How we're regulated by Ofgem
As the owner of the high voltage electricity transmission network in England and Wales, we’re classed as a ‘natural monopoly’.
We’re regulated by the energy regulator, Ofgem, which simulates the effects of competition by setting price controls – a ceiling on the amount we can earn from charges to use our network. Regulation also allows us to invest in the transmission networks and run them properly.
Ofgem’s regulatory framework is known as RIIO (Revenue = Incentives + Innovation + Outputs).
The RIIO model offers network companies incentives for innovation and securing investment, so they can develop sustainable energy networks at the lowest cost for current and future customers.
RIIO and our business plans
We submitted our business plans to Ofgem. The regulator reviews and assesses the business plans for the regulatory period, known as a ‘price control’ period.
We're currently in the RIIO-T1 period, which began on 1 April 2013 and runs through to 31 March 2021. You can find out more about the background of this price control on the Ofgem website.
We built our plans for the next regulatory period, RIIO-2, which will start on 1 April 2021 and run until 2026.. These plans are shaped by our stakeholders, which range from customers to manufacturers and Government. You can find out more about the background of this price control on the Ofgem website.
To encourage us to provide additional benefits for consumers, Ofgem uses financial incentives. These can either be penalties or additional revenue (funded by our customers), depending on whether or not we meet Ofgem’s targets.
Ofgem incentivises us to find more efficient ways to work. If we can find cheaper solutions the benefit is shared between consumers and National Grid.
As part of the RIIO framework, there are two funding mechanisms that encourage innovation across the energy industry. These funding mechanisms aim to help make the energy networks smarter, accelerate the development of a low carbon energy sector, and deliver financial benefits to consumers.
The Network Innovation Allowance (NIA) provides an annual allowance to fund smaller scale projects.
The Network Innovation Competition (NIC) is an annual competition to secure funding for large-scale demonstration projects aimed at building a lower carbon future for the UK.
Under RIIO the outputs we deliver are clearly articulated and are linked to the calculation of our allowed revenue. These outputs have been determined through an extensive consultation process, which has given stakeholders a greater opportunity to influence the decisions.
The output categories are:
Safety: ensuring the provision of a safe energy network.
Reliability (and availability): promoting networks capable of delivering long-term reliability, minimising the number and duration of interruptions experienced over the price control period, and ensuring adaptation to climate change.
Environmental impact: encouraging companies to play their role in achieving broader environmental objectives–specifically, facilitating the reduction of carbon emissions–as well as minimising their own carbon footprint.
Customer and stakeholder satisfaction: maintaining high levels of customer satisfaction and stakeholder engagement, and improving service levels.
Customer connections: encouraging networks to connect customers quickly and efficiently.
Our RIIO-2 business plan
Our business plan for the RIIO-2 period runs from 2021-2026.
Our planning involved:
- setting the standards of service we provide
- the investments we make
- how we’ll innovate for the future
- the performance outcomes upon which we’re measured.
We have now submitted our business plan to Ofgem, but that's not the end of the process. We are encouraging everyone who has an interest in what we do to continue giving us feedback.
Find out more about RIIO-2