LONDON (Reuters) - British energy regulator Ofgem said energy network operators should invest 25 billion pounds ($32 billion) from 2021 to 2026 to deliver emissions-free energy and proposed cutting returns these companies can make in order to reduce household bills.
Britain has a climate target to reach net zero emissions by 2050 which will require a huge increase in renewable energy and investment to increase the stability of its energy networks.
“Given the scale of green investment likely to be needed in future, Ofgem is keeping costs as low as possible for consumers by proposing the lowest ever rate of return on capital for network companies,” Ofgem said in a statement.
National Grid (NG.L), one of several companies that owns and runs Britain’s infrastructure of gas pipes and power cables, said it was disappointed by the proposals, saying they “jeopardised the delivery of the energy transition.”
Under Ofgem’s price control system network operators present plans for work they will do and setting out costs. Ofgem assesses the plans and sets limits on the profit they can make.
Consumers pay for the investment through network charges, making up almost a quarter of an average household energy bill.
Ofgem said it was allocating 25 billion pounds upfront expenditure but was proposing to cut more than 8 billion pounds from companies’ spending plans by setting efficiency targets and cutting costs it did not think were justified.
“Ofgem’s proposals 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,” it said.
Ofgem estimates this will save more than 3.3 billion pounds over the next five years leading to an expected fall of 20 pounds per household in network charges on bills.
($1 = 0.7913 pounds)
Reporting by Susanna Twidale; Editing by Edmund Blair