Ofgem five-year plan to transform UK energy grids

  • July 11, 2022
  • Steve Rogerson

UK energy regulator Ofgem has unveiled a five-year vision for building sustainable and affordable regional energy grids, supporting a low carbon, cheaper future for the country.

The 2023 to 2028 plan aims to 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 is to be delivered without increasing network charges on consumer bills, achieved through efficiency challenges on network companies and lower returns for investors.

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

Ofgem set out the landmark five-year vision 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.

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 should see a more secure and reliable electricity network less at risk of power cuts, and a grid that allows for 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 should ensure no one misses out on the benefits of a net zero energy system.

This transition, supported by transformed energy grids, should 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 seen this year.

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

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

As highlighted in Ofgem’s recent Storm Arwen report, the distribution network operators (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 consumers across the country receive the standard of service they expect.

Ofgem’s five-year price controls set the framework and the revenue that each of Britain’s 14 DNOs can earn from charges on consumers’ energy bills. The average user 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 down while allowing funding for the improvements needed.

“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,” said Jonathan Brearley, chief executive of Ofgem. “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.”

He said Ofgem was determined to get the best possible deal for consumers and the proposals would mean additional investment could 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,” he said.

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 £20.9bn and includes £2.7bn of upfront funding to boost grid capacity. Flexible funding arrangements will also mean 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 facing pressure on their household bills. Ofgem says it 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 the industry could accommodate a significant increase in net zero investment without increasing network charges.