New capital rules
Watchdog plans market shake-up to cut energy bills
It wants to lower the returns network companies can pay to shareholders, and it also wants to lower borrowing costs for energy firms.
Ofgem says Britain is generating increasing amounts of renewable energy and millions of electric vehicles will be on the roads in coming decades. Homes and businesses in the future will get their power and heat from cleaner energy sources.
Consumers pay for the cost of maintaining and upgrading the networks to enable these changes through their energy bills.
Ofgem today has proposed a much lower cost of capital for network companies to raise the billions of pounds of investment needed in the next price control period from 2021. It says this will result in lower returns for investors and more savings for consumers.
Jonathan Brearley, Ofgem’s executive director for systems and networks, said: “We will drive a hard bargain with the companies that build the pipes and wires that bring energy to our homes. From 2021 these proposals will save around £6.5bn, and overall that means households saving around £45 a year.”
National Grid responded with dismay. In a statement it said: “We are disappointed with the proposed financial package, in particular the cost of equity range, as we do not believe it appropriately reflects the level of risk borne by transmission networks.
“In order to deliver the major capital programme required across our networks in a rapidly changing energy market, we need to ensure the regulatory framework also provides for fair returns to shareholders.