Utility Week

22 | JANUARY 2022 | UTILITY WEEK Networks Analysis The ED2 business plans innumbers After electricity distribution networks submitted their fi nal business plans for the RIIO-ED2 price controls, Utility Week presents a rundown of the key facts and fi gures and what's changed since the draft plans. D istribution Network Operators (DNOs) have set out plans to spend around £23.7 billion over a ve-year period in their nal business plans for the RIIO-ED2 price controls beginning in April 2023. The gure is up from £23.2 billion in their draƒ business plans in July but some DNOs have reduced the amount they are requesting. The £23.7 billion total represents the aggregate of the headline gures for total expenditure (totex) allowances presented by the companies, although there are some dif- ferences in what those numbers describe. Northern Powergrid has requested £3,307 million of totex allowances, equating to an annual average of £661 million. This repre- sents a 41% increase over the yearly aver- age for actual and forecast expenditure during the current price control period of £469 million. The headline gure includes its baseline assumptions for real price e' ects – addi- tional price increases for DNOs that are not re" ected in the general CPIH measure of in" ation that Ofgem has adopted for the RIIO2 price controls. The regulator plans to set a baseline assumption for real price e' ects that will then be adjusted during the price control period using indexation. Northern Powergrid's nal business plan assumes 941,000 electric vehicles and 309,000 heat pumps will be connected its network by 2028. Load-related expenditure amounts to more than £688 million or almost £138 mil- lion per year. This is more than ve times the yearly average during the current price con- trols of less than £27 million. It notably includes almost £211 mil- lion of spending covered by uncertainty mechanisms. Excluding these uncertainty mechanisms lowers the yearly average for load-related expenditure to almost £96 mil- lion, although this is still almost quadruple the gure for ED1. Their exclusion lowers total expenditure in the business plan to £3,096 million and the annual average to around £619 million, with the latter representing a 32% increase over ED1. Expenditure on non-load-related asset renewal is £678 million, with the annual average rising by 14% to around £136 million. The plan features £378 million of embed- ded eš ciency, including ongoing eš ciency improvements during the course of the price controls of 0.5% per year. Northern Powergrid said the plan would increase its contribution to the average domestic electricity bill from £90.93 in 2022/23 to £91.88 in 2023/24 under Ofgem's latest indicative gure for the cost of equity of 4.65%. It said its bill impact would instead rise to £98.58 under its own proposed cost of equity gure of 5.80%. SSEN has requested totex allowances of £3,994 million or almost £799 million per year. The headline gure is down by £151 mil- lion – nearly 4% – from the £4,145 million of totex allowances requested in its draƒ busi- ness plan. The DNO said this is partly due to the reallocation of spending to uncertainty mechanisms. For comparison, SSEN said its actual and forecast expenditure over the nal ve years of the eight-year RIIO-ED1 price controls is on track for £3,033 million. On this basis, the nal business plan for ED2 represents an increase in spending of nearly 32%. It does not include SSEN's baseline assumptions for real price e' ects, which raise the total to £4,229 million. The nal business plan is designed to facilitate the connection of 1.3 million elec- tric vehicles, 800,000 heat pumps and 8GW of distributed generation by 2028. It features £510 million of load-related investment, more than double the £224 mil- lion of expenditure over the past ve years of ED1 but down slightly from £543 million in the draƒ business plan. Non-load-related asset replacement is up from £757 million in ED1 to £1,050 million but down from £1,105 million in the draƒ plan. The nal plan incorporates £410 million of embedded eš ciency – £269 million car- ried over from ED1 and ongoing eš ciency improvements during the course of the price controls of £141 million – or 0.7% per annum. For customers in its southern licence area, SSEN said its average contribution to domestic energy bills would remain " at at £98 if including its consumer customer prop- osition and its anticipated spending through uncertainty mechanisms. For those in its Scottish license area, the company said its bill impact would rise slightly from £159.40 over ED1 to £163 over ED2.

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