A regulated innovation funding framework for energy network transformation is a structured, publicly administered mechanism that channels ring-fenced funding from network price controls into the development and demonstration of new technologies, services and business models needed to decarbonize electricity and gas networks.  

Rather than relying on utilities to self-fund innovation or on commercial markets to develop early-stage solutions, the framework creates a dedicated pathway through which energy network companies partner with innovators and apply for staged funding against published challenge areas. Projects typically progress through phases such as feasibility, proof of concept and large-scale demonstration, with funding increasing at each stage and fewer projects advancing.  

The framework is designed to address a persistent market failure: transformational energy infrastructure innovation is often too risky and too long-cycle for private capital alone, while the changes required for net zero are too urgent to leave to incremental network investment. By embedding innovation funding within the regulatory price control, the mechanism strengthens accountability to consumers, requires measurable net benefit and creates a replicable program structure that can be extended, scaled and refined across successive price control periods. 

Main Outcomes of the Solution 

• Sustainability: Accelerates the development and deployment of technologies needed to decarbonize electricity and gas networks, including whole-system integration, network flexibility, electrification and low-carbon energy infrastructure. 
• Affordability: Limits consumer cost exposure through competitive allocation, net-benefit requirements and phased funding gates that concentrate resources on the most promising projects. 
• Institutional Efficiency & Transparency: Embeds innovation within the regulatory framework, creating clear governance, challenge-based direction, published project information and accountability for consumer-funded innovation. 

Key Deployment and Scaling Factors 

1. Embed the innovation fund within the regulatory price control so consumer funding is subject to clear governance, net-benefit requirements and regulatory accountability. 
2. Publish challenge areas co-developed with industry, consumers, regulators and government to focus innovation on priority system needs. 
3. Use a phased funding structure – such as feasibility, proof of concept and demonstration – to manage risk and create a clear progression pathway from early concept to deployment. 
4. Require network license holders to partner with innovators, technology companies and research institutions so funded ideas are connected to operational network needs. 
5. Add deployment support in successive price control periods to bridge the gap between successful demonstration and widespread operational adoption. 
6. Require transparent monitoring, reporting and knowledge-sharing so lessons from funded projects can inform wider industry practice. 
7. Align funding with data governance, cybersecurity, interoperability and safety requirements, particularly where projects involve digital systems or operational network assets 

Case study 

Ofgem and Innovate UK, Strategic Innovation Fund (2021–2026), United Kingdom 

The Ofgem Strategic Innovation Fund is delivered in partnership between Ofgem and Innovate UK as part of the RIIO network price control. Launched in 2021 as a five-year, £450 million program under RIIO-2, the fund supports innovation in gas and electricity networks for a low-carbon future. Ofgem and Innovate UK now describe SIF as a £1 billion program, including a further £500 million for the RIIO-3 period.  

By the end of 2024, the program reviewed more than 270 new ideas and approved more than £104 million of funding, including 12 large-scale Beta demonstration projects. The 2024 annual report also identified 234 funded projects involving 339 organizations, with 191 completed and 43 live. These figures indicate the scale of participation and the staged progression model used to filter ideas toward larger demonstrations.  

For RIIO-3, the program introduces five innovation challenges for 2026 to 2033, covering industrial and business connection acceleration, network build speed and cost, plug-and-play domestic devices, outage reduction and decentralized system balancing. Ofgem’s governance documentation also confirms a multi-phase project approach designed to mitigate innovation risk.  

Projected outcomes from funded projects include more than £5.9 billion in potential cost savings and over 12.2 million tons of CO₂-equivalent in potential emissions reductions by 2035, based on illustrative projections assuming projects progress to full rollout. These projected benefits are associated with innovations in areas such as network flexibility, decentralized system balancing, electrification and whole-system integration, and should be treated as projected benefits rather than realized outcomes. 

References:

1. Apply to the Strategic Innovation Fund (SIF) – Ofgem 
2. Ofgem Strategic Innovation Fund Programme Page – Innovate UK Business Connect 
3. Strategic Innovation Fund Annual Report 2024 – Innovate UK / UKRI 
4. £84 Million of SIF Funding to Accelerate Race to Net Zero – UKRI