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(Alliance News) - The UK's electricity regulator, Ofgem, confirmed a five-year investment package for the electricity distribution network companies on Wednesday to help deliver "cheaper, cleaner, more reliable local grids".
Listed utilities SSE PLC and National Grid PLC noted Ofgem's final determination on the RIIO-ED2 electricity distribution price control, which will run from April 1, 2023 to March 31, 2028.
Ofgem explained that RIIO-ED2 stands for "Revenue = Incentives + Innovation + Outputs for electricity distribution". Both SSE and National Grid said they will now review the decision.
"Ofgem has ensured that this major investment can be delivered without any increase in network charges on bills, which will remain at an average of GBP100 per year per bill-payer, despite the increased investment," the regulator added.
The regulator said for the half-decade, six distribution network operators in the UK will be allowed 6.2% to 15% less funding than what they requested.
National Grid Electricity Distribution will be allowed GBP5.98 billion totex, 13% lower than the GBP6.89 billion it requested, while Scottish & Southern Electricity Networks will be allowed GBP3.59 billion, 15% lower than its request of GBP4.24 billion.
Ofgem on its website explains that totex "generally consists of all the expenditure relating to a licensees regulated activities but with the exception of some specified expenditure items."
In total, the six distribution networks requested GBP25.18 billion in funding and will be allowed 12% less than that, GBP22.21 billion.
Ofgem explained that networks will be expected to provide "more benefits" by lowering returns to investors and driving more efficiencies within their companies. It also aims to move away from the import of fossil fuels to the UK. National Grid said it will make its decision on whether to accept or appeal the licence by February 2023. SSE said its assessment will "run into next year".
Ofgem's Interim Director Akshay Kaul said: "The investment set out today delivers value for consumers, safeguards security of supply and helps ensure Britain is no longer at the mercy of international energy prices or geopolitical events. We've set the initial amount of investment that local electricity distribution network operators can make in the 2023 to 2028 period, with every pound representing value for money for consumers and no increase in bills."
Further, the regulator said it is expecting "major changes" to the energy system over the next years, such as increased use of green and renewable energy, increased demand for electricity due to an anticipated rise in demand in electric vehicles and for electric heat pumps in homes, an increased use of smart devices which could save energy, and the creation of an independent future system operator. That operator could play "a key role in local energy planning and distribution system operation," Ofgem said.
Shares in SSE were 1.4% higher at 1,699.50 pence each in London on Wednesday morning. National Grid shares were 0.4% higher at 1,012.38.
By Tom Budszus; tombudszus@alliancenews.com
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