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Digitalisation is becoming increasingly important to the operation of Britain’s electricity networks. But when network companies seek additional regulatory funding for digital projects, demonstrating that a technology could be useful is not enough.
Ofgem’s latest RIIO-ED2 draft determinations provide an interesting insight into how those investment decisions are being assessed.
Published on 19 August, the consultation considers nine applications for additional funding submitted by electricity distribution network companies through five RIIO-ED2 re-opener mechanisms.
Across all five mechanisms, companies requested £150.53 million in additional allowances, with Ofgem provisionally allowing £113.47 million. Digitalisation accounted for a significant proportion of the applications, with £62.51 million requested and £47.98 million provisionally allowed.
Behind those figures are projects ranging from outage-information sharing and energy-sector data infrastructure to connections platforms, transformer monitoring, real-time network visibility and Local Area Energy Planning tools.
The individual technologies vary considerably. What connects Ofgem’s assessments is a recurring question: is there sufficient evidence that the investment is needed, appropriately designed and represents efficient use of consumers’ money?
Why is there a Digitalisation Re-opener?
RIIO-ED2 is the current price control for electricity Distribution Network Operators (DNOs), running from April 2023 to March 2028.
Network companies set out their planned digitalisation investments when their RIIO-ED2 business plans were developed. But digital technology, regulation and the wider energy system can change considerably during a five-year price-control period.
The Digitalisation Re-opener provides a mechanism for addressing some of that uncertainty.
It allows DNOs to apply for additional funding where developments such as changes in legislation, licences, regulatory requirements or industry codes create a need for new or significantly altered data services. It can also cover particular monitoring requirements and the implementation of mature digital innovations needed to fulfil licence obligations.
Three companies submitted applications through the January 2026 Digitalisation Re-opener: SP Electricity North West, National Grid Electricity Distribution and Scottish and Southern Electricity Networks Distribution.
Together, their applications covered 25 individual digitalisation projects.
Digitalisation means many different things
One striking feature of the applications is the breadth of activity now sitting under the digitalisation umbrella.
SP Electricity North West’s proposals include participation in emerging Data Sharing Infrastructure being coordinated by NESO, a National Energy Outage Platform providing standardised near real-time outage information, additional transformer temperature monitoring and a digital Local Area Energy Planning tool.
National Grid Electricity Distribution sought funding for projects including systems required for Market-wide Half-Hourly Settlement, connections reform and a broader programme of digital tools supporting network planning and local energy planning.
SSEN Distribution’s application included projects covering operational data exchange between transmission and distribution, real-time network visibility, dynamic voltage management, weather and fault prediction, flexibility-market data, digital connections processes and Local Area Energy Planning.
These are not simply IT upgrades.
Many are intended to address practical changes in the way electricity networks need to operate: increasing volumes of distributed generation, electric vehicles and heat pumps; faster connections; greater data exchange between organisations; changing regulatory obligations; and the need for better visibility of increasingly complex networks.
Demonstrating a need comes first
Ofgem’s assessment makes clear that a project’s technical capability alone does not establish the case for investment.
The regulator considers whether there is a sufficiently strong needs case.
For some projects, that need is relatively straightforward because it stems from a new regulatory or industry requirement.
SP Electricity North West’s National Energy Outage Platform, for example, responds to recommendations following Storm Arwen and subsequent work to improve outage-information sharing. Its Data Sharing Infrastructure proposal responds to emerging requirements for secure and standardised energy-sector data exchange.
Elsewhere, the case is operational.
Additional transformer temperature monitoring through the Celsius+ project is intended to provide better information about operating conditions, helping to identify available network capacity and inform reinforcement decisions.
For connections reform, National Grid Electricity Distribution demonstrated that existing tactical and manual processes would not remain suitable as new arrangements developed, creating a case for a more enduring integrated solution.
Different projects therefore require different evidence, but the underlying principle is consistent: what problem is the investment solving, and why does that problem require action now?
The preferred solution also needs to be justified
Identifying a genuine problem does not automatically justify a particular solution.
Ofgem also considers how companies have assessed the options available to them.
In some cases, a traditional comparison between multiple solutions is unnecessary. Where a project is being driven directly by a mandatory regulatory requirement, doing nothing may not be a credible alternative.
In others, the choice of approach matters considerably.
For Celsius+, SP Electricity North West considered three options involving different combinations of temperature monitoring and cooling technology. It selected temperature monitoring alone because this retained many of the benefits of the original innovation project at significantly lower cost.
National Grid Electricity Distribution’s connections proposal considered how best to move beyond existing manual arrangements and selected a modular, API-first platform intended to deliver the required functionality efficiently.
SSEN Distribution, meanwhile, proposed using existing platforms and architecture for several projects rather than creating entirely new systems.
The pattern is important. Digitalisation is not being assessed on the assumption that more functionality is necessarily better.
In several cases, Ofgem’s assessment favours solutions that meet the identified need while making use of existing systems, proven technology or a more limited scope.
When more functionality isn’t sufficiently justified
The draft determinations are particularly revealing where Ofgem proposes to fund only part of a project.
SSEN Distribution’s LAEP+ Integration proposal provides one example.
Ofgem accepted the case for moving the Local Area Energy Planning tool into business-as-usual operation, improving standardisation across DNOs, supporting ED3 mobilisation and developing particular scenario-planning capabilities.
However, it did not consider the full suite of proposed platform developments sufficiently justified for delivery before the next price-control period.
As a result, Ofgem proposes partial rather than full funding.
A similar distinction appears in National Grid Electricity Distribution’s wider digital programme, where Ofgem considered some outputs justified but found that a clear link had not been demonstrated between all of the proposed work and the intended outputs.
These decisions illustrate an important point about digital investment.
A wider feature set can create potential benefits, but potential benefit is not necessarily the same as a demonstrated need for expenditure at a particular point in time.
From innovation to everyday operation
Another recurring theme is the transition from innovation into business-as-usual use.
Several applications involve technology that has already been developed or tested through innovation programmes and is now being considered for wider operational deployment.
SSEN Distribution’s real-time resilience proposal, for example, would bring reliability and pre-fault information from almost 10,000 targeted monitoring devices into a single low-voltage management platform.
Its Predict4Resilience proposal would move a weather and fault-prediction tool developed through innovation funding into everyday operations.
Dynamic voltage management similarly builds on mature innovation, using an existing Active Network Management platform rather than developing a separate bespoke solution.
Ofgem’s assessments therefore provide an interesting view of what happens after an innovative technology has demonstrated potential.
The next question is not simply whether it works. It is whether there is a justified operational need, whether the proposed deployment is proportionate and whether the benefits support the cost of making it part of normal network operations.
Data sharing is becoming infrastructure in its own right
Many of the projects also demonstrate how important data exchange is becoming to the electricity system.
SP Electricity North West and SSEN Distribution both submitted proposals connected to NESO’s emerging Data Sharing Infrastructure, designed to support secure and standardised access to energy-sector data.
Other proposals involve sharing operational information between transmission and distribution networks, providing outage information through standardised interfaces, improving data available for local energy planning and connecting systems involved in flexibility markets.
As more organisations and technologies participate in the energy system, the ability to exchange information reliably becomes increasingly important.
Electricity networks are no longer only managing physical flows through cables, substations and transformers. They are also managing increasingly complex flows of information between network operators, generators, flexibility providers, local authorities, consumers and other participants.
That makes interoperability, data quality and appropriate governance part of the practical infrastructure required to operate a more flexible energy system.
What does Ofgem’s assessment tell us?
The draft determinations do not provide a universal formula for successful digital investment. Different projects are assessed according to their individual circumstances.
But several recurring principles are visible.
There needs to be a clearly demonstrated problem or requirement. The timing of the investment needs to be justified. Alternative approaches should be considered where meaningful alternatives exist. Companies need to demonstrate that costs are controlled, and additional functionality needs its own justification rather than being assumed to have value simply because it is technically possible.
There is also evidence that building on existing platforms, industry collaboration and proven innovation can strengthen the case for investment where those approaches provide an efficient route to the required outcome.
Perhaps most importantly, Ofgem’s assessment keeps returning to the relationship between expenditure and benefit.
Digitalisation is not treated as an outcome in itself.
Its value lies in what it enables: better visibility, improved resilience, faster connections, more effective planning, increased network capacity, better information sharing or more efficient operation.
What happens next?
Ofgem’s decisions remain provisional.
The draft determinations are open for consultation until 23 September 2026, after which Ofgem will consider responses before making its final determinations. The regulator currently expects those decisions before the end of the year.
The final allowances may therefore differ from the figures currently proposed.
Whatever the eventual outcome, the consultation provides a useful picture of how digitalisation is being considered within electricity-network regulation.
As digital systems become more deeply embedded in the operation of physical infrastructure, the question is increasingly moving beyond whether utilities should digitalise.
The more difficult questions are where digital investment creates genuine operational value, how that value can be demonstrated, and whether the proposed solution is proportionate to the problem it is intended to solve.
Ofgem’s latest assessments suggest those questions will matter just as much as the technology itself.
Further reading: Ofgem, RIIO-ED2 Re-opener Applications 2026: Draft Determinations; Ofgem, Re-opener Guidance and Application Requirements; Ofgem, RIIO-ED2 Final Determinations.
