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09 July 2020 10:36

SSE plc OVO Energy Big Six energy suppliers

Ofgem has run into opposition from energy network companies after it told them to spend more of customers' bills on green investment and less delivering returns to shareholders. The regulator said its plans for the next five years would see £25bn allocated to maintain and operate the networks as well as supporting the growth of clean energy. A further £10bn could also be made available for net-zero investment on a case-by-case basis for projects "that deliver decarbonisation at the lowest cost to consumers". National Grid and SSE, two of the biggest operators in the sector, claimed that the plans jeopardised the transition to a net-zero carbon economy, though they were welcomed by Citizens Advice. Under Ofgem's price control system, the regulator assesses plans by network operators over the next five years and sets limits on the profits that they make.

The companies - separate from the energy supply firms which directly bill consumers - are responsible for the transmission of gas and electricity and their charges typically make up almost a quarter of household bills. Ofgem is proposing to cut the rate of return to these companies to an "unprecedented low level" so that "less of consumers' money goes towards network companies' profits, and more towards driving network improvements". The regulator said the plan as it stands would knock £20 off the network charge element of household energy bills - though that would be offset by an increase in investment and charges expected to come later in the price control process. Ofgem chief executive Jonathan Brearley said: "Ofgem is working to deliver a greener, fairer energy system for consumers. National Grid said it was "extremely disappointed" with the plans and would press for changes that incentivise investment and protect consumers ahead of a final decision in December, to take effect from next year.

The company said: "This proposal leaves us concerned as to our ability to deliver resilient and reliable networks, and jeopardises the delivery of the energy transition and the green recovery." Rob McDonald, managing director of its subsidiary SSEN Transmission, said: "Ofgem's draft determination is a barrier towards achieving net-zero and damaging to the green economic recovery." Scottish Power chief executive Keith Anderson said: "Slamming the door in investors' faces by offering one of the lowest rates of return of any developed country traps the UK in an economic cul-de-sac." The energy watchdog has vowed to take money out of shareholders' pockets to improve investment in a green energy network while slashing bills. Ofgem said households stand to save around £20 a year on their gas and electricity bills under its proposals, which are set to come into force from next year. Under its plan, Ofgem will halve the rate of return that companies will be allowed to take from their investments. The regulator argues that companies and investors will still be willing to put their cash on the line to invest in upgrades to the system as the UK's energy networks are a very low-risk investment. "Strong evidence from water regulation and Ofgem's offshore transmission regime shows that investors will accept lower returns and continue to invest robustly in the sector," Ofgem said.

Meanwhile, the watchdog is setting aside £25 billion for investment in the UK's energy networks, including those run by National Grid. The regulator will scrutinise proposed investments and only give them permission if they cut carbon at a low cost to customers. It is the latest announcement from the regulator ahead of next year's change to the rules on how much of investment costs networks can pass on to customers. Ofgem has proposed that the allowed rate of return be set at 3.95%. National Grid said it will be pressing for changes that will incentivise investment and protect consumers ahead of Ofgem's final decision in December this year.

Rob McDonald, managing director of subsidiary SSEN Transmission, said: "Whilst our stakeholder-endorsed and evidence-based business plan was in step with the Government's low-carbon investment ambition, Ofgem's first pass at a settlement resembles a worrying return to austerity.? Today @ofgem announced the details of the next stage of energy network price controls These decisions are highly technical, but they matter — read our @GillianGuy_CAB's response in full ➡️ pic.twitter.com/ISuUlxgvbd — CitizensAdvice (@CitizensAdvice) July 9, 2020 "Today's announcement is another step closer to a price control that stops network companies from overcharging energy customers by billions of pounds," she said. Ofgem has struck the right balance between shareholder returns and value for money for energy customers, while making sure networks can continue to attract investment." Ofgem chief executive Jonathan Brearley said: "Ofgem is working to deliver a greener, fairer energy system for consumers. Energy companies have criticised proposals by the industry's regulator to cut customer's bills and spend more on green investments. Under Ofgem's plans, households could see their bills cut by £20 a year while firms spend £25bn over five years to invest in the UK's energy network. Ofgem said it wanted "a greener, fairer energy system for consumers". However, National Grid, SSE and Scottish Power all said that the regulator's plans were flawed. Under Ofgem's plan, the return network energy firms will be allowed to make from their investments will be nearly halved. The regulator said this would mean that "less of consumers' money goes towards network companies' profits, and more towards driving network improvements". The regulator added that investing in the energy network of the UK was low-risk and should be an attractive option to investors. "Strong evidence from water regulation and Ofgem's offshore transmission regime shows that investors will accept lower returns and continue to invest robustly in the sector," it said. "Ofgem has struck the right balance between shareholder returns and value for money for energy customers, while making sure networks can continue to attract investment," said Dame Gillian Guy, chief executive of Citizens Advice. "The amount of profit that network companies have been allowed to make in recent years has been a matter of significant controversy, given our energy suppliers have to pass on these charges to our bills." However, National Grid said it was "extremely disappointed" with the plans. Energy firm SSE said the proposal was likely to be challenged through the Competition and Markets Authority (CMA). "Ofgem's first pass at a settlement resembles a worrying return to austerity," Rob McDonald, the managing director of transmission at SSE, said. "At present the draft settlement does not strike the right balance for all stakeholders and without significant changes during the consultation period, there is a real risk that the critical investment in Britain's electricity networks will be unnecessarily slowed down by an appeal process via the CMA, which is not in any stakeholders' interests." HOPES for a "green" economic recovery were dealt a blow today when the energy regulator ran into a huge row with the industry over plans for a £25 billion investment in renewables. Ofgem told energy companies to slash what they pay to shareholders, cut gas and electricity bills by about £20 a year, and direct cash towards a green energy network over the next five years. National Grid said: "We are extremely disappointed with this draft determination which risks undermining the process established by Ofgem. This proposal leaves us concerned as to our ability to deliver resilient and reliable networks, and jeopardises the delivery of the energy transition and the green recovery." Under the plans, energy players can return no more than 3.95% to investors, perhaps saving households £3.3 billion in five years. It says investing in the energy network of the UK is low-risk and attractive to investors. "Strong evidence from water regulation and Ofgem's offshore transmission regime shows that investors will accept lower returns and continue to invest robustly in the sector," Ofgem said. Jonathan Brearley, Ofgem's chief executive, said: "Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we are striking a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for around £25 billion of investment needed to drive a clean, green and resilient recovery." "Ofgem's first pass at a settlement resembles a worrying return to austerity," Rob McDonald, managing director of SSE's transmission business, said. McDonald at SSE added: "Without significant changes during the consultation period there is a real risk that the critical investment in Britain's electricity networks will be unnecessarily slowed down by an appeal process via the CMA, which is not in any stakeholders' interests".