Ofgem’s new rules for £30bn network upgrade in force now

Ofgem’s new rules on how much energy network companies can charge to support more than £30 billion worth of infrastructure investment plans put forward by them have come into effect […]

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By Priyanka Shrestha

Ofgem’s new rules on how much energy network companies can charge to support more than £30 billion worth of infrastructure investment plans put forward by them have come into effect this week.

The price controls, known as RIIO-ED1 (Revenue = Incentives + Innovation + Outputs-Electricity Distribution), determine the amount network operators can charge for their services up to 2021. They have been designed to encourage companies to “deliver improvements in customer satisfaction, reliability, stakeholder engagement and sustainable services at value for money to consumers”.

The plans include around £7 billion for Scotland’s high voltage electricity network, £15.5 billion for the high voltage electricity network in England and Wales as well as high pressure gas networks across Britain and around £8.7 billion for Britain’s low pressure gas networks. The projects are expected to help create more than 8,000 jobs across the nation.

Hannah Nixon, Ofgem’s Senior Partner for Distribution said: “This week marks a very significant moment as it forms a key part of implementing the investment needed to protect our security of supply. Ofgem’s new RIIO price control framework delivers around £30 billion of this investment at a fair price to consumers. It also helps ensure Britain’s energy infrastructure will remain among the most reliable in the world.”

The energy regulator said the increased investment could increase household bills by an average of £9.60 every year and rise by £12.70 in 2021. However, the network companies need to appoint people on their boards by April next year who can put restrictions on cash flows if necessary.

Ian Marlee, Ofgem’s Senior Partner for Transmission said: “It is vital that consumers’ money is protected. That is why Ofgem is strengthening the ring fence rules and introducing a requirement for two sufficiently independent non-executive directors on network licensee Boards.”