2026 TNUoS costs set to increase, but by less than feared, after Ofgem confirms RIIO-ET3 Final Determinations

What are the agreed Final Determinations?

The FDs are the last step (bar any appeals) in the price control process that sets the allowed revenues for regulated companies. It represents the regulator’s decision on appropriate allowances balancing all expected priorities of the price control.

The total projected price control revenue over the ET3 period is down 5.3% compared to the DDs, at £46.2 billion (bn) vs £48.8bn. The projected funding only represents a proportion of funds that ONTOs might require over the duration of the RIIO-3 pricing period, which could total over £70bn. This highlights the variability in potential outcomes, even though Ofgem has set final determinations.

ONTOs will use this funding to improve the stability, security, and resilience of the electricity transmission infrastructure. It’s expected the investment will fund 80 transmission projects, increasing grid capacity to supply customers with renewable energy.

What does this mean for businesses in 2026?

Since publishing its DDs, Ofgem has reduced the allowed revenues for the first two years, 2026-27 and 2027-28, softening some of the short-term rises in network costs. However, there will still be a large increase in TNUoS costs from April 2026.

Total price control revenue is expected to increase from £4.3bn in 2025-26 to £7bn in 2026-27, a 63% rise. However, the revised total is still 10% lower than the revenue published in the DDs.

Ofgem provided analysis outlining how projected revenues could affect costs for consumers. It said a typical domestic customer will likely see an increase in annual standing charges from around £42 today to £62 in April 2026. This is 23% lower than the rise to £80 a year that Ofgem first suggested in the DDs (see the following graph).

Source: Ofgem

Overall, Ofgem has explained that businesses could see a 5-10% increase in electricity costs. This could equate to an estimated £1,700 for a small office or hotel, and £9,760 for a medium-sized factory. It’s important to note that we already expected a significant increase in TNUoS costs after the National Energy System Operator (NESO) issued its 5-year TNUoS view.

NESO is due to release TNUoS tariffs during the week beginning 15 December, so there’ll be more clarity on costs shortly. We expect tariffs to increase, but they could be lower than previously expected due to lower projected annual revenue costs announced in the FDs compared to the DDs.

What does this mean for businesses in 2030 and beyond?

As part of its impact assessment, Ofgem has projected lower expected revenues in each year up to 2030/31 compared to the DDs (see the below graph). However, there could still be movement each year, and prices could change, based on short-term factors such as output-based performance and uncertainty mechanisms built into the price control.

Source: Ofgem

While annual forecast price control revenues are up to 5.3% lower than outlined in the DDs, they’ll be substantially above historic levels and rise significantly throughout the price control period. However, Ofgem expects that network improvements will, in future, offset most of these cost increases in other parts of the bill. It also calculated that overall electricity bill cost increases would likely be higher without the investment in RIIO-3.

In its impact assessment, Ofgem found that by 2031, customers would see savings to balancing (BSUoS) costs and wholesale costs because of network improvements. It calculated, based on these improvements, that the potential for savings from lower annual constraint costs would be £4bn in 2030 alone. Without the RIIO-3 investments and ET improvements, Ofgem has made it clear that BSUoS costs could be as much as £8bn higher a year – equating to £100 a year for an average dual fuel household customer. This is approximately £37/MWh assuming current domestic consumption levels. As a result, it expects most customers will pay less on their annual electricity bills by the end of the decade than would otherwise be the case.

Ofgem set out expected 2030-31 costs for businesses in different consumptions bands. We’ve illustrated these costs in the graph below using an HV2 band business as an example. Ofgem expects that most bands will see a reduction in costs compared to the counterfactual, which it expressed as a continuation of an evolved RIIO-2 and a ‘do minimum’ approach.

Source: Ofgem

Ofgem outlines that Energy Intensive Industries (EIIs) will benefit the most from network investment. This is because electricity transmission’s a relatively small component of the bill (due to the Network Charging Compensation rebate scheme that EIIs benefit from) compared to wholesale costs.

However, these benefits will only be apparent once transmission projects are completed by the ONTOs enhancing the transfer capacity of the network. It’s also important to note that a range of factors could influence costs between now and 2030, including uncertainty mechanisms in the price control, and wider power bill costs for consumers.

What’s next?

As explained earlier, NESO is due to release TNUoS tariffs in the week commencing 15 December and we’ll release analysis of these tariffs following the announcement. We’re expecting tariffs to rise substantially, but to be lower than previously forecast due to lower projected annual revenues announced in the FDs compared to the DDs.

When it comes to the RIIO-ET3 price control period, the scale and nature of the projects covered by the investments means these longer-term costs are likely to evolve over time. There remains significant uncertainty about the exact trajectory of costs, since they’re dependent on policy decisions and infrastructure upgrades.

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