Ofgem has unveiled proposals that would see the UK invest £25bn over the next five years to deliver a “greener, fairer energy system” while cutting consumer energy bills.
Under the proposals the upfront expenditure, partly generated from reducing network companies’ returns, would support the growth of green energy in the UK, while helping to maintain and operate its gas and electricity transmission networks. A further £10bn, generated through price controls, would be made available to companies for green energy and infrastructure upgrades – every investment would be scrutinised to ensure measures that deliver decarbonisation at the lowest cost to consumers.
Plans for a new Strategic Innovation Fund have also been confirmed, providing £630m for research and development into green energy projects, with the potential to fund more if needed.
Jonathan Brearley, Ofgem’s chief executive, said:
“Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we are striking a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for around £25 billion of investment needed to drive a clean, green and resilient recovery.
Now more than ever, we need to make sure that every pound on consumers’ bills goes further. Less of your 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 regime will continue to attract the investment Britain needs to go further and faster on decarbonisation.”
Ofgem’s proposals would nearly halve network companies’ allowed rate of return, so that less of consumers’ money goes towards network companies’ profits, and more towards driving network improvements, resulting in reported savings of £3.3bn over the next five years for gas and transmission sectors alone. In addition the regulator is proposing to cut over £8bn from companies’ spending plans by setting them stretching efficiency targets and disallowing costs that companies have simply not justified as delivering value for money for consumers. It is now up to the companies to come back and provide more robust evidence on why this expenditure is needed.
Ofgem’s proposals as they stand would lead to consumers saving an average of £20 a year on their energy bills.
The announcement was welcomed by the REA, with their Chief Executive, Dr Nina Skorupska CBE, saying:
“With this price control we have an enormous opportunity to lay the foundations for a Net Zero energy system. Ofgem is right to carefully scrutinise the projects that go ahead and allowable returns, and we welcome their increased focus on delivering decarbonisation at lowest cost and at pace. Throughout this process we need to remember that grid upgrades are not the only way to integrate more renewable energy onto the system, and that flexibility, through technologies like energy storage, offers a low-cost alternative. Their ‘reopener’ mechanism is an innovative means of striking that balance.
The £630 million Innovation funding for green energy is also particularly welcome. Investment should focus on ensuring both the electricity and gas grid are ready for the renewable technologies needed to decarbonise both our power and heat requirements in line with the UK’s net-zero ambitions.
We welcome Ofgem’s decision to expand funding to the Electricity System Operator, this will ensure they are able to integrate and manage a modern low-carbon power system.”