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Energy bills will not rise on back of £20bn electricity upgrade, says Ofgem

·3-min read
<span>Photograph: Simon Dack/Alamy</span>
Photograph: Simon Dack/Alamy

The chief executive of Ofgem has insisted that bills will not rise for consumers amid plans to plough £20bn into upgrading Great Britain’s regional electricity networks.

The energy regulator has set out a £20.9bn package to upgrade the grids, which includes £2.7bn of upfront funding to boost capacity.

Distribution network operators have been asked to boost the resilience and reliability of supply during extreme weather events, such as Storm Arwen. More than a million homes lost power last November as the storm wreaked havoc, bringing down trees and electricity lines.

Ofgem said the upgrade would also allow consumers to be given more control to save money through regularly updated prices for peak and off-peak demand.

Amid concerns that the plans would push up energy bills, which have already soared this year, the Ofgem chief executive, Jonathan Brearley, insisted the cost to consumers to pay for the network would remain “roughly the same”. Households pay between £90 and £100 from their bills to maintain the network.

Annual bills in Great Britain have rocketed to £1,971 a year and are expected to top £2,800 a year in October, before hitting £3,000 in January.

Brearley said that shareholders rather than consumers would pay for investments aimed at cutting Britain’s reliance on fossil fuels. “We have reduced the shareholder return so shareholders will be getting less out of this system,” he told BBC Radio 4.

The regulator said it was “proposing tough efficiency targets for the networks along with a sharp reduction in their allowed rate of return, meaning less of consumers’ money goes to company profits”.

Ofgem set out its proposals for companies’ allowed spending and rates of return for the next five-year price control period, starting in April 2023. Its final decision is due at the end of this year.

Power distributors control the local electricity networks, which connect up everything from electric vehicle chargers to heat pumps.

As they are effectively monopolies, the regulator sets the rate of return for their investors.

The £20.9bn figure is short of the £25.2bn companies had proposed to spend on investment in their business plans, submitted to Ofgem.

There are 14 electricity distribution network operators, which are managed by six companies – Electricity North West Ltd, UK Power Networks, Northern Powergrid, SP Energy Networks, Scottish and Southern Electricity Networks and Western Power Distribution, which is owned by National Grid.

The RBC Europe analyst John Musk said SSE had “fared worst”, with a 22% cut to spending. National Grid was 19% lower than planned.

Brearley said: “We need to get to cheaper and more sustainable forms of energy so overall this country is much less reliant on the volatile gas market that we see internationally in the cost of living crunch.”

WPD, the largest electricity distribution business, last month agreed to pay £14.9m after its support for vulnerable customers during power cuts was deemed “totally unacceptable”.

It emerged this week that National Grid plans to reduce the risk of blackouts this winter by paying consumers to use less electricity at peak times.

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