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British utility regulators are in the midst of a major change as they seek to spur £32 billion of upgrades to the country’s aging distribution networks by decade’s end. To achieve its goals, the government’s utility regulator, Ofgem, has put the responsibility squarely on the utilities, which need to develop robust business plans informed by engagement with their customers.
The mandate to improve infrastructure and service quality -- while simultaneously preparing for a low-carbon, distributed electric system -- is a big ask for traditional utilities.
Commenting on this, Hannah Cook states: “All network companies have been conditioned to be risk-averse. They were focused on costs rather than what they were getting for their money, and they were focused on the regulator rather than the customer. Ofgem is trying to change their culture so they’re more innovative.”
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Ljubomir Mitrasevic added: “RIIO is an outward-based incentive. Ofgem doesn’t tell you how many transformers you need to replace or upgrade. Instead, it says you need to meet the relevant output measures such as safety, reliability, regulatory obligations and others.”
Ljubomir concluded: “It’s an asymmetrical incentive, as there’s no downside. If you innovate, you can fail, and the regulatory framework allows you to do this. It’s a learning experience for the wider public.”