Utility Week

UTILITY WEEK | 12TH - 18TH JANUARY 2018 | 19 Policy & Regulation company's RoRE is expected to be 7.5 per cent compared with a baseline cost of equity of 6.8 per cent. The average customer is expected to pay £7 to cover gas transmission costs in 2018/19. Reaction Responding to the reports, Citizens Advice noted that Western Power Distribution is expected to earn £340 million more in profit over the ED-1 price control than predicted. According to analysis by the charity, profit across all DNOs is expected to be £273 million higher than forecast, while earnings by GDNs and NGGT are expected to be £30 million and £50 million lower respectively. "Some energy networks are benefiting from an additional windfall at the expense of customers," says Citizens Advice chief execu- tive Gillian Guy. "Our research shows that energy networks are already raking in £7.5 billion in unjustified profits. The extra profits revealed [on 19 December] are not a reflec- tion of good performance, so it will be diffi- cult for consumers to understand why they are paying for this through their bills. "Electricity distribution companies should follow the example of Scottish and Southern Electricity Networks and SGN, and return money to consumers." Energy Networks Association chief execu- tive David Smith welcomed the reports: "Record levels of customer satisfaction, a halving of the number and length of power cuts since 2002 and costs that are down 17 per cent since privatisation and in recent years are either stable or falling, the annual reports are proof Britain's energy network companies are delivering for households, businesses and communities and the price control system is working, and working well. "As our energy market goes through some of the biggest changes it has faced since it was first set up, these reports make clear how network companies' are building on their track record of performance, afford- ability, investment and innovation to help deliver that change. "We're pleased that Ofgem recognises the hard work and strong performance made by all network companies and we look forward to working with them to deliver continued strong performance across the current price control period and into the next." Earlier in December, Ofgem launched a consultation on a potential mid-review for ED-1. Based on the responses to a call for evi- dence, the regulator said it may expand the scope of the review to cover "financial and incentive performance and design". A decision on whether to proceed with a mid-period review is due in spring 2018. Building on the success of RIIO as we head into 2018 – and beyond A s 2017 drew to a close, Ofgem's annual performance reports on the RIIO price control provided a welcome summary of how energy networks are delivering for the energy market and for households, businesses and communities. Customer satisfaction levels with energy networks now run at almost 90 per cent; the number and length of power cuts have halved since 2002; more than 50,000 more fuel poor customers have been connected to the gas grid since 2013, so they can access cheaper energy; network costs charged to the consumer are either stable or falling. This is against a backdrop of network costs being almost a fih lower than when the sector was privatised – and is a track record that network companies can and should be proud of. Our members, however, recognise there are some areas where there is scope for improvement. For example, the use of innovation by network companies has now become a necessity, in order to support continued decarbonisation and meet customers' expectations. And as we head into 2018, the debate about how we should structure RIIO2 is well underway, but there are other areas where networks can play a wider role beyond the immediate objectives of RIIO1 and its successor. That role is under- pinned by three core strengths. First of these is the sense of place that network companies possess. Whatever impact they have in their work, it is local as well as national, and they employ 36,000 people across the UK. The opportunities ahead are significant. In the next six years network companies are forecast to invest £45 billion. Gas and electric- ity joint Network Innovation Strategies, published in this spring, will set out new routes to market for energy innovators. For electricity networks alone, this could help deliver as much as £1.7 billion of benefits back to the UK energy system over the next decade, and smarter networks have the potential to deliver £5 billion- worth of export benefits. Second is the continued importance of the role of network infrastructure in decarbonisation and the legitimacy of continuing to invest in it for that reason. This will become increasingly important as the government seeks to develop policies to meet the fourth and fih carbon budgets. 2018 will see a focus on a "whole-system approach" because the reality is that if our power, heat, transport and waste sectors are all interdependent, then so must be the solutions for their decarbonisation. As Energy Networks Association (ENA) set out in its response to the Clean Growth Strategy, that approach is based on our gas and electricity networks using the latest low-carbon, smart technologies together in an integrated way. It is also the most cost-effective way to meet that challenge. KPMG research conducted on behalf of ENA has shown that a scenario based on evolving both our gas and elec- tricity networks to help decarbonise our economy could save consumers as much as £214 billion by 2050 compared to a full or near-full electrification scenario. Third is the strength of the price control system as a lever for public policy. The system has proven to be successful in providing the clarity that companies need to invest and innovate, helping meet wider social policy objectives. Gas networks will have connected 91,000 fuel poor households to the gas grid between 2012 and 2021, while delivering funding to fuel-poor households to reduce the cost of those con- nections through the Fuel Poor Extension Scheme. They are tackling decarbonisa- tion through connecting biomethane plants, as well as conducting innovation trials involving synthetic natural gas production, blends of natural gas and hydrogen. This is as well as another project exploring the use of full hydrogen networks. Electricity networks are reducing carbon emissions not just through connecting distributed renewable generation, but also through their own innovation – projects already undertaken could reduce CO2 emissions by up to 250 million tonnes. Under the RIIO framework network companies have made real progress and we should not lose sight of the strong track record developed so far as we think about the challenges in 2018 and beyond. Opinion David Smith Chief executive, Energy Networks Association

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