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Britain’s energy regulator has approved an initial £28bn worth of investment in the country’s gas and electricity networks over the next five years, as it seeks to set a balance between upgrading infrastructure and keeping customers’ costs down.
It marks the first stage of roughly £90bn in total that Ofgem expects to be invested in the infrastructure by 2031, which it said would cost British households £108 a year by then. Ofgem said about 64 per cent of the £28bn initial spending would go towards the gas networks and the rest towards the high-voltage electricity networks.
Investment in the transmission network would reduce other costs, it argued, saying the net increase to consumers would only be about £30.
Speaking on BBC’s Today programme this morning, Ofgem’s chief executive Jonathan Brearley said the country needed to maintain a secure system and connect new projects to the electricity grid.
“It is vital that we get this investment in place. We need a grid that is fit for purpose,” he said.
Today’s final determinations are higher than the draft £24bn approved by the regulator in July for both gas and electricity networks.
The initial amount it has approved for the gas networks has climbed from £15bn to £17.8bn and for electricity networks from £8.9bn to £10.3bn.
The investment in the electricity transmission networks comes as huge amounts of new cables and pylons are needed to bring electricity from wind farms in northern Scotland to areas of demand further south.
National Grid, the FTSE 100 owner of Britain’s electricity transmission networks, had warned in August that the draft determinations in July did “not sufficiently recognise the practical realities of delivering the biggest expansion of the electricity system in more than a generation”.
It said this morning it would review Ofgem’s final determinations to check whether they were “both investable and workable”.
National Gas, the private company that owns the gas transmission network, also said it would review the plans, which are likely to fuel debate over the direction of Britain’s energy bills.
The government has pledged to bring them down by up to £300 by 2030 compared with 2024 levels after they rose sharply in 2021 and 2022 due to surging wholesale gas prices.
In last week’s Budget, Labour removed about £150 from typical annual bills from April by saying some renewable energy subsidies would be paid for out of taxation instead and cutting an energy efficiency scheme.
The Department for Energy Security and Net Zero said the investment announced on Thursday was “essential to keep the lights on” and without the plans “costs would spiral and security would be compromised”.
The plans come as the government is also expected to announce next month the results of its latest auction of subsidy contracts for planned new renewable energy projects.
The costs of new offshore wind projects have risen sharply over the past few years, leading to questions about how the auction will affect bills.
RWE, the German energy giant, commissioned a report by consultancy Aurora Energy Research which argued that the government could procure enough offshore wind to meet its targets without adding to consumers’ costs, as the new farms would push down wholesale prices, offsetting payments to wind farm developers.
Separately this morning, Great British Energy, the state-owned energy company set up by the government after it won the election last year, said it would aim to support at least 15 gigawatts of clean energy projects over the next five years.
