Energy bills will increase over the next few years as Ofgem says a programme to upgrade gas and electricity networks is set to cost £22bn.
Ofgem says it will allocate £22bn to upgrade the gas and electricity networks in Britain with £7bn of that being used to ensure that low pressure gas networks delivering gas to both homes and businesses are both safe and reliable.
The investment will also fund projects including new sub-sea electricity cables linking England and Wales with Scotland and connect around 80,000 households to the gas network. Ofgem said these projects could create around 7,000 jobs in the construction supply chain.
Distribution costs make up around 20% of a bill and as a result household energy bills are set to rise by £7 in 2013 and by as much as £15 by 2021. It’s likely that the proposals will also have an adverse effect on business electricity prices and gas bills.
However, the proposals have been criticised by National Grid which wanted to charge more for the improvements. National Grid is proposing spending over £30bn on improvements to electricity and gas networks over eight years from 2013. However, Ofgem believes it can be done at a lower cost.
Under price control regulation Ofgem will not allow National Grid to charge consumers as much as it wants. National Grid said “We believe that these initial proposals will not appropriately incentivise the essential investments necessary to provide safe, reliable networks for the UK consumer and avoid delays to the achievement of the UK’s environmental targets”.
The company continued “The financing packages proposed do not, on either a standalone basis or in comparison with other regulatory outcomes, adequately reflect the increased scale of investment and implicit risk associated with the major investment required in the coming years to build the energy system that our customers will need in the future, whether in transmission or distribution infrastructure”.
In a press release Lord Mogg, chairman of Ofgem, said “Britain faces an unprecedented need to invest to replace ageing infrastructure, meet environmental targets and deliver secure supplies. This needs to be carried out at a time of global financial uncertainty, which makes attracting investment difficult but possible”.
Ofgem’s proposals will be published on 27th July which will begin an eight week consultation period. Final proposals will be published in December.