important aspect for innovation activity today. How will ED2 strike the balance between keeping prices down and moving towards Net Zero? What are the key measures of success here? If annual customer bills are reduced by £10 per year, but this negates our ability to successfully decarbonise, how much of a success will that be seen as?

Interesting times indeed….