Ofgem’s strategy for Britain’s new gas and electricity market framework could save consumers £1billion over the next eight years.

The market regulator announced the RIIO framework (Revenue=Incentives+Innovation+Outputs) today.

Under the new framework, businesses will be faced with strong incentives and penalties to encourage them towards smarter, more sustainable networks and improved customer service. £400 million will be available in funds to projects which deliver cost-effective benefits to consumers between 2013-21.

Ofgem hopes the RIIO will play a key part in stimulating energy investment. Alan Buchanan, Ofgem’s Chief Executive said: “Britain’s energy networks have a huge role to play in delivering over £30billion of the £200billion of energy investment needed in the next ten years. This is why it is important that Ofgem sets companies a clear incentive framework to deliver the necessary investment and innovation as cost effectively as possible for consumers.”

Mr Buchanan set a deadline for businesses to work out their plans to conform to RIIO targets. He said: “It is now up to companies to rise to the challenge. They must set out by the end of July how they are going to ensure safe, reliable networks with high levels of customer service while delivering the investment necessary to meet the needs of a low carbon economy.”

Full details of the RIIO will be published in a Strategy Decision Document at the end of March.