Ofgem tells energy network firms they must invest without increasing bills
The operators of Great Britain’s local energy networks will be forced to spend more of their profits on investing to future-proof the electricity grid, after the regulator, Ofgem, said it would not allow any rises in household bills.
In a new set of price controls that will run from 2023 to 2028, the energy watchdog said it would keep costs to customers unchanged.
The regulator was criticised by unions and consumer groups for not reducing domestic bills as households struggle with the rising cost of energy.
Customers currently pay about £100 a year in network charges on their bills to allow companies to invest in improvements to the network. Ofgem also ensures the work is funded by limiting network profits and demanding efficiencies from firms.
Ofgem also said companies must invest heavily in the electricity system to ensure they are ready for the added demand expected as more homes and businesses opt for electric cars and electric heating, and more windfarms are connected to the grid. To do this they will have to invest a larger portion of their profits and slash operating costs.
The companies affected include Scottish and Southern Electricity Networks, Northern Powergrid, SP Energy Networks, Electricity North West, National Grid and UK Power Networks.
The changes, which come into force from 1 April next year, mean companies can invest £22.2bn of customer money in the network, £3bn less than requested by the firms – an increase that would have added a few pounds to annual bills. However, the new rules allow spending to reach 6% higher than Ofgem’s draft decisions made in June.
Ofgem also increased the cost of equity – the return that networks are allowed to make on their investments – from the draft proposal level of 4.75% to 5.23%.
The controls allow greater flexibility for Ofgem to alter restrictions during the five-year period.
Akshay Kaul, Ofgem’s interim director of infrastructure and security of supply, said: “We’ve carefully considered all the work that will be required and set the budget for the networks accordingly, driving the increase in capacity needed for net zero as well as delivering more reliable and resilient networks, at no extra cost to consumers.”
The Guardian revealed this month that Sharon Graham, the general secretary of Unite, had written to Ofgem to accuse the companies responsible for bringing electricity to UK homes of “rampant profiteering”. Ofgem shunned calls from Unite and the Labour MP Darren Jones, the chair of the business, energy and industrial strategy committee, to reopen a consultation into how much networks can bill customers.
Graham said on Wednesday: “Unite will now escalate our campaign by taking this issue to MPs in the worst-hit areas so they cannot ignore how energy profiteers hurt their constituents or the strength of public feeling to rein them in.”
Gillian Cooper, the head of energy policy for Citizens Advice, said: “Networks have been allowed to make excessive profits for far too long. In the middle of a cost of living crisis, Ofgem is right to challenge them to operate as efficiently as possible – which will help lower people’s bills.”
Cooper said that Ofgem’s announcement “shows some progress in getting better value for money for consumers. However, network profits will still be too high and targets too easy. We believe Ofgem could have gone further and cut at least £1.5bn more off people’s bills.”
National Grid said: “We will now review in detail the full package contained within the final determination to see whether it incentivises sufficient investment to ensure safe, secure and reliable supply of electricity alongside the need to help transition to a lowcarbon domestic energy system, at the lowest cost to customers.”
Shares in National Grid and the Scottish and Southern Electricity Networks owner, SSE, rose on Wednesday morning.