Losses Incentive Mechanism

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.

Publications and updates

  • Published: 25th Apr 2013
  • Other
  • 1 Associated documents
This letter confirms that the Authority is revisiting its decision that the DPCR4 losses close out values should be recovered over 2014-15 and 2015-16.

  • Published: 19th Apr 2013
  • Other
  • 1 Associated documents
This letter updates stakeholders on progress in addressing issues raised in response to our November 2012 consultation on closing out the losses incentive in DPCR4.

  • Published: 26th Mar 2013
  • Open letters and correspondence
  • 7 Associated documents
This direction gives effect to the modifications made to the Regulatory Instructions and Guidance (RIGs) in light of our decision not to activate the losses incentive mechanism in the Fifth Distribution Price Control (DPCR5).

  • Published: 26th Mar 2013
  • Open letters and correspondence
  • 5 Associated documents
A direction amending the licence as it applies to losses to allow additional time to address concerns raised before determining the final value of the losses incentive under the Fourth Distribution Price Control Review.

  • Published: 14th Feb 2013
  • Consultations and responses
  • 1 Associated documents
See our statutory consultation proposing removing the date by which the Authority is required to direct the PPL term.

  • Published: 3rd Jan 2013
  • Decisions
  • 11 Associated documents
The methodology to be used for closing out the losses incentive mechanism for the Fourth Distribution Price Control Review (DPCR4).

  • Published: 3rd Jan 2013
  • Decisions
  • 6 Associated documents
A direction amending the licence as it applies to losses as a consequence of our decision not to activate the losses mechanism for the Fifth Distribution Price Control Review.

  • Published: 3rd Jan 2013
  • Decisions
  • 6 Associated documents
A direction amending the licence as it applies to losses as a consequence of our decision to replace the losses mechanism for the Fifth Distribution Price Control Review with a reporting requirement.

  • Published: 20th Dec 2012
  • Decisions
  • 9 Associated documents
Decision letter on the specific question relating to the period over which the close out values should be recovered for the losses incentive mechanism in the Fourth Distribution Price Control Review.

  • Published: 16th Nov 2012
  • Closed: 14th Dec 2012
  • Consultations and responses
  • 8 Associated documents
The main document sets out Ofgem’s decision not to activate the Losses Incentive Mechanism in the Fifth Distribution Price Control (DPCR5). The associated documents are necessary to implement that decision.

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