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REG - OFGEM - Ofgem announces ED price control proposals

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RNS Number : 6013Q  OFGEM  29 June 2022

Ofgem reveals landmark five-year programme to deliver reliable, sustainable
energy at the lowest cost to consumers

 

·      Ofgem unveils initial five-year vision for building sustainable
and affordable regional energy grids, supporting a low carbon, cheaper future
for the UK

·      The 2023 to 2028 plan will boost grid capacity, improve customer
service and resilience to prevent power outages, and prepare the way for
increases in the generation of cheaper, greener, home-grown energy to bring
down bills in the long-term

·      Increased investment for net zero to be delivered without
increasing network charges on consumer bills, achieved through tough
efficiency challenges on network companies and lower returns for investors

·      Most consumers could see a small drop in costs related to network
charges

Ofgem has today set out a landmark five-year vision
(https://www.ofgem.gov.uk/publications/riio-ed2-draft-determinations) to
transform local energy grids to support the transition to a cleaner,
affordable, home-grown low-carbon energy system, as part of its draft plans
for the next electricity distribution price control (known as RIIO-ED2).

Consumers will not see any additional costs as result of this investment as
efficiency savings and reduced investor returns deliver the cash needed.

Over the next five years, consumers will see:

·      A more secure and reliable electricity network less at risk of
power cuts

·      A grid that allows for new innovations to give more control to
consumers through better data and more regularly updated prices for peak and
off-peak demand creating efficiencies and saving money

·      Support and guidance for vulnerable and low-income households
ensuring no one misses out on the benefits of a net zero energy system

This transition, supported by transformed energy grids, will pave the way out
of relying on expensive and unreliable fossil fuel imports that leave the UK's
homes and businesses at the mercy of volatile global gas prices and the kind
of geopolitical threats we've seen this year.

As the economics of energy change, greener, home-grown energy has become the
cheaper and more secure option. And new innovations mean consumers will be
given more control to save money through access to better data and more
regularly updated prices for peak and off-peak demand.

New smart gadgets could draw energy from the grid at cheaper rates when demand
is low or it's sunny and windy, balancing out power use, and saving consumers
money.

And, as highlighted in Ofgem's recent Storm Arwen report, the DNOs will also
be expected to boost levels of reliability and system resilience to avoid
outages during extreme weather events. These proposals ensure the networks are
funded to deliver these improvements and make sure customers across the
country receive the high standard of service thar they expect.

Ofgem's five-year price controls set the framework and the revenue that each
of Britain's 14 Distribution Network Operators (DNOs) can earn from charges on
consumers' energy bills. The average customer currently pays around £100 per
year to meet the costs of operating, maintaining and reinforcing these local
grids which are essential to the supply of electricity. Ofgem is ensuring
consumers get value for money and costs are kept to a minimum while allowing
funding for the improvements needed.

Jonathan Brearley, chief executive of Ofgem, said:

"Ofgem's job is to ensure energy networks have achievable and affordable plans
that will attract the investment needed for a more resilient energy network
and achieve the government's net zero ambition at the least cost to the
consumer.

"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.

"We're determined to get the best possible deal for consumers and the
proposals we've published today will mean that substantial additional
investment can be made to deliver net zero without placing any further
pressure on bills.

"We're confident that the five-year vision we've outlined will help build the
world class energy infrastructure needed to connect consumers to reliable,
cleaner energy at an affordable price."

Distribution Network Operators (DNOs) have an important role to play in this
process as they will need to build the regional branches of the smarter,
greener, more flexible grids and ensure the speedy connection of the growing
low carbon technologies required to hit government net zero targets.

The proposed package totals £20.9 billion and includes £2.7 billion of
upfront funding to boost grid capacity. Flexible funding arrangements will
also mean that investment can dial up to reflect changing demands over time.

The costs of the electricity distribution grids are ultimately paid for by
consumers who are currently facing extraordinary pressure on their household
bills. Ofgem is determined to get the best deal possible for consumers and is
proposing tough efficiency targets for the networks along with a sharp
reduction in their allowed rate of return, meaning less of consumers' money
goes to company profits. These changes mean we can accommodate a significant
increase in net zero investment without increasing network charges.

 

Notes to editor

1. The electricity distribution network carries electricity from the high
voltage transmission network to industrial, commercial, and domestic users, as
well as distributing an increasing quantity of power from generation sources
that are connected directly to the distribution networks. There are fourteen
electricity Distribution Network Operators (DNOs) operating in GB, which are
managed by six companies. These are Electricity North West Limited (ENWL) UK
Power Networks (UKPN), Western Power Distribution (WPD), Northern Powergrid
(NPg), SP Energy Networks (SPEN), and Scottish and Southern Electricity
Networks (SSEN)

2. The next electricity distribution price control (known as RIIO-ED2) will
start on 1 April 2023 and run to 31 March 2028.

3. Price controls are a method of setting the amount of money (allowance) that
can be earned by the DNOs over the length of a price control. DNOs recover
their allowance from network charges to energy suppliers, who in turn pass
these costs on to customers through their energy bills. The allowances are set
at a level which covers the DNOs' costs and allows them to earn a reasonable
return subject to them delivering value for consumers, operating efficiently,
and achieving their targets as set by Ofgem.

4. Ofgem is consulting on these Draft Determinations until 25 August 2022. Any
interested parties wishing to give their views should email
RIIOED2@ofgem.gov.uk (mailto:RIIOED2@ofgem.gov.uk) . Following consideration
of responses we will confirm our Final Determinations by December 2022.

 

Media enquiries

Please email press@ofgem.gov.uk or 0203 263 9996.

 

General enquiries (non-media)

If you are an energy customer looking for help and advice, including
complaints about energy firms, please see our Household gas and electricity
guide. Citizens Advice also provide a free, impartial helpline service across
a range of issues on 0808 223 1133.

We also regularly share news and post general advice to help consumers get the
most out of their energy services via our @Ofgem twitter and Facebook pages.
If you have an enquiry or complaint relating to Ofgem's policies or functions,
contact us at consumeraffairs@ofgem.gov.uk or on 020 7901 7295.

For all other non-media related enquiries, please visit our Contact us page
(https://www.ofgem.gov.uk/about-us/contact-us) .

About Ofgem

Ofgem is Britain's independent energy regulator. Our role is to protect
consumers now and in the future by working to deliver a greener, fairer energy
system. We do this by:

·      Working with Government, industry and consumer groups to deliver
a net zero economy at the lowest cost to consumers.

·      Stamping out sharp and bad practice, ensuring fair treatment for
all consumers, especially the vulnerable.

·      Enabling competition and innovation, which drives down prices and
results in new products and services for consumers.

For facts, figures and information about Ofgem's work, see  Energy facts and
figures (https://www.ofgem.gov.uk/news-media/energy-market-facts-figures)  or
visit the Ofgem Data Portal (https://www.ofgem.gov.uk/data-portal/overview)
.

For energy insights and updates straight to your inbox from Ofgem, please
subscribe (https://www.ofgem.gov.uk/subscribe-our-news-and-communications) .

Follow us on Twitter @ofgem (https://twitter.com/ofgem) , LinkedIn
(https://www.linkedin.com/company/ofgem)  and Facebook
(https://www.facebook.com/ofgem) .

 

 

 

 

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