Ofgem has today given the provisional green light to an initial £24billion investment programme it says will enhance energy security while enabling the transmission of more clean energy from renewable sources.
£8.9billion in initial funding has been approved for the electricity transmission sector to upgrade grid infrastructure, with immediate access to a further £1.3billion of ‘use it or lose it’ investment.
This is the first approval stage in a wider £80billion investment programme expected over a five-year period between 2026 and 2031 and includes £4.2billion for National Grid, £3.1billion for SSEN Transmission and £1.6billion for Scottish Power.
However, SSEN Transmission has this morning warned that the plans fail to fund the investment necessary to deliver a clean power system by 2030, a key ambition of Ed Miliband and the UK Government.
The UK energy regulator has also set out a plan to increase the returns that investors can get on equity put into grid companies during the next five years. It has proposed a cost of equity of 6% for private investment in grid companies, according to its draft determinations for the 2026-2031 period. That compares to 4.55% for the previous five years.
National Grid Plc, SSEN Transmission and Scottish Power were among the utilities submitting plans that requested as much as 6.9% in returns.
Responding this morning, SSN Transmission said the Ofgem plan "does not go far enough to deliver the investible, financeable and ambitious framework required to unlock the unprecedented levels of investment needed to deliver lower and more stable bills".
The firm added: "The approach to setting baseline total expenditure allowances fails to fund the investment necessary to deliver a clean power system by 2030. The methodology adopted does not reflect the true, evidence-based costs that are required to develop, build and maintain a reliable electricity transmission network in the north of Scotland."
It also argues that the proposed 'Cost of Equity' is not commensurate with globally competitive market rates, robust market evidence, and the significant business risks of investing in electricity transmission.
Ofgem said the investment in the UK's grid, which will rise to around four times the current spending levels, will allow for 80 transmission projects and all associated works right across the country to be completed within five years.
Ofgem CEO Jonathan Brearley said: “Britain’s reliance on imported gas has left us at the mercy of volatile international gas prices which during the energy crisis would have caused bills to rise as high as £4000 for an average household without government support. Even today the price cap can move up or down by hundreds of pounds with little we can do about it.
“This record investment will deliver a homegrown energy system that is better for Britain and better for customers. It will ensure the system has greater resilience against shocks from volatile gas prices we don’t control.
“These 80 projects are a long-term insurance policy against threats to Britain’s energy security and the instability of prices. By bringing online dozens of homegrown, renewable generation sites and modernising our energy system to the one we will need in the future we can boost growth and give ourselves more control over prices too.
“Doing nothing is not an option and will cost consumers more – this is critical national infrastructure. The sooner we build the network we need, and invest to strengthen our resilience, the lower the cost for bill payers will be in the future.
“However, this can’t be done at any price, which is why we have built in cost controls and negotiated a fair deal for both investors and consumers. And we won’t hesitate to intervene if network companies don’t deliver on time and on budget.”