Household energy bills could rise

Published on Monday, 16 July 2012 09:22
Posted by Scott Buckler

Ofgem is today announcing proposals to upgrade and renew Britain's electricity and gas networks. These include funding £17 billion of investment with around a further £5 billion potentially available over the course of the price control period (1 April 2013 – 2021)

The majority of the proposed investment, around £15 billion, would include the upgrade and renewal of the high voltage electricity network in England and Wales and the high pressure gas networks across Britain. These networks are operated by National Grid and the package would fund major projects such as new sub-sea electricity cables linking England/Wales and Scotland. The building of these critical infrastructure projects could create around 7,000 jobs, mainly in the construction supply chain.

An estimated £7 billion would help to ensure that our low pressure gas networks, which deliver gas to homes and businesses, remain safe and reliable. The money would fund the continued maintenance across Britain of the gas distribution network, in particular the gas mains replacement programme. In addition, our proposals would enable the gas distribution companies to connect around 80,000 fuel poor households to the gas network. The proposals will also enable funding for companies to develop carbon monoxide awareness initiatives.

Ofgem Chairman, Lord Mogg stated: "As Ofgem's Project Discovery set out, Britain faces an unprecedented need to invest to replace ageing infrastructure, meet environmental targets and deliver secure supplies. This needs to be carried out at a time of global financial uncertainty, which makes attracting investment difficult but possible.

"In addition, through Ofgem's RIIO price controls we are driving improvements in company performance to ensure costs are kept as low as possible for consumers by incentivising efficient investment and penalising poor performance. Our 'vanilla' weighted average cost of capital of around 4.5% (6.7-7.0% cost of equity) achieves these criteria."

RIIO has ensured that network companies have stepped up stakeholder engagement with consumers and network users so that they only deliver the investment which is needed. They are then incentivised to deliver this investment as cost effectively as possible.

To further safeguard consumers, Ofgem will only approve the further £5 billion where there is a demonstrable need for the infrastructure, therefore protecting consumers from paying for redundant assets. Following close scrutiny of the plans, Ofgem has reduced the companies' requested funding by 20%.

The impact of the total RIIO package announced today is estimated to lead to household bills being around £7 higher in 2013, rising to around a £15 increase in 2021. The average increase on annual household bills across the eight years of the price control is around £11 compared to this year.

Source: ©Ofgem

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