On 4 December, the UK energy regulator, Ofgem, issued Final Determination decisions for network price controls for 2026 to 2031 via the RIIO-3 (Revenues = Incentives + Innovation + Outputs, third iteration) framework. This effectively greenlights spending of GBP 28 billion towards gas and electricity networks over the next five years.
It marks the first tranche of what is expected to be GBP 90 billion of investment into domestic infrastructure by the turn of the decade. Of the current green-lit amount, 64% will go towards future-proofing gas networks (transmission and distribution), to improving energy security and facilitating the green transition.
Mainstream outlets (including Reuters and FT) have focused on the added cost to the consumer (GBP 108/yr on household bills by 2031), although improvements to gas infrastructure should result in some savings to compensate.
For biomethane, RIIO-3 funds will be made available for plant connections. The total amount expected to be disbursed is GBP 100 million – GBP 20 million for the national transmission network, and GBP 20 million for each Gas Distribution Networks (four GDNs). A limit of GBP 2 million has been set per connection, approximately double what was initially floated in early consultations, which will be made available via UIOLI (use it or lose it) allowances, which give operators flexibility on how to spend the funds without having to seek further Ofgem approvals.
This will be welcome news for plant investors; the funding will help overcome hurdles associated with network access, and support early project cash flows, which should improve project bankability. In particular, this could be of key interest to brownfield sites (established CHP/biogas operations) looking to switch to biomethane production, where gas connection (along with upgrading equipment) comprises much of the initial outlay.
It is unclear whether the announcement itself will be enough to stimulate supply; for mid-sized projects looking to inject into distribution grids, having access to up to GBP 2 million in funding represents significant savings and may weigh heavily on final investment decisions. However, for larger projects looking to inject into the transmission grid, it is less likely to have an impact, given the funding would recover only a smaller portion of the initial outlay. In any case, long-term viability will rely on revenue, via gas sales, monetising green attributes (RGGOs, or renewable transport fuel markets) and in some cases subsidies (via the GGSS).
Finally, while not explicitly mentioned, biomethane will indirectly benefit from the total funding to be made available for gas infrastructure, as common with fossil gas. Furthermore, there are net-zero related Uncertainty Mechanisms (UMs) and re-openers (opportunities to formally request additional funds) in RIIO-3 that should reduce the risks arising from unfavourable environmental market or policy shifts for biomethane infrastructure investment.
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