RIIO-ED3: Gearing up for the next electricity distribution price control period

RIIO-ED3 is the third round of Ofgem's performance-based price control framework, covering the 2028-2033 period.

It comes at a pivotal time, as the UK pushes forward on its path to Net Zero by 2050 and targets the Government’s Clean Power 2030 ambition. This phase will demand major grid upgrades to support more renewables, the electrification of transport and heating, and technologies like storage and flexibility services - all while maintaining the high levels of reliability and safety customers expect.

For Distribution Network Operators (DNOs), the challenge is clear. Unprecedented levels of investment are needed, while keeping energy affordable during a cost-of-living crisis.

Ofgem's focus - Balancing efficiency, investment and flexibility

Ofgem is aiming for a framework that delivers real efficiency while unlocking the investment needed for the energy transition. Its focus areas include:

• Rigorous cost assessments using benchmarking and unit cost analysis
• Output incentives tied to customer outcomes
• Strong consumer protection through price caps and service standards
• Flexible mechanisms to manage uncertainty around Net Zero timing and technology uptake

Ofgem wants to see value for money and clear accountability. That means setting tough efficiency targets to keep bills down, but also ensuring the right upgrades happen in the right places, at the right time. Flexibility is key - investment must be able to scale quickly in response to EV and heat pump uptake. In return for funding, DNOs will need to deliver strongly on outputs like reliability and customer service.

What customers expect - Reliability, fair pricing, and low-friction green adoption

Customers want reliable, affordable energy - and they want it with minimal fuss. They expect:

• Low disruption during the transition
• Fair pricing
• A reliable grid with few outages
• Easy and affordable access to green tech (like EV chargers and solar panels)

They’re also placing more value on transparency, environmental responsibility, and proactive communication - especially during outages. A strong RIIO-ED3 plan will need to show how vulnerable customers will be protected, how costs will be kept fair, and how any bill increases will be clearly justified.

DNO priorities - Certainty, flexibility and support for innovation

For DNOs, certainty is crucial. They need a regulatory framework that supports long-term planning and allows sustainable cost recovery for the investments ahead. That includes:

• Upfront funding for capacity upgrades before demand hits
• Recognition of innovative solutions like battery storage, flexibility, and digitalisation
• Flexibility to adapt to regional differences and uncertain Net Zero scenarios
• Incentives that reward performance in safety, reliability, and customer service

DNOs also need clear backing for their role as Distribution System Operators (DSOs), along with timely cost recovery through uncertainty mechanisms - so they can take on new responsibilities without taking on unmanageable risk.

What a ‘good’ RIIO-ED3 looks like for everyone

A strong RIIO-ED3 framework will strike the right balance between competing needs. It will pair stretching efficiency targets with the investment allowances needed to modernise the grid. It will use smart benchmarking to reflect regional differences, build in flexibility for emerging demands, and reinforce output incentives that align with customer outcomes.

Success will depend on balancing the priorities of all key players - Ofgem’s drive for efficiency, customer demands for affordability and service, and DNOs’ operational needs. If that balance is achieved, RIIO-ED3 will be seen by all as a ‘good’ plan - delivering the UK’s 2030 clean energy ambitions at least cost, without compromising on reliability or service.

If you’re a DNO preparing for RIIO-ED3, we can help. Contact Mark Hewett or Chris Thoms to discuss how we can support your strategy and planning.