Electricity network distributors accept price controls in return for green updgrade

Ofgem, the UK energy industry regulator, first set out its proposals in August 2009 and has set what it calls a “tough but fair price control” for all seven owners of Britain’s electricity distribution networks for 2010 to 2015.

Over the next five years, Ofgem has said the seven companies – SSE Power Distribution, EDF Energy Networks, Central Networks, Western Power Distribution, Scottish Power, ENW and CE Electric UK – will be able to invest up to £7.2 billion in upgrading their networks. This will include a £500 million sustainability fund, which will allow them to undertake large-scale trials of smart grids and other technology required for a low carbon economy. The investment comes with tough targets though, and only the two most efficient distributors will get all the investment they have asked for.

The seven electricity network operators run 14 regional monopoly companies across the UK that transport electricity from the National Grid to homes and businesses. Electricity suppliers pay these regional distribution network owners (DNO) directly and transfer their costs onto householders and businesses. As they can only be run as regional monopolies, Ofgem controls how much and what they invest in, thus limiting how much extra consumers and businesses have to pay.

Ofgem says the new price controls will mean an average £4.30 increase on annual household electricity bills, but will open the way for much-needed local power generation and other developments to help tackle climate change. This increase, according to the regulator will give “better customer service, improved reliability and a greener electricity supply”. Ofgem does not yet know the impact this will have on businesses electricity bills.

The regulator’s chief executive Alistair Buchanan said: “Our proposals are tough on inefficiency and poor service but are fair in allowing the companies to invest to replace ageing network assets and in improving the environment. The controls provide great opportunities for companies which are more efficient and excel at providing what their customers want – but they will penalise poor performers. We have listened to consumers’ expectations of top quality service, reliability, fair prices and environmental improvement for today and for the future.”

The UK’s independent watchdog, the Sustainable Development Commission (SDC), has welcomed Ofgem’s focus on sustainability with this price control package and states that the next five to 10 years will be critical in ensuring that the UK is able to decarbonise the electricity system as quickly as possible to meet the UK’s “challenging” emissions targets. SDC said that the 2010 to 2015 price control, “provides a practical example of how existing policy frameworks can be adjusted to better deliver the transition to a low carbon economy in the short term.’