National Grid, the owner of Britain's gas and electricity transmission networks, is to lift its capital spending by one-third to £2bn a year to help meet the UK's increased dependency on gas imports and the growth in renewable energy.
At present, the company inve-sts about £1.5bn a year - of which two-thirds is spent in the UK on the upgrading of the power networks and replacement of gas mains. But National Grid plans to increase that by £500m a year over the medium term.
The company is investing £200m this year to connect the liquefied natural gas (LNG) terminal in Milford Haven, South Wales, to the grid and £100m to link up the Norwegian pipeline from the Orman Lange gas field. National Grid is also investing £350m over the next three years to expand its LNG import terminal at the Isle of Grain on top of the £150m already spent on it. National Grid is testing the market to see whether a further expansion of Grain is justified, which could involve further spending of £150m to £200m.
In addition to the increase in spending on gas transmission, the company is planning to invest between £700m and £800m over three years to cope with the big increase in electricity being fed into the transmission network from renewable energy projects such as wind farms. Many of these are in Scotland but the primary market for their power is England, meaning the transmission system needs to be strengthened to handle the increased throughput.
There have been widespread fears the UK could run short of gas this winter because of a lack of storage and transmission capacity in the event of a prolonged and severe cold snap. This could force the Grid to cut off industrial users to safeguard supplies to domestic consumers.
Roger Urwin, National Grid's chief executive, said he was confident the system could withstand a very cold winter. But he admitted there might need to be a "demand side response" - price rises to choke back consumption and the suspension of supplies to industrial users on interruptible contracts.
He was speaking as National Grid announced an 11 per cent increase in pre-tax profits for the first half of the year and a 20 per cent rise in the interim dividend to 10.2p. The group returned £2bn of cash to shareholders in August after the £5.8bn sale of four local gas distribution networks.