The British reference model

Abstract

Since the 1990s Britain has been a pioneer in the application of incentive regulation to its electricity network companies. Under the headline of RPI-X regulation, the British regulator has pragmatically implemented a theoretical model that rests on many simplifying assumptions. Difficulties have soon emerged, in particular in terms of service quality and innovation. Based on the experience gained in the field, the British regulator has adjusted his tools and adopted new schemes. However, dissatisfied with the disparity of instruments and anxious about the challenges posed by the transition to a low-carbon economy, in 2009 the regulator launched a major reconsideration of RPI-X, coming out with a new framework, the so-called RIIO. While painted as a revolution, it rather constitutes an evolution of the previous framework and builds on the idea that regulation has to provide companies with strong incentives to focus on the needs of network users and to promote long-term innovation.