Ofgem relents on tough curbs on spending and investment returns for power networks

ScottishPower says it still fears regime is too stringent

Ofgem says power companies will still be able to invest in green energy

8 December 2020

Energy regulator Ofgem today relented on its tough demands for power network firms to cut returns for investors and increased the amount they can spend on infrastructure to £30 billion over the next five years.

The watchdog has been consulting with networks such as National Grid over how much they are allowed to charge customers and spend on their businesses from 2021 to 2026.

In July, it said they should slash returns to investors to a 3.95% return on equity in order to ensure value for money for customers.

This was met with howls of protest, and today it offered a compromise of 4.3%.

However, ScottishPower today said it still feared cutting returns by so much would damage its ability to find investors willing to finance green energy projects.

Ofgem also relented on the amount network companies are allowed to spend on the UK’s infrastructure to make it greener and more secure, allowing them to spend more on maintenance, servicing and upgrades.

The total spending allowance has gone up from £25 billion to £30 billion, again after strong lobbying from the industry.

Ofgem said these savings would still allow the companies to 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.

This included indications from network firms that they could bring in £10 billion of green energy projects such as preparing the network on the East Coast of England to handle 40GW of new offshore wind power from the North Sea.

National Grid said it would consider the lengthy set of proposals before deciding whether to launch an appeal.

It said: “We will now review in detail the full package contained within the Final Determination to see whether it delivers sufficient investment to maintain resilient and reliable networks, provides the flexibility required to enable the delivery of critical infrastructure to achieve the UK's net zero ambitions, and provides an appropriate overall financial package.”

Keith Anderson, chief executive of ScottishPower, said: "This is a large and complex document and we will now take our time to analyse it in full and consider our next steps.

"We remain concerned that Ofgem’s proposals on the headline rate of return 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, including the Prime Minister’s Ten Point Plan.”

Boris Johnson last month launched a 10 Point Plan for what he called a “green industrial revolution" ranging from energy to insulating homes ahead of next year’s COP26 climate summit in Glasgow.