Ofgem’s plans to deliver savings of over £5bn to consumers through tougher price controls for energy networks moved a step closer today.
The price controls set the revenue monopoly network owners can earn from charges to consumers. Ofgem has confirmed that the default length of the next controls from 2021 will be five years (compared with the current eight years).
There is no update to the 3%-5% cost of equity range (the amount the companies can pay their shareholders) at present. This is the lowest rate ever proposed for energy network price controls in Great Britain. Ofgem estimates this would result in savings of over £5 billion for household consumers (or about £15 – £25 per year on the dual fuel household bill).
Ofgem will extend the scope for opening up high value network upgrades to the benefits of competition across the gas and electricity sectors in the next price controls. To signal its intent Ofgem has confirmed that National Grid can build the grid upgrade to connect the new Hinkley Point C nuclear power station. However, Ofgem will set the revenue National Grid can earn from the upgrade based in part on its experience in cutting the costs of connecting offshore wind farms to the grid by tendering the ownership of these links.
Jonathan Brearley, Ofgem’s executive director for systems and networks, said: “Today we have set out our plans which will bring in tougher price controls with lower expected returns for network companies. This is part of our ongoing programme to ensure that consumers get reliable and secure power supplies at a fair price.
“As part of this continuous drive to deliver value for consumers we are using a new benchmarking approach to cut the costs of connecting the new Hinkley Point C nuclear power station. This is another example of how we are evolving regulation to deliver the upgrades to our power network while ensuring the impact on bills is kept as low as possible.”