Ofgem proposes cuts to National Grid allowance

Energy regulator Ofgem has proposed cutting £185.4 million from National Grid’s budget for maintaining and upgrading the electricity and gas networks.

The watchdog sets the amount of money that National Grid is given by the UK Government to maintain and upgrade the network in its role as system operator.

The proposed cuts are part of the mid-period review laid out under the “Revenue = Incentives + Innovation + Outputs” (RIIO) process for 2013 to 2021. Ofgem initially set out the options it was considering back in May.

Extra £21.8m for low-carbon grid

The regulator has proposed to:

  • reduce National Grid’s gas transmission allowance by £168.8m because the Avonmouth gas pipelines it planned to build are no longer needed;
  • cut the electricity transmission allowance by £38.1m because fewer fault protection works are needed due to fewer generators connecting to the high voltage grid;
  • and increase its allowance as high-voltage grid system operator by £21.5m for planning the future of the grid and managing additional supply and demand balancing services.

Taking effect in 2018

Ofgem is consulting on its proposals and will make a final decision this autumn.

Any changes to National Grid’s revenue would take effect from April 2018.

“National Grid welcomes Ofgem’s continued commitment to the clarity and certainty offered by the eight-year RIIO framework, which has started to deliver important benefits for customers,” National Grid said.

Meanwhile Ofgem has announced its response to the Proposed Income Adjusting Event filed by National Grid in May 2016 for the recovery of up to £113m of additional costs in order to contract Black Start capability with Drax and Fiddler's Ferry.

National Grid will recover £95m of the additional costs, reflecting full recovery of the Fiddler's Ferry contract and recovery of 70% of the Drax contract.

National Grid said it was disappointed with Ofgem's decision regarding the Drax contract as it believes the costs could not have been reasonably foreseen.

> Read Ofgem's proposals