Ofgem proposes £6.3 billion investment for greener electricity

The package of measures is designed to improve customer service and network reliability delivered by the regional electricity network companies, while at the same time paving the way for further carbon reductions within the energy industry.

The proposals contain what the regulator describes as “ambitious new incentives” to encourage electricity network companies to increase the amount low carbon generation connected to their networks over the next five years.

There will also be to incentives to decrease the amount of network losses – currently calculated to be sufficient to supply electricity for some six million homes.

Ofgem is also proposing a £500 million Low Carbon Networks Fund for large-scale trials of advanced technology, such as smart grids, which it hopes will help the networks to accommodate growth in local generation, electric vehicle use and other developments anticipated in a low carbon economy.

“Companies need to adapt to the needs of a low carbon economy,” said Ofgem chief executive Alistair Buchanan. “Greater use of electric vehicles, home-grown generation and other developments will demand radical change in the way networks are designed, managed and operated.”

To limit the additional costs to be passed on to consumers, Ofgem wants network companies to deliver their investment plans for 17 per cent less than previously forecast and to collectively cut their previously forecast operating costs by 10 per cent.

In its response to to the Ofgem proposals, the Energy Network Association (ENA) – the industry body for UK energy transmission and distribution operators – expressed concern about these cuts, pointing out that in constructing their business plans the companies had made a thorough assessment of their expenditure requirements following extensive consultation with their stakeholders.

The ENA said the network companies will now have to assess whether Ofgem’s proposal to cut these spending plans by more than £2 billion puts at risk the delivery of these objectives.

“It is of some concern that there remain a large number of outstanding issues,” commented the ENA’s David Smith. “Until these are satisfactorily resolved, Ofgem will not be able to say that the process has reached a conclusion that delivers for customers, investors and the low carbon agenda.”

If Ofgem’s proposals are adopted, the regulator says they will add less than £4 a year, on average, to annual domestic electricity bills.

In the past consumer groups have complained that customers are having to foot the bill for more than their fair share of the cost of switching to a low carbon economy.

Last week Which? urged the Government not to saddle consumers with the multi-billion pound bill for the roll-out of smart meters.

It quoted figures showing the average household will make an annual saving of just £1.43 from smart meters (based on a £36.75 million saving for all of the UK’s consumers), while the energy industry will save more than eight times that amount – some £306 million a year.

“We don’t see how the Government can justify asking consumers to pay for something that will save energy companies hundreds of millions a year, while the average household will make only minimal savings,” said Which? energy campaigner, Dr Fiona Cochrane.

The Government’s consultation on smart metering, launched in May, concluded last week. The Government wants the roll-out of smart meters to be completed by the end of 2020.