Ofgem reveals landmark five-year programme to deliver reliable, sustainable energy at the lowest cost to consumers
- Ofgem unveils initial five-year vision for building sustainable and affordable regional energy grids, supporting a low carbon, cheaper future for the UK
- The 2023 to 2028 plan will boost grid capacity, improve customer service and resilience to prevent power outages, and prepare the way for increases in the generation of cheaper, greener, home-grown energy to bring down bills in the long-term
- Increased investment for net zero to be delivered without increasing network charges on consumer bills, achieved through tough efficiency challenges on network companies and lower returns for investors
- Most consumers could see a small drop in costs related to network charges
Ofgem has today set out a landmark five-year vision to transform local energy grids to support the transition to a cleaner, affordable, home-grown low-carbon energy system, as part of its draft plans for the next electricity distribution price control (known as RIIO-ED2).
Consumers will not see any additional costs as result of this investment as efficiency savings and reduced investor returns deliver the cash needed.
Over the next five years, consumers will see:
- A more secure and reliable electricity network less at risk of power cuts
- A grid that allows for new innovations to give more control to consumers through better data and more regularly updated prices for peak and off-peak demand creating efficiencies and saving money
- Support and guidance for vulnerable and low-income households ensuring no one misses out on the benefits of a net zero energy system
This transition, supported by transformed energy grids, will pave the way out of relying on expensive and unreliable fossil fuel imports that leave the UK’s homes and businesses at the mercy of volatile global gas prices and the kind of geopolitical threats we’ve seen this year.
As the economics of energy change, greener, home-grown energy has become the cheaper and more secure option. And new innovations mean consumers will be given more control to save money through access to better data and more regularly updated prices for peak and off-peak demand.
New smart gadgets could draw energy from the grid at cheaper rates when demand is low or it’s sunny and windy, balancing out power use, and saving consumers money.
And, as highlighted in Ofgem’s recent Storm Arwen report, the DNOs will also be expected to boost levels of reliability and system resilience to avoid outages during extreme weather events. These proposals ensure the networks are funded to deliver these improvements and make sure customers across the country receive the high standard of service that they expect.
Ofgem’s five-year price controls set the framework and the revenue that each of Britain's 14 Distribution Network Operators (DNOs) can earn from charges on consumers’ energy bills. The average customer currently pays around £100 per year to meet the costs of operating, maintaining and reinforcing these local grids which are essential to the supply of electricity. Ofgem is ensuring consumers get value for money and costs are kept to a minimum while allowing funding for the improvements needed.
Jonathan Brearley, chief executive of Ofgem, said:
“Ofgem’s job is to ensure energy networks have achievable and affordable plans that will attract the investment needed for a more resilient energy network and achieve the government’s net zero ambition at the least cost to the consumer.
“These are challenging times, and this is the path out of relying on expensive and polluting imported fossil fuels and moving to a home-grown energy system, that exploits the best of modern technology to level out demand and reduce costs for consumers.
“We’re determined to get the best possible deal for consumers and the proposals we’ve published today will mean that substantial additional investment can be made to deliver net zero without placing any further pressure on bills.
“We’re confident that the five-year vision we’ve outlined will help build the world class energy infrastructure needed to connect consumers to reliable, cleaner energy at an affordable price.”
Distribution Network Operators (DNOs) have an important role to play in this process as they will need to build the regional branches of the smarter, greener, more flexible grids and ensure the speedy connection of the growing low carbon technologies required to hit government net zero targets.
The proposed package totals £20.9 billion and includes £2.7 billion of upfront funding to boost grid capacity. Flexible funding arrangements will also mean that investment can dial up to reflect changing demands over time.
The costs of the electricity distribution grids are ultimately paid for by consumers who are currently facing extraordinary pressure on their household bills. Ofgem is determined to get the best deal possible for consumers and is 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. These changes mean we can accommodate a significant increase in net zero investment without increasing network charges.
Notes to editor
1. The electricity distribution network carries electricity from the high voltage transmission network to industrial, commercial, and domestic users, as well as distributing an increasing quantity of power from generation sources that are connected directly to the distribution networks. There are fourteen electricity Distribution Network Operators (DNOs) operating in GB, which are managed by six companies. These are Electricity North West Limited (ENWL) UK Power Networks (UKPN), Western Power Distribution (WPD), Northern Powergrid (NPg), SP Energy Networks (SPEN), and Scottish and Southern Electricity Networks (SSEN)
2. The next electricity distribution price control (known as RIIO-ED2) will start on 1 April 2023 and run to 31 March 2028.
3. Price controls are a method of setting the amount of money (allowance) that can be earned by the DNOs over the length of a price control. DNOs recover their allowance from network charges to energy suppliers, who in turn pass these costs on to customers through their energy bills. The allowances are set at a level which covers the DNOs’ costs and allows them to earn a reasonable return subject to them delivering value for consumers, operating efficiently, and achieving their targets as set by Ofgem.
4. Ofgem is consulting on these Draft Determinations until 25 August 2022. Any interested parties wishing to give their views should email RIIOED2@ofgem.gov.uk. Following consideration of responses we will confirm our Final Determinations by December 2022.
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