Power companies claim more generous Ofgem rules on prices and investment returns will still hit green energy goals

Ofgem today relented on its toughest demands for power networks to cut returns for investors but fears remain the curbs would make it hard to attract funding for green energy.

After protests that the previous regime has been too generous to investors, the watchdog is reviewing how much National Grid and others will be allowed to charge customers and spend on their businesses from 2021 to 2026.

In July, it said they should effectively halve returns to investors to 3.95% to ensure value for money for customers.  

This met with howls of protest and today the watchdog offered a compromise of 4.3%.

It also increased their permitted spending on infrastructure to £30 billion over the next five years — a  £5 billion hike from July. That includes a 50% jump for National Grid to  £7.3 billion.

ScottishPower said it still feared that cutting returns so much would damage its ability to find investors willing to finance green energy projects. SSE said it was “very disappointed” at the financial parameters but welcomed the increase in its spending allowance. Its shares jumped 3%.

National Grid said it would decide whether to appeal by February. Its shares gained 2%. The power giants said the returns were still less generous than water companies were allowed to make.

Water companies have also been holding tough, five-year reviews from their regulators. Four of them took Ofwat to the Competition and Markets Authority. The CMA provisionally ruled that Ofwat’s pricing and investment strictures should be relaxed.

Energy firms have not yet reached the stage of appealing to the CMA but were emboldened by its doveish approach.

Ofgem said companies must reduce bills by £10 per household, or £2.3 billion, over the course of the new pricing regime. It said it had agreed to the relaxation of its previous demands after companies supplied it with clearer evidence of their spending plans.

Keith Anderson, CEO of ScottishPower, said: “We remain concerned that Ofgem’s proposals... will not attract the global investment our transmission business requires if we are to support the clear Net Zero ambitions of the UK and Scottish Governments.”

Boris Johnson has a 10-point plan for a “green industrial revolution”.