The next regulatory settlement for networks will be tougher on investors, but simpler, Ofgem’s senior partner for networks, Jonathan Brearley, told delegates at the Network Asset Performance conference in Birmingham last week.

Brearley reiterated comments, first made in an open letter to the market this summer, that “the next set of price controls will be tougher on investors than this one”. He said it was crucial to maintain public confidence in the price control.

Brearley promised that a tougher price control wouldn’t mean the end of investment, including investment in innovation. He said: “It does look as if returns may come down, and we think we can do that within a price control that delivers the sort of customer benefits we have seen to date.”

Ofgem recently concluded its first consultation on the overarching framework for the next regulatory settlement, RIIO2. Two of the main points for debate are the length of the settlement, with some suggesting it should go back to five years from the current eight to mitigate growing uncertainty; and the question of whether the transmission and distribution price controls, and the gas electricity price controls, should be aligned.

Brearley acknowledged: “It’s pretty clear nobody is very good at predicting the future.” A key architect of Electricity Market Reform during his time as the senior civil servant at the Department of Energy and Climate Change, he referenced the recent contracts for difference auction which saw offshore wind clear at £58/MWh, saying: “That’s 60 to 100 per cent less than we would have thought at the time.” Brearley added “uptake [of renewables, eg solar panels] has accelerated way beyond what we would have thought”.

Other speakers at the conference, organised by Utility Week’s sister title Network, highlighted the rapid growth in renewables and the pressure this puts on network capacity. They also highlighted the innovation that has emerged to mitigate the pressure. UKPN’s head of regulation and strategy, Suleman Alli, said: “In 2010, we would have had 800 connection applications [for generation] per annum – that’s gone up to 9,000 per annum. You can’t cope with an influx like that unless you innovate.”

There was a consensus among speakers that a series of solutions will be required as networks meet the energy transition, or what Alli called a “medley” of solutions. These include innovation and new technology; whole-system solutions and new models of cross-vector working; changing consumer behaviour and smart technology in the home and on the grid. This will drive the smarter use of assets, with maintenance and replacement carried out on the back of risk assessment rather than more simple models such as the age of the asset.

Five key themes

1.    Ofgem gets tough

Ofgem is expecting networks to deliver more for less in
RIIO2.

2.    Medley

There’s no single solution for asset management in the energy transition. A “medley” of solutions will change the way assets are managed, creating opportunities for networks to drive efficiency and add value.

3.    Whole-system planning

Whole-system planning will become the norm, with cross-vector solutions commonplace.

4.    Data is key

Making effective use of the mountains of asset data now available can drive new behaviours and greater efficiency.

5.    Next-generation innovation

Innovation won’t end with RIIO1 – but continued dedicated funding is essential.

Phil Lawton, practice manager – power systems, Energy Systems Catapult

“The future is not just going to be an extension of the past.”

Suleman Alli, director of strategy and regulation, UK Power Networks

“Innovation is not about spreadsheets, it’s about the people in the business.”

Philip Dingle, director, Lucy Electric

“We must ­understand the value and ­implications of the data available.”

James Yu, head of future networks, Scottish Power

“We are here for one purpose: to serve the customer.”

Quentin Mabbut, innovation delivery manager, National Grid Gas Transmission

“Don’t give me more data – give me the answers from the data.”

Jonathan Brearley, senior partner for networks, Ofgem

“It’s pretty clear nobody is very good at predicting the future.”

Keith Owen, head of systems development and energy strategy, Northern Gas Networks

“If we can use this smart technology to take just a few percentage points off [gas peak load], we can save a lot of money to give back to our customers.”

Stewart Reid, head of asset management and innovation, SSE

“Innovation is really important in understanding risk, so you don’t dive headlong into a black hole.”

Jeff Casey, senior electrical engineer and project development, Burns McDonnell

“The electric grid is exposed to system risk, so how do we plan for this – and prevent it?”

Qinlin Chen, vice president, wireless marketing; head of industry, wireless marketing, Huawei
“A dedicated wireless network helps to build an all-connected smart grid.”