Ofgem Sets Framework for Electricity Distribution Investment in ED3 Price Control Period

Britain's energy regulator Ofgem has published the methodology that will guide how electricity distribution network operators (DNOs) are assessed and funded during the Electricity Distribution Price Control (ED3) period from 2028 to 2033.

The Sector Specific Methodology Decision (SSMD) establishes the rules under which the country's five DNOs will develop and submit business plans later this year. The plans will be evaluated as part of the broader ED3 price control process, with final determinations expected by the end of 2027.

According to Ofgem, the framework is intended to support growing electricity demand driven by electrification while maintaining tighter controls on network spending. The regulator said uncertainty surrounding the pace, scale and location of future demand growth requires a more phased approach to investment.

Under the methodology, DNOs will be required to demonstrate that proposed investments remain necessary after the use of flexibility measures designed to maximize existing network capacity. Companies must provide evidence that projects are needed to accommodate demand growth and avoid network constraints.

The framework applies to Britain's electricity distribution system, which includes more than 800,000 km of network infrastructure serving approximately 30 million customers.

Among the key elements of the methodology are tighter controls on baseline capital investment, stronger cost assessment requirements and expanded use of in-period funding adjustments. Ofgem said capital expenditures will be subject to evidence-based reviews, with funding increases or deferrals possible as demand develops.

The regulator is also adopting a "build and flex" approach that prioritizes the use of flexibility solutions before approving major network reinforcements. DNOs will be expected to utilize tools such as smart electric vehicle charging, demand-side response programs, battery storage and controlled exports to help manage demand and reduce network constraints.

The methodology also includes measures aimed at strengthening consumer protections and utility accountability. These include enhanced reporting requirements, performance metrics, financial incentives and penalties tied to delivery commitments, and provisions intended to improve support for vulnerable customers and power outage response.

In addition, Ofgem plans to introduce stronger performance requirements for grid connections. The framework includes measures intended to accelerate the connection of low-carbon technologies and major projects, with financial rewards and penalties linked to service performance and delivery timelines.

Steve McMahon, Ofgem's director of network price controls, said the framework is designed to balance the need for increased grid capacity with protections for consumers. He said new investment will be approved only when a strategic need is demonstrated and network operators have maximized the use of existing capacity through flexible technologies.

The SSMD does not establish specific investment allowances, revenue levels, incentive payments or projected customer bill impacts. Those details will be determined through the next stages of the ED3 review process.

The five DNOs—UK Power Networks, National Grid Electricity Distribution, Scottish and Southern Electricity Networks, SP Energy Networks and Northern Powergrid—must submit their business plans for the 2028-2033 period in December. Ofgem expects to publish draft determinations in summer 2027, followed by final decisions by the end of that year.

The new ED3 price control period will begin on April 1, 2028.