Ofgem, the energy industry regulator has faced a backlash from energy companies over new proposals to cut customers’ bills. The regulator wants firms to invest more money into renewable energy.
Under the new plans, households across the UK could see their gas and electricity bills reduced by £20 each year, with providers expected to spend £25bn over a five-year period to invest in the UK’s energy network.
Ofgem wants a “greener, fairer energy system for consumers” under this new initiative. Yet, National Grid, SSE and Scottish Power all believe the regulator’s plans have a number of weaknesses.
Price controls are set out by the energy regulator, these determine how much money gas and electricity suppliers are able to earn. Although, they are allowed sufficient scope to make new investments from customers’ bills.
Under these latest proposals, which would run over a five-year period from 2021 to 2026, companies will be able to spend £25billion on improving gas and electricity networks, the costs will be allowed to be recovered from paying customers.
Around £3billion will be utilised to ensure the electricity network becomes environmentally friendly. Furthermore, an additional £1billion+ will be used for research into renewable energy and reducing the networks’ own impact on the environment.
According to the regulator, the return energy providers will be able to make from investments will be cut by almost 50%, this is in order to reduce prices for consumers. This is in an effort to ensure less of consumers funds go towards network companies’ profits, with more towards driving actual network improvements. By cutting returns, there would be a saving of more than £3.3bn over the next five years, this would ultimately save households an estimated £20 each year on their energy bills.
Investing in the UK’s energy network is a relatively low risk option and would be attractive to potential 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,” according to Ofgem.
Furthermore, it is committed to providing firms with extra funding for renewable projects from its own accounts. These schemes are said to be worth around £10bn and are already under consideration.
Citizens Advice believes this could put an end to energy firms “overcharging energy customers by billions of pounds”. Dame Gillian Guy, chief executive of Citizens Advice, said that: “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.”
Utility Saving Expert, the leading comparison website, also welcomed the move with Chris Richards, the Managing Director saying: “The amount of profits suppliers have been allowed to squeeze over the past few years has been a highly controversial topic. Especially when you consider that these are passed on to consumers in the form of more expensive bills, while many already struggle to heat their homes.”
The National Grid, however, is “extremely disappointed” with the plans. “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.”