Ofgem RIIO-3 Sector Specific Methodology Decision

SSE plc

Ofgem RIIO-3 Sector Specific Methodology Decision

18 July 2024

SSE notes today's publication of Ofgem's Sector Specific Methodology Decision (SSMD), an important step in the RIIO-3 regulatory price control process covering the period between 2026 and 2031 for electricity transmission.

The RIIO-3 price control comes at a critical juncture in the transition to a cleaner, more secure and affordable electricity system for current and future generations.  As Ofgem acknowledges, delivery of the UK and Scottish Government's climate change and energy security targets will require unprecedented and accelerated levels of strategic investment in the country's electricity network infrastructure.  It is therefore vital that the new framework reflects this urgency as well as the wider economic context against which the necessary investment must be secured.

Ofgem's publication includes a number of financial proposals which will require further detailed assessment to determine the long-term investment implications. SSE initial assessment is that Ofgem will need to aim up when setting the cost of equity to deliver the scale of investment required to build the future electricity network the country needs.

SSE also notes the methodology change for the cost of debt calculation which will need careful analysis alongside other changes to financial measures which have yet to be finalised.

Barry O'Regan, Chief Financial Officer of SSE plc, said:

"The benefits of taking a long-term, strategic approach to investment in Britain's grid infrastructure have never been clearer. With a new national mission to deliver clean power by 2030 in order to boost energy security and protect future consumers, unlocking the right level of investment during the next price control will be key.

"It is crucial that Ofgem set an appropriate cost of equity that recognises the high level of risk borne whilst attracting the unprecedented levels of investment required to decarbonise the economy and deliver net zero.  Based on our initial assessment, further work is required on the specifics around investability that would enable the UK to compete for finance globally.

"As we continue to assess the detail of today's publication, we look forward to working constructively with Ofgem, Government and wider stakeholders to ensure the future regulatory framework delivers a cleaner, more secure and affordable energy system for current and future generations."

ENDS