Electricity Network Investment and Regulation for a Low Carbon Future

The requirement for significantly higher electricity network investment in the UK seems certain as the capacity of distributed generation and large scale renewables increases on the system. In this paper, which forms a chapter in the forthcoming Book “Delivering a Low Carbon Electricity System: Technologies, Economics and Policy” 2 , the authors make a number of significant suggestions for improvement to the current system of network regulation. First, they suggest that the RPI-X system needs to be overhauled in favour of a simpler yardstick based system and which allows for more merchant transmission investments. Second, future regulation should involve more negotiated regulation involving agreements between network owners and purchasers of network services. This would be particularly advantageous for decisions on new network investments. Third, more extensive use needs to be made of locational pricing within the transmission and distribution system in order to facilitate the least cost expansion of low carbon generation, including micropower. Fourth, consideration needs to be given to ownership unbundling of distribution networks from retail supply. This would better facilitate the entry of distributed generation and the development of appropriate competition between grid and off-grid generation supply and demand side management. Finally, there needs to be a significant increase in R&D expenditure in electricity networks supported by customer levies. JEL Classification: L94