Regional flexibility | network companies and Ofgem need to tread a delicate balance

The third in the series of research papers from Cornwall Insight in partnership with Complete Strategy and Shakespeare Martineau has been released. Future Networks – RIIO2-ED2 investigates the interaction of regional flexibility markets with network company price controls.

Key findings of the report are:

  • The transition from Distribution Network Operator (DNO) to Distribution System Operator (DSO), where electricity is actively managed at a distribution level, presents a new set of challenges for Ofgem.
  • Ofgem will need to seek to address these challenges in the next electricity distribution price control RIIO-ED2*.
  • In particular, Ofgem will need to decide the extent to which the regulatory framework facilitates or drives the transition to DSOs.

Stuart Cook, Managing Director at Complete Strategy, said:

“Ofgem and the industry are approaching RIIO-ED2 in the context of considerable uncertainty. As DNOs transition to become DSOs, both the destination and the pace of change are unclear. For the benefit of the transition to be fully realised by customers, the regulator will need to push against the boundaries of historical regulatory practice and work with the industry to promote innovation.”

Andrew Enzor, Senior Consultant at Cornwall Insight, said:

“Work on the RIIO-ED2 price controls comes at a crucial time for the development of regional flexibility markets. If implemented well, developments to the existing price control structures could enable those markets to flourish, providing greater optionality to network companies in developing their networks.

“However, there is also the risk of poor long-term outcomes if decisions made now constrain future opportunities. The network companies and Ofgem have a delicate balance to tread, maintaining highly reliable networks while minimising costs in the interests of end consumers.

“Ultimately, harnessing that flexibility from a wide user base will be in the interest of all consumers and the network companies themselves.”


Notes to Editors

*RIIO-ED2 – A developing policy framework for the next price control for electricity Distribution Network Operators under the RIIO (Revenue = Incentives + Innovation + Outputs) framework.

To receive a free copy of the research paper: Future Networks – RIIO2-ED2, please click here.

For more information, please contact: Charlotte Nelson at or 01603 542 121

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About Complete Strategy

Complete Strategy works in partnership with regulated companies to develop and deliver regulatory change and compelling strategies. The team takes pride in providing practical strategic and regulatory advice and often works alongside client teams, supplementing their own capabilities. Complete Strategy is a network of experienced consultants with a track record of providing the highest-quality advice for its clients. The team has worked with and for economic regulators, government departments, regulated companies and investors. The team has direct experience of over 20 different price control reviews, spanning energy, water and telecommunications.

About Cornwall Insight

Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes, and policy frameworks and a practical understanding of how markets function.