Incentive Regulation of Electricity and Gas Networks in the UK: From RIIO-1 to RIIO-2

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Abstract

The regulatory and operating context of energy networks is dynamic and constantly evolving. Achieving a multitude of economic, environmental, social and policy objectives is a challenging task for the sector regulators. In 2010, the UK energy regulator Ofgem replaced its approach to energy network price control and incentive regulation with a Revenue-Incentive-Innovation-Output (RIIO-1) model. This paper reviews the incentive areas that influence the performance of the next version of the model (RIIO-2). Guided by the principals of regulatory economics and evidence in the literature, we discuss key aspects of the regulation model that be revised by the regulator. The lessons of experience from the RIIO models are also relevant for regulators in other countries and can inform their design of incentive regulation of energy networks.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherDepartment of Economics. Copenhagen Business School
Number of pages33
Publication statusPublished - 2020
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number1-2020
SeriesCSEI Working Paper
Number1-2020

Keywords

  • Energy network
  • Incentive regulation
  • Rate of return
  • Cost of capital
  • Benefit sharing
  • Menu of options

Cite this

Jamasb, T. (2020). Incentive Regulation of Electricity and Gas Networks in the UK: From RIIO-1 to RIIO-2. Frederiksberg: Department of Economics. Copenhagen Business School. Working Paper / Department of Economics. Copenhagen Business School, No. 1-2020, CSEI Working Paper, No. 1-2020