Energy companies in plea for more flexibility in RIIO2

Energy companies have called on the government to change the price regulation framework to encourage greater flexibility in the market.

In an open letter to energy and clean growth minister Claire Perry, published this morning, a coalition of energy companies and sustainability groups have claimed that the existing RIIO price regulation framework is “not aligned” to the goal of having a smart, flexible system as outlined in the government’s Clean Growth Strategy.

In the letter, the companies said that technologies highlighted in the government’s Smart Systems and Flexibility Plan, such as battery storage and demand-side response, will lose out to “costly’” investment in network infrastructure under RIIO.

The signatories have called on the government and Ofgem not to waste the “incredible opportunity” provided by RIIO-2, which is currently out for consultation, to transform the incentives for DNOs.

They urged the Department for Business, Energy and Industrial Strategy (BEIS) to work with Ofgem to ensure that the design of RIIO-2 incorporates their Flexibility First principles.

These principals include obliging DNOs to tackle network constraints by procuring flexibility services as a first step, rather than by building expensive new network infrastructure.

They argued that DNOs should also be rewarded for making better use of the existing network, rather than building new infrastructure, such as by making the ratio between maximum capacity and the average load on a network a primary measure for adjusting network company revenues.

They also recommended that rather network companies should be incentivised to help achieve carbon reduction targets at the ‘”owest possible costs” for consumers.

The letter concluded: “By implementing these changes, Ofgem and the government can play a major role in helping the transition to a smart, flexible energy system that will not only enable deep decarbonisation of our society, but also create new jobs and businesses and save energy bill payers.”

The 24 signatories to the letter included Ovo Energy, battery company Moixa and the Renewable Energy Association.