LONDON (Reuters) - Britain's energy network operators face tougher price controls from 2021 as investment costs in the networks have fallen, the energy market regulator said on Wednesday.
Energy networks are monopolies so the regulator, Ofgem, sets controls for the maximum amount companies can recover to fund the operation and investment in their networks.
However, it said price controls need to evolve to meet the changing needs of an energy system where renewable energy, for example, now accounts for 24 percent of capacity, compared to 5 percent 10 years ago.
"Ofgem is signalling today that companies need to prepare themselves for a tougher round of price controls from 2021," the regulator said in a statement.
"This is in line with other utility regulators, as there is clear evidence pointing towards the cost of investment required for networks (cost of capital) being significantly lower," it added.
The current gas distribution and transmission price controls run from 2013 to 2021, while the current period for electricity distribution price controls is from 2015 to 2023.
The current forecast rate of return for energy distribution and transmission companies under 2013-2021 controls ranges from 7 to 12 percent, Ofgem said.
Reporting by Nina Chestney; Editing by Susan Fenton