Electrical losses are an inevitable consequence of transferring electricity across the distribution network and they have a significant financial and environmental impact on consumers. For example they contribute to approximately 1.5 per cent of Great Britain’s greenhouse gas emissions.
To encourage distribution network areas to manage an efficient level of losses on their network, Ofgem introduced a losses incentive mechanism as part of our electricity distribution price control.
Owing to volatility with data used to measure losses, for the current price control we have replaced the losses incentive mechanism with a reporting requirement. For the next price control (from 2015) we are introducing a losses reduction mechanism consisting of four components: licence obligation, loss reduction expenditure in the business plans, annual reporting and discretionary reward.