A regulatory approach to the assessment of asset replacement in electricity networks

With Great Britain's electricity infrastructure having a fleet of ageing assets, electricity utilities forecast an increased level of expenditure to replace their assets in the next decade. It is the company's role to apply asset management to develop appropriate investment and operational requirements. Ofgem's role is to challenge these requirements as part of a price control review to ensure that there is appropriate value for money for consumers in the delivery of key outputs. In order to assess an efficient level of replacement expenditure required for utilities to provide secure and reliable services, Ofgem has developed a systematic approach to the assessment of companies' asset replacement forecasts. This paper presents the details of this regulatory approach which includes three key quantitative components: an age-based asset replacement forecast model, a Monte-Carlo simulation and a network output measures based assessment. Practical examples are used to demonstrate their application in RIIOTI. The mixture of different asset intervention techniques is also discussed in this paper.