Britain’s power network operators will have a budget of £20.9 billion ($25.5 billion) to spend expanding the grid to connect up millions of electric vehicles, smart systems and small-scale renewables projects over the next five years.
The budget is for service, maintenance, upgrades and repairs by Britain’s six distribution network companies from April 2023 and is approved by regulator Ofgem. The plans include tree cutting, flood prevention and other energy security measures designed to improve the resilience of Britain’s 497,100 miles (800,000 kilometers) of overhead and underground power lines in the face of more severe weather events in future.
Improving the distribution grids, the local networks that feed directly into homes and businesses, is vital for the energy transition. These investments feeds into consumer bills and Ofgem’s job is to make sure that the cost is reasonable. Every euro ($1.05) invested in renewable generating capacity requires 0.7 euro of spending on networks, according to RBC Europe Ltd.
“These are challenging times, and this is the path out of relying on expensive and polluting imported fossil fuels and moving to a home-grown energy system that exploits the best of modern technology to level out demand and reduce costs for consumers,” Jonathan Brearley, chief executive officer of Ofgem, said in a statement.
Ofgem said it is proposing tough efficiency targets for the networks along with a reduction in their allowed rate of return, meaning less of consumers’ money goes to company profits. The rate of equity return will be 4.75%.
Grid operators have long argued that investors need a reasonable return to make the clean-energy transition possible. But it’s a balancing act for Ofgem, which has to avoid saddling consumers with the cost of funding projects that may prove to be outdated as technology advances.
The budget includes £2.7 billion to build new network. Grid costs currently add about £100 to household energy bills. Ofgem will publish a final decision on its draft proposals by the end of the year.
©2022 Bloomberg L.P.