Navigating energy network charges can feel like decoding a complex puzzle. How are they determined, why do businesses pay them and what role does RIIO play?
Here, we answer some of the key questions about electricity network charges.
Why do we have to pay energy network charges?
Different providers are responsible for operating and maintaining the routes to transport energy from source, and the energy network charges added to energy invoices pay for these services.
What are electricity network charges?
Transmission Network Use of System (TNUoS) charges are paid to National Grid to maintain the nationwide ‘back-bone’ of electricity pylons. Distribution Use of System (DUoS) charges go to your local Distribution Network Operator (DNO) to bring power to your property.
What about gas charges?
National Transmission System (NTS) charges are paid to National Gas to transport gas around the country, and Local Distribution Zone (LDZ) charges are paid to your local Gas Distribution Network (GDN) operator to bring gas to your property.
How are network charges agreed and regulated?
Providers’ performance and costs are regulated by Ofgem using a price-control model called Revenue = Incentives + Innovation + Outputs (RIIO).
This is a mechanism based on balancing investment in the network, company returns and the amount that each provider can charge for operating their respective networks.
Every five years, providers submit budgets and plans for Ofgem to review and agree the charges.
What are the timescales for RIIO price controls?
RIIO price controls run for a five-year period. However, start and end dates vary for each network service provider. RIIO 1 ran from 2013/15 to 2021/23 and we are now part way through RIIO 2.
- RIIO-T2 (2021 – 2026) – high-voltage electricity and high-pressure gas transmission networks.
- RIIO-ED2 (2023 – 2028) – electricity DNOs.
- RIIO-GD2 (2021 – 2026) – gas distribution network.
How much notice is given of likely costs in a new price-control period?
New price controls start in the April of a five-year period, with costs finalised three months beforehand. Draft costs are shared nine months in advance with business plans published 15 months before.
When will RIIO 3 price controls be agreed?
Final costs for RIIO-T3 (TNUoS and NTS charges) and RIIO-GD2 (LDZ charges) will be released in December 2025. For RIIO-ED2 (DUoS charges), costs are finalised in December 2027.
Are you then able to forecast future network charges?
We look closely at all business plans to identify what could cause volatility and risk, and share feedback to Ofgem. Our aim is to provide clear forecasts for our customers.
However, we cannot factor in possible future government energy policy changes.
Do you expect future network charges to increase – and if so, by how much?
As we transition to a net zero energy system, the cost of adapting and maintaining the network is likely to increase considerably in order to deliver the new networks. Government policy also impacts costs.
Once the five-year price control is agreed for a network charge, can the network provider increase its budget?
Yes. In each price-control period, providers can go back to Ofgem to request additional revenue for projects that may not have been included in their initial plans. This is one of the main reasons for the volatility we see in network charges.
How is RIIO monitored?
Each year, network owners must report their performance against price control to Ofgem. These are published and there are penalties for poor performance.
If you have any questions about RIIO and how it impacts your business, contact us at https://npowerbusinesssolutions.com/get-in-touch
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