Networks to keep innovation profits

Network companies could keep the profits they make from investing in innovation, under new proposals from regulator Ofgem.

Currently, all profits from projects funded by the Network Innovation Competition (NIC) must be returned to customers. However, the regulator is proposing new rules that would see networks and third parties allowed to keep any underspend resulting from efficiency, or revenue generated from means other than intellectual property, if they have invested their own funding in the projects alongside NIC cash.

The default position will still be that all underspend from NIC projects is returned to customers. However, under the proposed change to the funding return mechanism, the licensee will have the option of requesting a redistribution of the money to other parties to reflect any financial contributions they have made.

The regulator said this was justified because customers benefit from projects going ahead with network and third-party funding, requiring less support from the NIC.

Ofgem added that that NIC projects have already returned underspend, but it feels “it would be better to clarify the default position to avoid any confusion in the future.”

The NIC funding mechanism already allows network companies to fund projects by receiving payments through National Grid Electricity Transmission for electricity and from National Grid Gas for gas.

It also already allows money to be returned to customers when a project is halted, when money is spent not according to the agreed project directive and when a project has received revenue from intellectual property.

The consultation will close on March 29.

The future of the NIC is currently under separate review by Ofgem, with calls from industry to open the competition up to third parties. Ofgem is ultimately hoping to remove the need for subsidies for innovation as it becomes business as usual for network companies.