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What are we doing about Network Losses?

For RIIO-ED1 Ofgem introduced a Losses management mechanism to encourage DNOs to address losses:

  • A Licence obligation to design and operate our networks to ensure that losses are as low as reasonably practicable by putting in place a Losses Strategy.
  • Losses Discretionary Reward aimed at encouraging additional actions to better understand and manage losses.

Losses Strategy

In accordance with licence condition 49, we published our Losses Strategy in September 2015 to support our strategic vision of:

“Considering all reasonable measures which can be applied to reduce losses and adopt those measures which provide benefit for customers."

The Strategy sets out our overall intention for loss reduction given what is reasonably practicable, and is based on our current knowledge and ability to manage network losses.  Its processes will continue to evolve to ensure we establish a culture of considering network losses in every major investment decision we undertake. 

It is anticipated that the actions included within our Losses Strategy will lead to carbon savings of circa 24,000 tCO2e and 45,000 tCO2e in SP Distribution and SP Manweb respectively, and reduce the cost of network losses to energy suppliers, and ultimately customers, by around £8m during the RIIO-ED1 period.

Our RIIO-ED2 Losses Strategy

As part of our RIIO-ED2 Business Plan, we've published our latest Losses Strategy, refreshed and updated for RIIO-ED2, including our view of losses forecasts.

It sets out a summary of the direct and indirect actions we are taking to manage technical and non-technical losses on our network.

Losses Discretionary Reward

Ofgem challenged the UK DNOs to consider whether they are able to go beyond the licence requirement, essentially inviting the DNOs to consider whether:

  • There are additional actions which they could take and are outside the reasonableness test set down as a licence requirement

  • Any actions which they have already defined within their Losses Strategy document fall beyond the reasonableness test.

The LDR is managed in three tranches during ED1:

  • Tranche 1 – submissions made in 2016
  • Tranche 2 – submissions made in 2018
  • Tranche 3 – submissions made in 2020

Click here to see the Ofgem guidance

Our Submission - Tranche 1

Tranche 1 is concerned with "processes and methods which DNOs are exploring and implementing to understand and ultimately better manage losses on their networks". 

The objective of our Tranche 1 submission was to present a number of initiatives which we considered would add long term value for customers, the energy industry and the widest possible group of stakeholders and thus seek funding for these initiatives under the LDR mechanism. (Such initiatives which did not meet the cost benefit analysis test were in general not eligible for funding under the normal RIIO-ED1 mechanism and therefore couldn’t proceed without alternative funding).

Our Submission - Tranche 2

Tranche 2 focused on the specific outputs produced and actions undertaken to manage losses and shift expectations, driven by our innovative programme of LDR initiatives.

Our Tranche 2 submission provided a review of the activities that were being undertaken and the associated outputs.  This phase built on the initiatives started in Tranche 1 and where appropriate refined these and introduced new ones. Insights and enhancements to our understanding of measuring predicting and managing losses were also explained; as was the engagement with and contributions from internal and external stakeholders.

Our Submission - Tranche 3

Tranche 3 is a predominantly backward looking assessment of losses management achievements and preparations for RIIO-ED2

Our Tranche 3 submission describes how we are embedding the learning from our thirteen innovative initiatives, whilst also pursuing some new and innovative activities. The development of regulatory mechanisms for RIIO-ED2 is explained, in terms of the work carried out both individually and collaboratively through the Energy Networks Association (ENA). This submission also demonstrates the ongoing sharing of best practice and stakeholder engagement, which has been a key aspect throughout all three tranches.





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