What Does RIIO 2 Mean?

ROII 2 or Revenue = Incentives + Innovation + Output is the replacement for the first network price control ROII 1 which will be in effect from 2021 – 2026 and this will control what revenues the UK Transmission and Distribution Network Operators (DNOs) can make. This ensures the companies that run gas and electric have enough revenue to run their networks efficiently and that the consumers get their commodity at a reasonable price.

The Networks are required to provide their spending plan for the network investment during the duration of ROII 2 which will be reviewed by the regulator, Ofgem. There were significant reductions in the spending plans of network owners from Ofgem’s summer draft however, the final determinations had an increase bringing it within the lines of current levels at 16% but this is below what was requested.

The important number for consumers within the final determination is the percentage of returns the network owners can make on their investments which will be at 4.3%, a huge drop from the current 7.8%. This means there will be a large reduction in costs, as much as £2 billion.

How Does Network Price Control Help?

The price controls from Ofgem have a large influence on the prices which consumers pay for the TNUoS (Transmission Network Use of System) and DUoS (Distribution Use of System) costs which make up large proportions of your commodity bill. These rates will last 5 years as each price control runs for 5 years at a time.

This also impacts the rate at which network owners can transmission to net-zero as they need to fund investments on green projects and reducing the production of emissions. As it is not yet clear what investments will need to be made to become net-zero – Ofgem have allowed a further £10 billion to go towards net-zero investments instead of risking a higher allowance.