The objective of this Opportunity is to shortlist the submissions that best answer the brief, with the aim of attending a presentation day with the EIC Industry Partners, where it can be discussed in greater detail with a technical panel.
Please ensure that your online submission contains sufficient detail including proposed activities, timescales, milestones, deliverables, relevant experience, project team, dependencies, cost breakdown. Supplementary information can be added as attachments.
What is the Problem?
Innovation is key to supporting the transition to Net Zero and decarbonising the electricity system by 2035. Ofgem recently reaffirmed their commitment to supporting Research & Development and Innovators for the RIIO-2 regulatory period by continuing to provide, in addition to the Strategic Innovation Fund (SIF), an allowance to support smaller scale innovation projects, the Network Innovation Allowance (NIA) Innovation Measurement Framework The continued availability of NIA funding was conditional on the development and implementation of an Industry-led reporting framework. The aim was to support collaboration between companies and help to track the benefits of RIIO-2 innovation stimulus projects, more specifically:
• To increase transparency and provide stakeholders with an overview of Innovation activities across the sector.
• To enable Network companies to share their individual “Innovation story”, and consistently report on a range of innovation outcomes, including the number of innovation ideas reviewed, new innovation projects started and completed, the speed at which successful innovation is transitioned into Business as Usual (BAU), collaboration and partnerships, along with declaring the benefits which innovation has delivered.
• Facilitate the evaluation of project costs and benefits of projects following implementation. The Innovation Measurement Framework (IMF) was developed by Network companies in 2020 with the support of the ENA, Baringa and the EIC.
RIIO-2 Innovation Measurement / Reporting Framework
In the RIIO-ED2 Final Determinations Core Methodology Document (published 30 November 2022), Ofgem considered that further joint work between network companies is required to improve the existing IMF, and that the consistency on how benefits are measured and reported across network companies needs to be improved. Ofgem also plan to consult on adding a requirement to the NIA
governance for network companies to publish benefit statements including cost benefit calculations, in addition to project progress information, in order to increase transparency.
Additional background information:
• More information on the current IMF can be found in the Energy Networks Innovation Process Document (Link). See also published IMF Dashboard (Link).
• Benefits calculations in the Industry have historically been too narrowly focused and granular, as they often overlooked wider and longer-term benefits. The scope of relevant benefits has now widened with the introduction of Government targets and regulations on climate change and emissions.
• Network companies have historically not included Social Return On Investment (SROI) benefits as part of their assessments / calculations.
• Innovation funding governance requires that innovation successes and learnings are shared between network companies, ensuring that all GB energy consumers benefit from their investment in innovation, and avoiding network companies repeating innovation done by others. It also promotes a collaborative rather than a competitive approach.
• Benefits from NIA projects have historically been reported as part of the Ofgem Regulatory Reporting Pack (RRP) process. Although financial benefits were reported, it lacked detail, narrative and consistency.
• To demonstrate and ensure value for money, Network innovation projects must define, forecast and monitor the expected benefits to be achieved. Following implementation, the benefits must be regularly reported.
• To date, the benefits have typically been calculated on a project-by-project approach consideration project durations and short benefit realisation timescales.
• An NIA Project Benefits Guide has been developed through the ENA (Link).
• Other initiatives to consider: Common Evaluation Methodology for Flexibility Solutions (Link) / Whole system CBA (Link) / Social Return on Investment Framework & Strategic Innovation Fund CBA Review (See Figure 1 in Call brief).
A more robust economic value framework is required in order to:
• Increase the consistency of how financial benefits are quantified, measured and reported across network companies.
• Increase transparency to all relevant stakeholders.
• Provide more accessible narratives for Network Innovation.
• Take a more integrated approach and increase the value to stakeholders and networks, but without unnecessary overhead of cost, and ideally drive efficiencies in existing reporting obligations.
• Allow for benefits to be recorded as they evolve over time and across regulatory periods as project outputs become key to future Net Zero developments.
To reflect the wider range of benefits required, benefit timescales and outcomes, a new framework is required to take a more integrated and holistic approach to the quantification of all benefits. It is important that changes make reporting easy and efficient as different processes and approaches to data capture mean the IMF has a different effort level within each network business. Digitalisation of the product and input mechanisms should be considered The approach needs to be able to articulate both the long and short term direct network and wider societal benefits from innovation. Several layers should be considered to provide a range that offers a holistic approach and also a granular level of benefits assessment. At the higher-level, layers can span multiple regulatory periods and also show how benefits could change as projects progress and complete. The solution needs to map traceability of benefits from registration, project evolution through to BAU, including change control and refinement as uncertainties and assumptions are addressed. The framework should consider the process lifecycle of projects and their wider impact. Benefits can be realised from projects that do not achieve their expected outcomes and should refer to the value of technology advancement, social research or dissemination of findings. The layered approach could include the following:
• Net Zero Transition Benefits (Strategic level) allocating energy sector level benefits to different time horizons to demonstrate the holistic benefits across a wider timeframe which could be a whole network asset life and span across multiple regulatory periods. This will include holistic societal health benefits and carbon reduction benefits, as an indirect result of network projects.
• Portfolio Benefits (High level) takes a high-level overview of a Network company portfolio of projects. Considers additional benefits from new projects and new Innovation areas, and identifies solutions deployed into business-as-usual operations.
• Overall Project Benefits (Medium level) Should offer a consistent approach to measurement and reporting across a range of economic benefits. This will include wider societal benefits like healthcare and air quality. All the above would need to take elements from the ENA Social Return on Investment Framework (see more on Call brief).
• Project Economic Benefits (Low level) at a granular level the framework must also enable for financial benefits to be calculated at a project level, to demonstrate individual project customer benefits.