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Ofgem’s review has led to the innovation budget being cut by £20 million, but does it matter? Utility Week finds out.
The 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 Competition (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,” meaning 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 fantastic 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 left), said: “Our challenge to the companies is to build on this progress and become high-level innovators, 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 immediately hamper the DNOs’ efforts, but as the adoption of technology 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 billion 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.
Read Ofgem, senior partner for networks, Jonathan Brearley’s exclusive column here.
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