IN Brief:
- Ofgem has published governance arrangements for the RIIO-3 Network Innovation Allowance.
- The framework applies to eligible electricity transmission, gas transmission, gas distribution, and NESO innovation projects.
- The allowance will support network-led projects across digitalisation, flexibility, asset management, and system operation.
Ofgem has published the governance framework for the RIIO-3 Network Innovation Allowance, setting out how eligible licensees can administer innovation funding during the new price-control period.
The arrangements apply under the RIIO-3 price control for electricity transmission, gas transmission, and gas distribution, which began on 1 April 2026, alongside the regulatory framework for the National Energy System Operator. The document establishes the governance and administration rules for projects funded through the allowance.
The NIA supports innovation projects carried out by network licensees and NESO where the work can help develop, test, or demonstrate new approaches for the energy system. Project areas can include digitalisation, asset monitoring, network planning, whole-system coordination, flexibility, data use, decarbonisation, and the integration of new demand and generation.
The framework gives network companies a defined route for developing innovation activity within the new regulatory period. It sets expectations around eligibility, project management, reporting, learning capture, and the way funded work should be administered.
RIIO-3 begins as the electricity system faces heavier and more varied demands from new generation connections, electrified transport, heat electrification, industrial load growth, and distributed energy resources. Networks are being pushed to increase capacity while making better use of existing assets, creating stronger demand for practical innovation in planning and operation.
Innovation funding does not replace core reinforcement, but it can change how reinforcement is planned and delivered. Digital substation monitoring, dynamic ratings, network visibility tools, forecasting models, flexibility platforms, advanced protection schemes, and improved outage planning can all affect how much capacity is made available and how quickly constraints are managed.
Electricity transmission is entering a period of major capital delivery. Reinforcement programmes are expanding around offshore wind, interconnectors, demand centres, and distribution interface points. Innovation projects under RIIO-3 will be expected to demonstrate value in that delivery environment, particularly where they can reduce risk, shorten outages, improve asset utilisation, or support faster connection processes.
The inclusion of NESO in the RIIO-3 framework links innovation funding to system operation as well as asset ownership. System balancing and network planning increasingly depend on data exchange, forecasting, flexibility procurement, and coordination across transmission, distribution, generation, storage, and demand.
The governance framework also places pressure on the sector to turn trials into repeatable practice. Network innovation has often produced useful pilots, but the main challenge is moving proven methods into business-as-usual deployment. RIIO-3 will test how effectively learning from funded projects is converted into operational tools, procurement specifications, engineering standards, and investment decisions.
Ofgem has made the RIIO-3 NIA governance material available through its guidance page at ofgem.gov.uk.
