Ofgem sets rules for 2028 to 2033 grid investment to meet growing electricity demand
Ofgem has set out a challenging rulebook for assessing investment plans and controlling costs for Britain’s regional and local electricity distribution grid into the 2030s.
The Sector Specific Methodology Decision (SSMD) sets out the rules for how networks should keep pace with projected electricity demand across the economy – and tells the five DNOs how their 2028-2033 business plans will be assessed once they are submitted in December.
The full Electricity Distribution Price Control (ED3) settlement, to be approved by the end of 2027, will map out each company’s financial settlement over the five-year price control period.
The SSMD judges that while demand on distribution grids will rise, uncertainty in the scale, timing and location of electrification requires a more phased approach for network investment.
This updates Ofgem’s consultation position last November so it now requires DNOs to demonstrate that investment is highly likely to be needed, even after flexible technologies are deployed to maximise existing grid capacity. It means network companies must show projects will meet expended demand growth and prevent grid bottlenecks.
The five-year period is a critical stage for the unprecedented grid investment needed to expand the existing 800,000 kilometres of networks which connects 30 million customers – with planning on projected demand based on detailed analysis including NESO’stransitional Regional Energy Strategic Plan published in January 2026.
The SSMD sets out key principles:
Tighter rules on baseline capital: ED3 will set the networks’ baseline allowances from 2028 onwards for essential investment in grid capacity and resilience. This will come with clear conditions on delivery; strict cost of capital rules set in line with market conditions; and networks’ revenues set in line with performance and consumer service delivery.
Stricter cost controls to manage uncertainty: DNO’s capital will be tightly controlled through strong evidence thresholds and in‑period adjustments, allowing costs to be approved, increased or deferred as demand materialises.
‘Build and flex’ as the default: networks will be required to maximise existing grid capacity using smart, flexible demand management – with investment signed-off for new build when the economic need is clear and sustained. SSMD requires networks to use tools like smart EV charging, demand-side response, battery storage and controlled exports to shift demand and reduce network constraints.
Stronger consumer protection:tighter cost controls designed to prevent unnecessary, excessive or speculative upfront investment being recovered through bills. It will minimise costs for consumers while ensuring new infrastructure is delivered on time and in line with demand. DNOs will be required to improve the identification of vulnerable customers, submit more robust delivery plans, strengthen their power cut response and tighter accountability, enforced by financial rewards and penalties.
Financial rewards and penalties: ED3 will build in stronger incentives, penalties and clawbacks to drive good performance. There will be greater scrutiny of network companies, with clear financial consequences for failing to meet their business plan commitments. This includes standardised reporting, performance dashboards and comparative data to ensure companies are transparent, benchmarked and accountable.
Faster grid connections with stronger enforcement: strengthened rules to accelerate connections for low carbon technologies and major projects with financial penalties for delays and underperformance and rewards for DNOs that can deliver great service. This covers connections from low-voltage, high-volume assets like EV charge points or rooftop solar to large-scale, complex grid connections for housing, commercial and industry.
Steve McMahon
Ofgem Director of Network Price Controls Steve McMahon said:
“We know electrification across the economy will drive unprecedented demand but its precise pace, scale and location remain uncertain. Our rulebook strikes a tough but fair balance in expanding grid capacity to meet the demands placed on them. It ensures investment is targeted, justified and delivers value for money – that’s why we’re putting strong controls in place to protect consumers from projects that are not delivered on time and on budget.
“The ‘build and flex’ model is a critical evolution of our approach. We will sign-off new investment only where the strategic need is clear and networks have maximised existing grid capacity to control demand using smart, flexible grid technology. This blocks unnecessary physical upgrades and reinforcements based on speculative forecasts being recouped prematurely from bills. It gives networks and investors a robust, transparent and predictable rulebook that targets capital when and where needed.
“There is no short cut to securing the investment needed to support electrification and there are tough decisions ahead. We now have 18 months to get this right working with all the networks; the UK, Scottish and Welsh governments; key sectors across the economy and consumer bodies”.
The SSMD includes no assessment of the overall investment, allowed revenues, financial penalties or rewards – and their projected impact on customer bills.
The five DNOs’ business plans for 2028 to 2033, covering 14 licence areas across Britain, must be submitted in December this year. Ofgem’s draft determinations will be made next summer with the final decision for each company made by the end of 2027, including the projected cost impact on consumers.
The new price control period starts on 1 April 2028.