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Ofgem proposes reforms to energy system

The lower overall cost of capital is expected to save consumers £6.5bn.


Ofgem has put forward new plans (PA)

Ofgem has put forward new plans (PA)

Ofgem has put forward new plans (PA)

Energy regulator Ofgem has tabled proposals to “re-wire” Britain’s energy system in a move it says could save consumers £45 per year and hit network providers.

Ofgem said on Tuesday that limits will be placed on how much energy network firms – such as National Grid, Scottish Power and SSE – can pay to their shareholders.

The regulator also proposed to keep adjusting the cost companies face to borrow so that “consumers continue to benefit from the fall in interest rates since the financial crisis”.

The lower overall cost of capital is expected to save consumers £6.5 billion in the next price controls from 2021 onwards, Ofgem said.

Ofgem has proposed baseline cost of equity returns at 4%, down 50% from previous price controls.

National Grid shares were down 7%, while SSE fell 1% on the back of the news.

Alongside the network price controls, Ofgem will also press ahead with further network charging reforms to “squeeze more capacity out of the electricity grids” to cut the cost to consumers of moving to a smarter energy system.

This includes incentives for drivers to charge electric vehicles outside peak times, to allow more electric vehicles to be charged from the existing grid

Jonathan Brearley, executive director for systems and networks, said: “Our proposals for the new network price controls and charging reforms will help build a lower-cost, fairer energy system which is fit for this smarter, cleaner future.

“We want to cut the cost to consumers for accommodating electric vehicles, renewables and electricity storage, and make sure that all consumers benefit from these technologies.

“This will mean driving a harder bargain with network companies to ensure that households who need it always have access to safe and secure energy at a fair price.”

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But National Grid said Ofgem’s cost of equity range does not reflect the risk borne by the operations of transmission networks, adding that the new framework needs to ensure fair returns to shareholders as well as consumers.

“In order to deliver the major capital programme required across our networks in a rapidly changing energy market, we need to ensure the regulatory framework also provides for fair returns to shareholders and enables us to continue to deliver world-class networks for consumers,” National Grid said.

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