Ofgem updates RIIO-ED2 load allowances

Ofgem has reached a decision on changes to RIIO-ED2 Load Related Expenditure volume drivers, updating the regulatory treatment of electricity distribution reinforcement costs as network demand grows.

The decision follows a consultation on proposed changes to the Low Voltage Service Volume Driver unit rates, the LVSVD ex-ante allowance, and the Secondary Reinforcement Volume Driver for one distribution network operator. The main changes include an upward revision to LVSVD unit rates, a higher LVSVD ex-ante allowance for all DNOs, and an upward revision to the SRVD cap for SP Energy Networks Electricity North West.

Ofgem intends to implement the changes by modifying Special Condition 3.9 of the electricity distribution licence. The changes would apply from 1 April 2026, while further work on SRVD metrics and the wider LRE Volume Drivers Governance Document is expected during 2026.

RIIO-ED2 covers the electricity distribution price control period from 1 April 2023 to 31 March 2028. Within that framework, Load Related Expenditure arrangements are used to fund network investment linked to demand growth and changing use of the distribution system. The Low Voltage Service Volume Driver and Secondary Reinforcement Volume Driver were included as uncertainty mechanisms because the exact scale and location of load-related work could not be fixed with confidence at the start of the period.

After reviewing the first two years of RIIO-ED2, Ofgem has recognised higher unit costs and allowances for work linked to low-voltage service reinforcement. The change is technical, but it sits close to the point where electrification reaches homes, businesses, streets, depots, commercial estates, and public infrastructure.

Domestic EV charging, heat pumps, small-scale solar PV, domestic battery storage, commercial charging, local flexibility services, and new housing demand all place pressure on lower-voltage infrastructure. At the same time, DNOs are expected to enable connection growth without committing consumers to reinforcement expenditure that may not be required in every location. Volume drivers are one mechanism for adjusting allowances as real demand emerges.

Distribution planning is shifting away from historic demand profiles and predictable peak loads. Low-voltage feeders, service cables, secondary substations, and local protection arrangements are now exposed to more variable consumption and export. Monitoring, modelling, reinforcement, and flexibility procurement are all becoming more relevant at the edge of the system.

Alongside physical reinforcement, Ofgem-backed grid digitalisation and flexibility projects are developing digital twins, local balancing, robotics, and cyber-resilient asset visibility to support better network operation. The RIIO-ED2 decision addresses the funding mechanics behind the physical and load-related side of the same transition.

Both strands are needed. Data and flexibility can defer or reduce reinforcement where assets can be used more intelligently, but they cannot remove reinforcement where cables, transformers, switchgear, or service connections are physically insufficient. The regulatory task is to fund enough capacity to keep electrification moving while protecting consumers from unnecessary cost.

Low-voltage service work is particularly exposed to that balance. A single EV charger, heat pump, or commercial load can trigger a connection review, while the cumulative effect across a street, development, or industrial estate can be harder to predict. Reinforcement needs may depend on diversity assumptions, export behaviour, phase balance, transformer headroom, feeder condition, and the timing of future low-carbon technology adoption.

The decision also feeds into connection queues and local delivery planning. Where allowances better reflect actual unit costs, DNOs should have a clearer funding basis for load-related work in the remaining RIIO-ED2 years. Engineering resource, equipment availability, outage planning, and local disruption will still shape delivery, but the mismatch between assumed and real costs should be reduced where demand growth materialises.

The distribution network is moving through a difficult stage of electrification. Customers expect faster connections, developers need clearer reinforcement routes, and local authorities are planning EV charging, housing, heat decarbonisation, and public infrastructure against network capacity that varies street by street. Regulatory mechanisms designed for uncertainty are becoming a larger part of network delivery.

Ofgem has published the decision documents and statutory consultation material through its RIIO-ED2 LRE volume drivers page.

The revised allowances recognise that the cost of enabling electrification is now appearing in the lower-voltage parts of the system, where much of the transition is connected. Distribution networks will need sharper data, better flexibility tools, and physical reinforcement where local assets have reached their limits.