Britain’s energy watchdog has today vowed to take money out of shareholders’ pockets to slash bills and pump £25billion into the UK’s green energy network.
Ofgem said households stand to save around £20 a year on their gas and electricity bills under its proposals, which are set to come into force from next year.
Under its plan, Ofgem will halve the rate of profits that businesses will be allowed to simply take from their investments doing the green energy works up until 2026.
However, the proposals were attacked by some of Britain’s biggest energy networks, that will have to shoulder the price.
The regulator argues that businesses and investors will still be willing to put their cash on the line to invest in upgrades to the device because the UK’s energy networks are a very low-risk investment.
Ofgem’s plans will halve the rate of profits that energy companies will soon be allowed to take from their investments doing the green energy works (file image)
‘Strong evidence from water regulation and Ofgem’s offshore transmission regimen shows that investors will accept lower returns and continue to invest robustly in the sector,’ Ofgem said.
Meanwhile, the watchdog is putting away £25 billion for investment in the UK’s energy networks, including those run by National Grid.
There may also be a package of around £10 billion in additional funding which can be only designed for clean energy investment, but companies will be needing to apply on a project-by-project basis.
More money could be set aside if Ofgem receives enough good proposals.
The regulator will scrutinise proposed investments and only give them permission if they cut carbon at a low cost to customers.
This could include a recently proposed National Grid project to install electric car charging points up and down British motorways, and innovative solutions such as switching the gas grid to run on hydrogen.
Ofgem may also set aside £630 million to encourage new research and development in green energy.
SSE said it was ‘disappointed’ and ‘deeply concerned’ by the energy regulator’s plans (file image)
It could be the latest announcement from the regulator before next year’s change to the rules on how much of investment costs networks can pass on to clients.
The current rules, known in industry jargon as RIIO-1, are set to expire next year. They will soon be replaced by RIIO-2, that will last until 2026.
Ogem chief executive Jonathan Brearley said they want to deliver a ‘fairer’ energy system
Ofgem has proposed that the allowed rate of return be set at 3.95 per cent. It is around half what was allowed under RIIO-1, and will save British households some £3.3 billion on the five years to 2026.
Currently around one fourth of the common household’s energy bill goes to buy the network.
The news angered some of the businesses which will be the hardest hit.
National Grid said it will be pressing for changes that will incentivise investment and protect consumers ahead of Ofgem’s final decision in December in 2010.
‘We are extremely disappointed with this draft determination, which risks undermining the process established by Ofgem. This proposal leaves us concerned as to our ability to deliver resilient and reliable networks, and jeopardises the delivery of the energy transition and the green recovery,’
Meanwhile, SSE said it is ‘disappointed and deeply concerned’.
Rob McDonald, managing director of subsidiary SSEN Transmission, said: ‘Whilst our stakeholder-endorsed and evidence-based business plan was in step with the Government’s low-carbon investment ambition, Ofgem’s first pass at funds resembles a worrying reunite to austerity.
‘Ofgem’s draft determination is a barrier towards achieving net-zero and damaging to the green economic recovery.’
National Grid said it will likely be pressing for changes which will incentivise investment (stock image)
However, the move won support from Citizens Advice leader Dame Gillian Guy:
‘Today’s announcement is still another step closer to an amount control that stops network companies from overcharging energy customers by billions of pounds,’ she said.
‘These decisions are extremely technical, but they matter. Ofgem has struck the proper balance between shareholder returns and affordable for energy customers, while making sure networks can carry on to attract investment.’
Ofgem leader Jonathan Brearley said: ‘Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we’re striking a good deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for approximately £25 billion of investment needed to drive a clean, green and resilient recovery.
‘Now, as part of your, we need to make sure that every pound on consumers’ bills goes further. Less of one’s money will go towards company shareholders, and more into improving the network to power the economy and to fight climate change.
‘Ofgem’s stable and predictable regulatory regimen will carry on to attract the investment Britain needs to go further and faster on decarbonisation.’
A ultimate decision will be manufactured in December following the companies have experienced time to feed in.