Ofgem announces £25bn investment programme to transform UK’s energy networks

The proposals aim to enable the delivery of emissions-free green energy across the country and meet national net zero targets, while also maintaining high levels of service and grid reliability

The Big Zero report

Energy regulator Ofgem has announced a new five-year, £25 billion investment programme to transform the UK’s energy networks.

The proposals aim to enable the delivery of emissions-free green energy across the country and meet national net zero targets, while also maintaining high levels of service and grid reliability.

It notes the new investment will also help generate green growth and employment and emphasises it aims to keep costs as low as possible for consumers by proposing the lowest-ever rate of return on capital for network companies and encouraging companies to become more efficient with stretching new efficiency goals and by disallowing ‘unjustified costs’.

Ofgem’s proposals for the RIIO-2 price control would lead to an expected £20 fall in network charges on bills per household a year at the start of RIIO-2.

As well as allocating the funds to maintain and operate gas distribution, gas transmission and electricity transmission networks, Ofgem has also asked network companies to offer any ideas they may have regarding bringing forward investment plans in the current price control.

A further £10 billion or more of investment will potentially be supported through the price controls to help pay for emissions-free energy and infrastructure upgrades – Ofgem stresses such measures will only be approved if they will deliver decarbonisation at the lowest cost to consumers.

A new Strategic Innovation Fund will provide £630 million to drive green research and development to explore “the range of possibilities for decarbonising heat infrastructure, such as hydrogen, with the potential to fund more if needed”.

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. This would save £3.3 billion over the next five years for gas and transmission sectors alone.

Jonathan Brearley, Ofgem’s CEO, said: “Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we are striking a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for around £25 billion of investment needed to drive a clean, green and resilient recovery.

“Now more than ever, we need to make sure that every pound on consumers’ bills goes further. Less of your money will go towards company shareholders, and more into improving the network to power the economy and to fight climate change.

“Ofgem’s stable and predictable regulatory regime will continue to attract the investment Britain needs to go further and faster on decarbonisation.”

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