On Tuesday (1 July 2025), Ofgem announced its draft determinations for Electricity Transmission Owners (TOs) to cover the period 1 April 2026 – 31 March 2031 (RIIO-3). The Ofgem price controls cover Electricity Transmission (ET), Gas Distribution (GD), and Gas Transmission (GT). In December 2024, the network companies in these sectors submitted their RIIO-3 Business Plans for this Period to Ofgem. The Electricity Transmission price controls are of particular note and are the focus of this article.
What is the RIIO?
The RIIO (Revenue=Incentives+Innovation+Outputs,) is a regulatory framework used by the energy regulator, Ofgem. Ofgem introduced RIIO to set price controls to ensure consumers pay a fair price for vital investment to ensure network companies provide a safe, reliable, and efficient service, whilst encouraging innovation and setting out how much network companies are allowed to collect from consumers.
Current RIIO-2 ends on 31 March 2026, following the draft determinations plans submitted by network companies. Ofgem is now consulting on the Draft Determinations for RIIO-3, which will come into effect on 1 April 2026. Ofgem has recently proposed a total allowed revenue of £24.2 billion over the RIIO-3 period; this money will have to cover operational costs, investment in infrastructure upgrades and expansions, as well as other expenses.
What is the Transmission Revenue Limit?
The TOs operate a monopoly; there is no market competition, and each of the three TOs is the sole transmitter of high-voltage power for its respective areas. Given that TOs face no market competition, a lack of strong price control could lead to inflated transmission costs. Additionally, there would be little incentive for TOs to innovate or invest efficiently, as consumers would bear the pass-through costs of inefficient spending.
To prevent these problems, Ofgem places an upper limit on the total revenue TOs can generate within a given RIIO period. The TOs share this limit, which is applied nationally and shared by the UK’s three TOs. In the event they do over-or under-recover, the difference is subtracted from or added to the following period’s limit, ensuring that the TOs recover no more or less than the limit Ofgem approved for them.
The £24.2 Billion Limit
While exact, aggregated figures for the electrical transmission revenue limit specifically are not available, in RIIO-2 (1 April 2021 – 31 March 2026), the limit was around £12-13 billion. In December 2024, the TOs published their RIIO-3 business plans and, following this, Ofgem summarised their proposals as amounting to £32.7 billion in total. The reasons stated for this hike in the coming period, as compared to the current one, are as follows:
- Transmission Network Reinforcement: As more offshore production comes online, sub-sea cables and new transmission lines need to be built, installed, and maintained. This process is both urgent and very costly, with most of the costs being up-front.
- Capacity Upgrades to support electrification: As businesses and local governments increasingly electrify their operations, transmission grid expansion is essential to accommodate ever-growing demand for electricity.
- Replacing Old Infrastructure and Equipment: The National Grid is old, and much of the essential equipment that runs it is ageing and approaching the end of its life. The replacement of such infrastructure is the responsibility of the TOs and is, of course, not free.
- Governmental Net Zero Targets: New renewable energy generation sites are coming online at an increasing rate, and all need to be connected to the National Grid. Again, the TOs incur costs in establishing these new connections.
Ofgem largely accepted the TOs’ reasoning and the request for a higher revenue limit, but only raised the limit to £24.2 billion, stating insufficient justification for the full sum, while also hoping to encourage more careful and efficient spending of the TOs’ money. By keeping the limit lower, Ofgem ensures that end consumers cannot be overcharged, be it to cover inefficient spending or simply to improve profitability.
The increase from ~£13 billion to £24.2 billion represents a ~86% increase (without adjusting for inflation). This is a far larger rise than the National Energy System Operator (NESO) estimated rise of 25%, predicted in April 2025.
Can the TOs Request More?
The TOs, naturally, would prefer a higher limit to a lower one. They have the following means for requesting a higher revenue limit:
- Uncertainty Mechanisms: When the RIIO conditions are drawn up, certain conditional triggers are agreed upon. In the event of these conditions being met, TOs can submit adjustment claims, including asking for a raise to the revenue limit.
- Re-opener Windows: In 2028, there will be a mid-period re-opener window, during which TOs can lobby Ofgem for revisions to the original terms committed to at the start of the period. That said, the TOs are expected to provide strong arguments to justify their requests, and acceptance is far from guaranteed.
- Material Change Adjustments: In the event of a major disturbance to the energy climate of the country, TOs can apply for what is effectively an emergency adjustment to the period’s terms. While these events are uncommon, recent years have shown multiple examples of such shifts, such as the war in Ukraine’s effects on European energy markets.
What is the Effect on your Electricity Bills?
The significantly higher electricity transmission revenue limit compared to the last period will, naturally, have a similarly significant effect on a given consumer’s Transmission Network Use of System (TNUoS) charges.
The level of impact of the non-Locational demand residual (Fixed £/Site/Day) charges and Half-Hourly Demand Tariffs (TRIAD Charges) is yet to be announced, but is expected to be felt disproportionately, with a larger financial impact expected to impact energy-intensive sites with High Voltage meters. The exact impact remains to be seen as the charges for the period starting April 2026 are to be published by the National Energy System Operator (NESO) by 31 January 2026 latest.
NUS will issue further updates when available. Should you have any questions relating to TNUoS or non-commodity charges, please contact your Consultant.
How can NUS support with Non-Commodity costs?
If you are an organisation that would like to understand how NUS can support in optimising your non-commodity charges, please contact us