The price controls set the revenue network companies can earn from charges to consumers – from 2021, the length will be reduced to five years compared to the current eight years.
Ofgem has also confirmed the cost of equity range, i.e. the amount network firms pay their shareholders, will reduce to between 3% and 5% from 6% to 7% currently.
Energy customers currently pay around £250 a year on the typical dual fuel household bill – the changes are expected to help save around £15 to £25 a year on bills – or more than £5 billion in total.
However, it will be setting the revenue the grid operator can earn from the upgrade.
Jonathan Brearley, Ofgem’s Executive Director for Systems and Networks said: “Today we have set out our plans which will bring in tougher price controls with lower expected returns for network companies. This is part of our ongoing programme to ensure that consumers get reliable and secure power supplied at a fair price.
“As part of this continuous drive to deliver value for consumers, we are using a new benchmarking approach to cut the costs of connecting the new Hinkley Point C nuclear power station. This is another example of how we are evolving regulation to deliver the upgrades to our power network while ensuring the impact on bills is kept as low as possible.”