Helping you make sense of the energy and water sectors


In this insight paper we discuss:

The focus of this paper is on the early stage development of the RIIO-ED2 price controls, starting in April 2023, and regional flexibility markets. It covers:

  • Potential new roles for distribution network operators (DNOs) as they transition to a more active role as distribution system operators (DSOs)
  • Ofgem’s announcements to date on its policy for regulating distribution system operators
  • Challenges for the regulatory in managing the uncertainty of the DNO to DSO transition when setting a five-year price control
  • Pros and cons of the regulatory approaches which Ofgem could pursue

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Andrew Enzor, Cornwall Insight , Senior Consultant commented

"The RIIO-ED2 price controls come at a critical time for the development of regional flexibility markets. Ofgem clearly recognizes this, given the importance it has put on announcements it has already made on its policy for regulating DSOs. It is important that arrangements under RIIO-ED2 are robust to a variety of outcomes, avoiding “locking-in” some aspects of DSO activity. Regional flexibility markets need time and space to evolve as they become embedded within broader market arrangements – a key challenge for RIIO-ED2."