Scandinavian Working Papers in Economics
Working Papers,
Copenhagen Business School, Department of Economics
No 1-2020: Incentive Regulation of Electricity and Gas Networks in the UK: From RIIO-1 to RIIO-2
Tooraj Jamasb ()
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Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Abstract: The regulatory and operating context of energy networks is dynamic and constantly evolving. Achieving a multitude of economic, environmental, social and policy objectives is a challenging task for the sector regulators. In 2010, the UK energy regulator Ofgem replaced its approach to energy network price control and incentive regulation with a Revenue-Incentive-Innovation-Output (RIIO-1) model. This paper reviews the incentive areas that influence the performance of the next version of the model (RIIO-2). Guided by the principals of regulatory economics and evidence in the literature, we discuss key aspects of the regulation model that be revised by the regulator. The lessons of experience from the RIIO models are also relevant for regulators in other countries and can inform their design of incentive regulation of energy networks.
Keywords: energy network; incentive regulation; rate of return; cost of capital; benefit sharing; menu of options
33 pages, February 6, 2020
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