Ofgem makes biomethane reinforcement funding transferable within network groups

Ofgem has approved the modification to Special Condition 3.21 of gas distribution transporter licences.^[1] Ofgem’s decision addresses a specific obstacle to biomethane deployment: eligible projects can face funding constraints in one distribution network while allowances remain unused elsewhere within the same corporate group. The reform allows Cadent and SGN to allocate funding across their networks according to demand. Its value lies in making existing funding more usable; the overall allowance remains unchanged.

The modification completes the licence changes needed to implement Ofgem’s August 2026 revision of the Biomethane Connections Use-It-Or-Lose-It framework, or UIOLI. The underlying problem was evidenced by network forecasts showing uneven connection demand and prospective underspending alongside funding shortages.^[2]

Previously, each of Great Britain’s eight distribution networks had a separate £20 million allowance over RIIO-GD3. The amended licence combines these allocations at corporate-group level and expresses them as annual allowances.

Biomethane reinforcement allowances, RIIO-GD3

Corporate group

Network allocations · each block = £20m over RIIO-GD3

{{ colLabel }}5-yr total

Total

{{ totalValue }} £160m

Annual figures (2026/27–2030/31) are specified in the amended licence; five-year and aggregate totals are calculated from that table and are unchanged. These are regulatory allowances, with the underlying RIIO-GD3 funding established in 2023/24 prices.^[3]

Cadent can allocate funding across East of England, London, North West and West Midlands. SGN can allocate between Scotland and Southern. Ofgem explicitly confirms that allocations within the same corporate group do not require transfers through the Coordinated Adjustment Mechanism.^[4] For example, stronger eligible demand in Scotland could be supported using allowance otherwise unused in Southern.

The practical consequence is that a regional network’s former £20 million allocation no longer determines its maximum share of the group’s funding.

The distribution mechanism pays for qualifying network reinforcement needed to accommodate biomethane injection, including capacity increases for existing connections. Its scope extends beyond assets required solely to connect an individual plant.

Eligible expenditure · capital and operating costs

Pipelines Compressors Pressure management Storage

Principal conditions, unchanged

Per new connection or modification to an existing connection.

Expenditure must comply with the network’s approved Connection Charging Methodology.

Costs incurred before the connection offer are expected to be paid by the customer.

Ineligible expenditure remains subject to clawback.

Pooling does not increase the amount available to an individual project. Nor does it change customer contribution arrangements. A developer facing an expensive reinforcement requirement therefore needs to distinguish between two constraints; this reform addresses the former.^[5]

Addressed by the reform Insufficient funding in the regional allowance

Not addressed Costs that exceed the £2 million project cap

Replacing five-year totals in the licence table with annual figures should not be interpreted as introducing a requirement to spend each year’s allowance before year-end. Ofgem’s original settlement already provided £4 million per network annually (equivalent to the existing £20 million allowance per network over the five-year RIIO-GD3 period), with unused funding carried into subsequent years. The licence consultation explains that annualising the table makes the licence formulae operate as intended.^[6]

The governance document permits reported expenditure to exceed the annual allowance where it uses funding rolled forward from previous years. Remaining underspending is reconciled through downward adjustments at price-control close-out. Annual profiling, carry-forward and eventual recovery of unused allowances therefore operate together.^[7]

For project scheduling, the relevant question becomes how much allowance is available within the group, including carried-forward amounts and existing commitments.

Cadent and SGN can redirect unused allowances to eligible projects across their networks, reducing the risk of returning funding while demand elsewhere remains unmet. Allocation decisions will therefore need to consider:

01Project readiness

02Expenditure timing

03Commitments across the group

For developers, funding availability depends on group-level commitments and allocation decisions, rather than regional allowances alone. The reform introduces no prescribed project-ranking system.^[8]

Northern Gas Networks and Wales & West Utilities retain their allowances but gain no equivalent ability to draw on a sister network’s unused funding. Corporate ownership therefore remains a boundary to funding flexibility. This represents a change from Ofgem’s original RIIO-GD3 position.

Ofgem’s position on intra-group sharing

Dec 2025 Rejected. Intra-group sharing could favour operators with multiple networks and raise concerns about consumers funding work outside their own network.^[6]

Aug 2026 Targeted flexibility accepted following new evidence of uneven demand.

Oct 2026 Wider issue left unresolved. Wales & West reiterated its concerns about unequal treatment, while National Gas proposed a common funding pool accessible across gas networks. Ofgem treated a national redesign as outside the scope of this modification.^[4]

The reform therefore improves allocation within corporate groups without establishing a mechanism to allocate funding across Great Britain according to project demand.

Decided 19 Oct 2026 Ofgem approves the modification to Special Condition 3.21.

Takes effect 15 Dec 2026 The licence changes take effect.

Expected Early 2027 Consultation on RIIO-3 associated documents, addressing remaining matters raised by network operators.

Permitted From 1 Apr 2027 A review during the regulatory year, potentially covering project caps, total allowances and governance.

Neither provision commits Ofgem to increasing funding.^{[1] [4]}

Existing funding becomes more usable. The overall allowance remains unchanged.