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UTILITY WEEK | 9TH - 15TH DECEMBER 2016 | 21 Operations & Assets as usual during the LCNF could have been quicker as well. All networks can learn from the findings, and they must take these on board when applying for Network Innovation Competi- tion funding (the successor to the LCNF). The companies should also develop a coherent, industry-wide strategy for using innovation. Involving more third parties in innovation is also critical. Non-network companies have good ideas that are not currently being taken forward because they need a host DNO to work with. They have the skills and technol- ogy to make the projects work and they can also help to ensure best practice is followed and shared. For now we are telling network companies to ask third parties in a more for- mal way to come forward with proposals, so that there is a clearer call for them to get involved. To go further we would need gov- ernment legislation. Our price control formula for network regulation requires companies to develop outputs that their stakeholders want them to deliver. These include, for example, quicker connections and better customer service. When we next come to review the price con- trols, we expect the companies to show us how they will use innovation to deliver those outputs at lower costs for customers. In this way, innovation has to become a core part of each company's business. To sum up, the Great Britain market faces a major challenge to adapt to a low-carbon economy and the role networks play in help- ing this is very important. Our review into innovation funding is not about criticising the companies for what they have not done. The review explains the progress that has been made and recommends what needs to happen to build for the future. Prior to the LCNF, the amount of innova- tion companies were using was minimal, so things have improved. But there is still a long way to go and it's clear that we need a collec- tive effort – one which pools the expertise of third parties, networks and industry experts to get us to the next level. Jonathan Brearley, senior partner, networks, Ofgem Analysis Can DNOs deliver more for less? Ofgem's review has led to the innovation budget being cut by £20 million, but does it matter? Utility Week finds out. T he energy regulator's review of the Low Carbon Networks Fund (LCNF) has seen it trimmed from £90 million to just £70 million. The decision comes as Ofgem aims to ensure the projects conducted under the new regime, the Network Innovation Competi- tion (NIC), represent good value for money for bill payers. However, the move seems slightly odd as the distribution network operators (DNOs) have not gone up to this upper limit. Under the LCNF regime and the £90 million limit, £46.8 million was applied for, with only £33 million being awarded. Chiltern Power director John Scott told Utility Week there are two things that have prevented the DNOs reaching the upper limit of the available funding. "There is no shortage of projects, so it is not that," he said. Scott stated it is the regulatory boundaries and the amount of red tape in the application process that partially discourages DNOs from applying. "The programme also stretches the DNO resources," mean- ing they will pick and choose their projects carefully. UKPN director of strategy and regulation Suleman Alli confirmed that there is not a shortage of innovative ideas coming through, but that it is very much a case of "quality over quantity". However, he paid tribute to Ofgem for introducing the LCNF and its replacement NIC funding, saying: "It has been absolutely vital. You have got to pay the regulator their dues, they've done a fantas- tic job in ensuring funding is available for the industry to trial and experiment with these new technologies. And it is paying dividends." Explaining the rationale behind the cuts, Ofgem senior partner for networks, Jonathan Brearley (see le), said: "Our challenge to the companies is to build on this progress and become high-level inno- vators, while delivering more for less. We need a more innovative grid which will allow consumers to get the most out of their smart meters, which are being rolled out across the UK." The move to cut the innovation funding available may not imme- diately hamper the DNOs' efforts, but as the adoption of technol- ogy and its trialling continues to grow, it may eventually become an issue. However, in the short term, it is unlikely to be a problem. Funding possibility for third parties Ofgem has also announced plans to investigate, in partnership with the government, whether to change legislation to allow third parties to bid directly for funding. The regulator said it is "keen" to see DNOs working in partnership with third parties as these can bring "fresh ideas and new approaches". The estimated net benefits of the LCNF if the companies trialling the technology implement it has been calculated to be £1 billion – three times the cost of the schemes. This could increase to between £4.8 bil- lion and £8.1 billion if the innovation is adopted by all DNOs. The review also showed that the projects trialled through the LCNF are expected to save up to 215 million tonnes of CO2 over their lifetime. NOMINAL SPEND ON R&D FOR SPEN, UKPN, WPD AND NPG, 2010-15 40 30 20 10 0 2010/11 2011/12 2012/13 2013/14 2014/15 £m SPEN, UKPN, WPD and NPG total SPEN, UKPN, WPD and NPG without LCNF