Companies that operate the UK’s energy networks have criticised Ofgem’s draft determination on transmission network plans, saying proposals will hinder their ability to deliver changes to meet net zero.
Proposals detailed in Ofgem’s draft determinations for the RIIO-2 price control for transmission and gas distribution network companies include nearly halving companies’ allowed rate of return.
This would save £3.3bn over the next five years for gas and transmission sectors, said Ofgem.
“This is so that less of consumers’ money goes towards network companies’ profits, and more towards driving network improvements,” Ofgem said.
Ofgem chief executive Jonathan Brearley said: “Ofgem is working to deliver a greener, fairer energy system for consumers.”
The RIIO-2 price control period will run from 2021 to 2026.
ScottishPower chief executive Keith Anderson said: “Today’s announcement is gravely at odds with the UK Government’s ambition to boost investment in green infrastructure to help drive the economic recovery and accelerate Net Zero. It’s a massive missed opportunity.
“This was Jonathan Brearley’s first big test as the new Ofgem chief executive and he’s flunked it.
“Instead of investing more in creating green jobs and skilled apprenticeships in every community, at a time when the UK needs them most, this is a short-sighted return to austerity politics. Nobody benefits from this half-baked plan. It’s bad for jobs, bad for apprenticeships, bad for training and bad for the UK supply chain.”
Anderson added: “Net zero can be an accelerator of the economic recovery, but only if private companies are given the right conditions for investment. Slamming the door in investors’ faces by offering one of the lowest rates of return of any developed country traps the UK in an economic cul-de-sac.”
Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit (ECIU), said: “Shifting focus to cutting carbon at the same time as keeping a lid on network profits is good news for hard-pushed families and for efforts to get the UK back on track to meet its climate targets.
“Ofgem appears to have listened to criticism that it hasn’t been pushing hard enough on environmental measures and has been giving the networks – which make up around a quarter of domestic bills – an easy ride.
“Until now there has been lots of talk on innovation from the network companies, but little action on the ground.
“Linking returns to carbon emissions will give them nowhere to hide, and should ensure that UK resources, such as a world-leading position in offshore wind, are bolstered by smart technologies needed to balance the grid at low cost.”
Commenting on Ofgem’s draft determination for RIIO-T2 National Grid stated: “This proposal leaves us concerned as to our ability to deliver resilient and reliable networks, and jeopardises the delivery of the energy transition and the green recovery.”
Energy Networks Association chief executive David Smith said: “While network companies have historically been able to raise billions of pounds to invest in the networks and support the transition to a sustainable future at low cost to the customer, the proposals set out by Ofgem could significantly inhibit their ability to do so.”
Scottish and Southern Electricity Networks Transmission managing director Rob McDonald said: “At present the draft settlement does not strike the right balance for all stakeholders and without significant changes during the consultation period, there is a real risk that the critical investment in Britain’s electricity networks will be unnecessarily slowed down by an appeal process via the CMA, which is not in any stakeholders’ interests”.
Ofgem is also proposing to cut over £8bn from companies’ spending plans by setting them “stretching efficiency targets” and disallowing costs that companies have simply not justified as delivering value for money for consumers.
“It is now up to the companies to come back and provide more robust evidence on why this expenditure is needed,” said the regulator.
Under its proposals Ofgem is allocating £25bn in upfront expenditure to maintain and operate Great Britain’s gas distribution, gas and electricity transmission networks as well as support the growth of green energy.
The regulator is also proposing to unlock “significant” additional funding to drive green emissions-free energy and infrastructure upgrades, that companies can access over the next five years as needed.
Ofgem said it will “scrutinise every investment” and only give the green light to measures that deliver decarbonisation at the lowest cost to consumers.
A new Strategic Innovation Fund, together with funding to individual companies for network innovations, will provide £630m to accelerate research and development into green energy projects, Ofgem said.
The funds aim to help “expand the range of possibilities” for decarbonising the heat infrastructure, such as hydrogen, with the potential to fund more if needed.