Regulator Ofgem has confirmed plans to reduce returns for local electricity networks as part of a package it said will boost investment to support growth in EVs, small-scale renewables and storage.
Ofgem said the proposed new price controls for local grids starting in April 2023 will drive a major change in the way Britain travels, heats and powers its homes to support government climate change targets.
Setting out its working assumptions on the financial package that will be applied, the regulator said it will also enhance the role of Distribution Network Operators (DNOs) to create more flexible local grids that can balance demand and supply for electricity more effectively by connecting more small scale renewables and storage.
To offset the increased investment, Ofgem said it plans to significantly lower the proportion of money that goes back to network company shareholders. Returns on equity could be around 4.4%, on average a third lower than under the previous price control.
It said such changes would lower network charges on bills by around 9%, or around £2 billion, over the period compared to current arrangements.
Jonathan Brearley, Ofgem’s Chief Executive, said: “Our price control for local electricity networks paves the way for turning Britain’s streets green, unlocking the investment needed to support the UK, Scottish and Welsh Government climate change targets, particularly around the electrification of transport.
“At the same time, these financial arrangements will significantly cut investor returns to make sure consumers pay a fair price for energy whilst networks attract the investment they need to be safe and green.”
Earlier this month nine energy network operators appealed to the competition watchdog over plans to significantly reduce their rate of return in the next price control period for the transmission networks.
The operators, including National Grid, Scottish Power and Northern Gas Networks, argue Ofgem’s proposals put the investment needed for the UK's Net Zero targets at risk.