The companies that run the UK’s local electricity grids need to lean while investing to make the grid greener, Ofgem said as it vowed it will force them to pay money despite not allowing them to pay more for their services to demand.
The regulator said the grid’s local operators must cut their operating costs and leverage their profits to undertake one of the biggest transformations of the country’s energy systems in decades.
Companies include UK Power Networks in south-east England and SP Energy Networks in southern Scotland, among others.
They need to invest billions of pounds – £22.2 billion to be precise – between 2023 and 2028 to help the UK prepare for a future where more homes and businesses are opting for electric cars and heating.
The companies had asked for just under £3billion more – a request rejected by officials.
The regulator wants to keep costs down for households, not least at a time when the country is gripped by a global energy crisis.
Fees paid to these companies are included in households’ energy bills and will remain at around £100 a year even after the changes, Ofgem said on Wednesday.
Akshay Kaul, Interim Director of Infrastructure and Security of Supply at Ofgem said: “Today’s investment will add value for consumers, ensure security of supply and help ensure that the UK is no longer at the mercy of international energy prices or geopolitical events.
“We have identified the initial amount of investment that local electricity distribution system operators can make over the period 2023-2028, with every pound representing good value for consumers and not increasing bills.
“The energy economy has changed, with homegrown clean renewable energy like wind and solar proving cheaper than expensive imported gas.”
Companies affected include Scottish and Southern Electricity Networks, Northern Powergrid, SP Energy Networks, Electricity North West, National Grid and UK Power Networks.
The decision increases the so-called allowable cost of equity from 4.75% in Ofgem’s draft decision to 5.23% in the bottom line – benefiting companies.
Although the regulator won’t allow companies to make all the investments they wanted to make, spending will be 6% higher than stated in the draft decision.
Jefferies analysts said the result was positive for National Grid and SSE and neutral for Spain’s Iberdrola, which owns ScottishPower.
National Grid said: “We will now examine in detail the entire package included in the final decision to determine whether it provides enough investment incentives to ensure secure and reliable electricity supply, while at the same time transitioning to a to support low-carbon domestic energy system at the lowest cost to customers.”