Energy networks · Ofgem · Special Condition 9.1
The Ofgem RIIO-3 Annual Environmental Report: a licence duty, not an ESG choice
The Ofgem Annual Environmental Report is a licence obligation: Special Condition 9.1 requires electricity transmission, gas transmission and gas distribution licensees to prepare and publish one, under Ofgem’s Environmental Reporting Guidance.
It has a commentary and a KPI table, covers Scope 1, 2 and 3, and now includes mandatory climate resilience reporting.
The first RIIO-3 report is due by 31 October 2027.
The duty
Special Condition 9.1, and the guidance beneath it
Ofgem’s guidance opens by saying what it is for: licensees use it to comply with their obligation in Special Condition 9.1 of the electricity transmission, gas distribution and gas transmission licences to prepare and publish an AER.
The duty is in the licence, which makes the report a condition of the price control rather than a voluntary disclosure.
Ofgem issued the guidance, with its KPI Table, by a Direction under the RIIO-3 licences, and its licence modifications decision explains why the condition points to a common format.
The guidance is subordinate to the licence: at ¶1.7 it says that if there is any ambiguity, the licence takes precedence.
Electricity distribution network operators report under the separate RIIO-2 guidance for their own price control, so their contents and dates should be read there.
Electricity transmission, gas transmission and gas distribution: the RIIO-3 guidance.
Electricity distribution: the separate RIIO-ED2 guidance.
Sources: RIIO-3 guidance §1.3 · RIIO-2 guidance
Structure
A commentary, a KPI table, and a status table up front
| Element | What the guidance says | Paragraph |
|---|---|---|
| Two sections | A qualitative AER Commentary and a quantitative AER KPI Table | §1.5 |
| What it reports on | Progress against the Environmental Action Plan in the licensee’s Business Plan | §1.2 |
| Length | KPI Table typically not more than 5 pages; Commentary typically not more than 45 | ¶2.17 |
| Period | Data for the preceding Regulatory Year | ¶2.19 |
| Groups | A single document is acceptable for a group of licensees if the corporate structure is defined | ¶2.16 |
| Executive summary | A table of Environmental Action Plan commitments with a Blue/Red/Amber/Green status | ¶3.4 |
The BRAG status
Blue for completed, green for on track, amber for delayed but likely achievable, red for a commitment highly likely to be missed.
It puts the scorecard first, before the narrative.
Incidents
Environmental incidents reported to regulators, and any action the regulators took, are reported (¶3.14).
A permit breach that an environmental regulator scores therefore surfaces here too; the environmental permitting page explains the scoring in England.
The carbon footprint
Scope 1, 2 and 3, with targets and offsets on the record
The AER’s reporting principles are drawn from accounting principles and the GHG Protocol Corporate Standard, as footnote 2 to ¶2.1 says.
The Business Carbon Footprint spans all three scopes, so a network reports value-chain emissions beside its own operations and the electricity it buys.
Under ¶3.8 licensees must report all Scope 3 emissions where possible, including updated screening against the Scope 3 Standard’s categories.
Where a category cannot be reported, ¶3.9 asks for the reason and a programme with milestones to improve.
¶3.11 asks licensees to adopt a science-based emissions reduction target where possible, and ¶3.13 limits offsetting to residual emissions, in line with SBTi guidance where possible.
The AER must say explicitly whether any offsets used are domestic or international.
The GHG Protocol page explains the standard, and Scope 1, 2 and 3 emissions what falls where.
“The AER must cover Scope 1, 2 and 3 emissions for Business Carbon Footprint (BCF).”
Source: Ofgem RIIO-3 guidance
By network type
What each kind of network adds
| Network | Additional reporting | Paragraph |
|---|---|---|
| Electricity transmission | Transmission losses in TWh, as a percentage of total electricity transmitted, and in tonnes of CO2e | ¶3.25 |
| Electricity transmission | SF6 and other insulation and interruption gas emissions (tCO2e) and leakage rate (%) | ¶3.28 |
| Gas distribution | Shrinkage | ¶3.34 |
| Gas distribution and gas transmission | Biomethane and hydrogen blending | ¶¶3.21–3.23 |
Beyond carbon
Nature, resilience and what gets built
Biodiversity units are calculated using the latest Defra Biodiversity Metric for projects in England, and an appropriate equivalent in Scotland and Wales (¶3.43).
They go in the Commentary: ¶3.45 says biodiversity reporting is not required in the KPI Table.
Climate change resilience and adaptation reporting is mandatory in RIIO-3, which ¶3.46 calls a step change from earlier years when it was optional.
For construction, methods and reporting for embodied carbon must align with industry standards, such as PAS 2080, where this is possible.
PAS 2080 is the named example, not the only permitted method, and ¶3.57 asks for embodied carbon at “final design” and “as built” where possible.
The same specification appears in the buildings world, where it is voluntary; the Future Homes Standard page sets out how embodied carbon is treated there.
Timing and contents
Plan the report for your network and year
RIIO-3 runs from 1 April 2026 to 31 March 2031, as the Final Determinations set it.
Each AER covers a regulatory year beginning on 1 April and is published on the licensee’s own website by the following 31 October.
So the first RIIO-3 report, for the year from 1 April 2026, is due by 31 October 2027, and the last of the period by 31 October 2031.
The deadline is 31 October, from Ofgem’s own guidance; electricity distributors should check the ED2 guidance for theirs rather than assume the same date.
The planner builds the contents list for your network type, with the paragraph for each line.
AER planner · RIIO-3
Regulatory year 1 April 2026 – 31 March 2027: publish on your website by 31 October 2027.
Special Condition 9.1; first RIIO-3 report due 31 October 2027.
- Two sections: a qualitative AER Commentary and a quantitative AER KPI TableGuidance §1.5
- KPI Table typically no more than 5 pages; Commentary typically no more than 45Guidance ¶2.17
- Data for the preceding Regulatory YearGuidance ¶2.19
- Executive summary table of Environmental Action Plan commitments with a Blue/Red/Amber/Green statusGuidance ¶3.4
- Business Carbon Footprint across Scope 1, 2 and 3; all Scope 3 where possible, with screening updatesGuidance ¶3.8
- Where a Scope 3 category cannot be reported: why, and a programme and milestones to improveGuidance ¶3.9
- A science-based emissions reduction target, where possibleGuidance ¶3.11
- Offsetting for residual emissions only, in line with SBTi guidance where possible, stating whether offsets are domestic or internationalGuidance ¶3.13
- Environmental incidents reported to regulators, and any regulator actionGuidance ¶3.14
- Transmission losses in TWh, as a percentage of electricity transmitted, and in tonnes of CO2eGuidance ¶3.25
- SF6 and other insulation and interruption gas emissions (tCO2e) and leakage rate (%)Guidance ¶3.28
- Biodiversity units by the latest Defra Biodiversity Metric for England (equivalents in Scotland and Wales); in the Commentary, not the KPI TableGuidance ¶¶3.43, 3.45
- Climate change resilience and adaptation — mandatory in RIIO-3, optional beforeGuidance ¶3.46
- Embodied carbon at “final design” and “as built” where possible, aligned with industry standards such as PAS 2080Guidance ¶3.57
Source: Ofgem, Environmental Reporting Guidance (RIIO-3).
The guidance is subordinate to the licence (¶1.7).
Nothing you pick is stored or sent.
Tools and other duties
AER reporting software, and the reports beside the AER
Ofgem prescribes the content and the KPI Table, not a software product.
Whatever system a licensee uses must produce a GHG Protocol footprint across all three scopes and the network-specific metrics, from SF6 leakage to shrinkage.
The carbon reporting software guide covers the tools on the market.
The AER sits beside, not instead of, a licensee company’s other duties: a large unquoted company that fails the SECR “not more than” test also reports energy and emissions in its directors’ report under SECR.
Energy networks are one of several industries with their own rule; the rest are on UK sustainability reporting by sector.
- 1 Apr 2026RIIO-3 begins
First regulatory year.
- 31 Oct 2027First RIIO-3 AER published
For 1 April 2026 to 31 March 2027.
- Each 31 OctLater reports
One per regulatory year.
- 31 Mar 2031RIIO-3 ends
Frequently asked
The Ofgem AER, answered
What is the Ofgem Annual Environmental Report?
A report that gas and electricity transmission and gas distribution licensees must prepare and publish each year under Special Condition 9.1 of their RIIO-3 licences.
It reports progress against the licensee’s Environmental Action Plan in two sections, a qualitative AER Commentary and a quantitative AER KPI Table, in the form set by Ofgem’s Environmental Reporting Guidance.
Is the AER mandatory?
Yes.
The obligation sits in the licence condition itself, so failing to publish is a licence compliance matter.
The guidance says it is subordinate to the licence, and where the two are ambiguous the licence takes precedence.
When is the RIIO-3 Annual Environmental Report due?
The report for the regulatory year beginning 1 April 2026 must be published on the licensee’s website by 31 October 2027, and each later report by 31 October in each year.
RIIO-3 runs from 1 April 2026 to 31 March 2031.
Does the AER include Scope 3 emissions?
Yes.
The Business Carbon Footprint covers Scope 1, 2 and 3, and licensees must report all Scope 3 emissions where possible, including updated screening.
Where a category cannot be reported, the licensee explains why and sets out a programme and milestones to improve.
Do electricity distribution networks follow the RIIO-3 guidance?
No. The RIIO-3 guidance covers electricity transmission, gas transmission and gas distribution.
Electricity distribution network operators report under the separate RIIO-ED2 guidance, so do not assume one document or one deadline covers all four sectors.
How long should an AER be?
Ofgem’s guidance says the KPI Table section will not typically exceed 5 pages and the Commentary will not typically exceed 45 pages.
A corporate group covering several licensees may publish a single document if the corporate structure is defined.
Is climate resilience reporting required in the AER?
Yes, from RIIO-3.
The guidance calls mandatory climate change resilience and adaptation reporting a step change from previous years, when such reporting was optional.
Is biodiversity reported in the KPI table?
No. Licensees calculate biodiversity units using the latest Defra Biodiversity Metric for projects in England, and equivalents in Scotland and Wales, but the guidance says biodiversity reporting is not required in the AER KPI Table; it belongs in the Commentary.
What software is needed for AER emissions reporting?
Ofgem prescribes no software. It prescribes the content and the KPI Table format.
Whatever tool a licensee uses has to produce a Business Carbon Footprint built on the GHG Protocol Corporate Standard across all three scopes, plus the sector-specific metrics such as SF6 leakage or gas shrinkage.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
- OfgemNetwork price control 2026–2031 (RIIO-3) guidance
Where Ofgem publishes the RIIO-3 associated documents, including the reporting guidance.
- OfgemEnvironmental Reporting Guidance (RIIO-3), published 1 April 2026
The duty (§1.3), structure (§1.5), precedence (¶1.7), lengths (¶2.17), and every content paragraph cited on this page.
- OfgemDirection to issue Associated Documents under the RIIO-3 licences
Issues the Environmental Reporting Guidance, including the KPI Table, under Special Condition 9.1.
- OfgemDecision on RIIO-3 licence modifications — reasons and effects
Why the licence condition points to a common KPI format.
- OfgemRIIO-3 Final Determinations — overview (December 2025)
The price control period, 1 April 2026 to 31 March 2031.
- OfgemRIIO-2 Environmental Reporting Guidance
The earlier guidance, under which electricity distribution reports.
- GHG ProtocolCorporate Accounting and Reporting Standard
The source of the AER’s accounting principles (¶2.1, footnote 2).
- GHG ProtocolCorporate Value Chain (Scope 3) Standard
The Scope 3 categories licensees screen and report.
- Science Based Targets initiativeStandards and guidance
Science-based targets (¶3.11) and offsetting for residual emissions (¶3.13).
- GOV.UK (Defra)Statutory biodiversity metric tools and guides
The metric licensees use for projects in England (¶3.43).
- BSIPAS 2080:2023 Carbon management in buildings and infrastructure
The example industry standard for embodied carbon.
- legislation.gov.ukSI 2008/410 Schedule 7 paragraph 20B
SECR, which a large licensee company also meets in its directors’ report.