Posted on: 18/12/2018
Ofgem has confirmed it is proposing much lower returns for network companies for the next price control period from 2021 in a move it said would help deliver a “smarter, fairer and cleaner energy system”.
The regulator’s proposals would set baseline – or cost of equity - returns at 4% - about 50% lower than the previous price controls. The lower overall cost of capital is expected to save consumers £6.5 billion.
It also proposes to keep adjusting the cost of borrowing network companies annually so that consumers “continue to benefit from the fall in interest rates since the financial crisis”.
The announcement follows Ofgem’s proposals last month to introduce fixed charges to recover some electricity network charges. In total, the regulator said the reforms could save consumers £45 per year from 2021.
In March Ofgem said it was looking at setting the cost of equity for the next price control at between 3-5%.
Further charging reforms
Alongside the network price controls, Ofgem will press ahead with further network charging reforms which it said would squeeze more capacity out of the electricity grids to cut the cost to consumers of moving to a smarter, more flexible energy system.
This includes incentives for drivers to charge electric vehicles outside peak times, to allow more electric vehicles to be charged from the existing grid.
Ofgem said more flexible grid access arrangements could be offered to suit renewable generators, which will help to cut costs by reducing the need for new power lines and stations and free up existing grid capacity for generators and other users.
‘Fairer energy system’
Jonathan Brearley, executive director for systems and networks, said: “Our proposals for the new network price controls and charging reforms will help build a lower cost, fairer energy system which is fit for this smarter, cleaner future.
“We want to cut the cost to consumers for accommodating electric vehicles, renewables and electricity storage, and make sure that all consumers benefit from these technologies.
“This will mean driving a harder bargain with network companies to ensure that households who need it always have access to safe and secure energy at a fair price.”
In a statement National Grid said it was “disappointed” with the proposed financial package, and said the cost of equity range does not
“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 and enables us to continue to deliver world class networks for consumers,” it added.
Meanwhile, Dermot Nolan has agreed to extend his term as chief executive of Ofgem until the end of February 2020.