Grid: why slower growth made RIIO acceptable

National Grid was able to accept a radically slashed RIIO price settlement due to slower growth, according to a senior executive.

The network company talked up the “unprecedented level of certainty” for the business offered by the 8-year control as it released its annual results last week.

This contrasted with its outspoken criticism of Ofgem’s initial proposals last August, which entailed deep cuts to National Grid’s business plan. It did not challenge the final settlement despite only minimal concessions from the regulator.

In the two years of negotiation over the price limits, the forecast rate of new generation coming online has dropped due to electricity market reform (EMR) and economic slowdown, said UK executive director Nick Winser.

“The investment plans have come down as both Ofgem and we have looked at the likely timing of investment, particularly in the electricity transmission system,” he said, adding: “Ofgem did move on some elements that caused us concern.”

National Grid reported a 6 per cent rise in pre-tax profits, to £2.7 billion in the year ending 31 March 2012. It is promising to grow dividends at least in line with inflation.

There are some significant challenges on the to-do list: carbon capture and storage (CCS), interconnectors and delivering EMR.

National Grid is promoting a “network approach” to the White Rose CCS project in Humberside, said Winser. The scheme, based around Drax coal power station, is one of two undergoing feasibility studies as part of the government’s £1 billion competition. The other is a gas-fired plant in Peterhead, Aberdeenshire.

“Government could well take forward both – or neither,” said Winser. Choosing one gas and one coal scheme is “pretty sensible” as “it may well be CCS needs to be applied to both”.

Also in development are four interconnectors with capacity totalling around 4GW – to France, Norway, Belgium and Denmark.