Consumers to pay extra £6 a year to revamp energy network
Monday 04 October 2010
The cost of "rewiring" Britain's energy network could add an average £6 a year to consumers' dual fuel bills over the next decade, the industry regulator said today.
Ofgem said £32 billion worth of investment in pipes and wires was required across the country, twice that seen in the last 20 years, to secure supplies to households and to move to a low-carbon economy.
The watchdog said a hike in bills would support a revamping of Britain's "ageing networks", which were mostly built in the 1950s and 1960s.
Energy networks need replacing as demand increases and consumers change the way they use energy - such as charging electric cars overnight, Ofgem said.
Ofgem, the Office of the Gas and Electricity Markets, promotes competition in energy wholesale and supply markets and regulates them so there is adequate investment in the networks.
The regulator also revealed a new pricing model, which it said represented the "biggest change to the regulatory framework for 20 years".
The new model moves away from previous inflation-tied controls to an incentive-driven approach that rewards more efficient companies. Ofgem added that the proposals could save consumers up to £1 billion.
Ofgem chief executive Alistair Buchanan told the BBC Radio 4 Today programme the investment would be supported by a 6% increase on the current average household's total annual electricity and gas bill over the next decade.
He added: "It is going to be basically £6 a year over the next 10 years."
The warning followed a report from Ofgem last week which indicated that bills could increase as suppliers were seeing big rises in wholesale costs.
The watchdog expects wholesale prices to increase by 13% by next spring, which, if passed on in full, would see annual gas bills surge by around £81 to £706.
Ofgem's new pricing model, dubbed RIIO, will set pricing controls every eight years, rather than the current five-year period, and will offer incentives to efficient companies while clamping down on poorly performing firms.
Mr Buchanan said the RIIO model would "ensure investment but at a fair price for consumers" and would "financially penalise laggards" in the industry.
He added that the model would deliver the benefits of a green economy, such as more skilled jobs in areas such as solar energy installation.
A step-up in investment is required to meet new sources of energy generation, such as offshore and onshore windfarms and new nuclear power stations, Ofgem said.
The regulator said "smarter networks" were required to deal with more complex methods of supply such as energy recycling methods including combined heat and power generation.
The plans have been developed over the last two years and will be rolled out from the end of 2012, Ofgem added.
The watchdog has used the RPI measure of inflation as the benchmark for its pricing model for two decades.
Ofgem said more than £35 billion of investment was delivered under the RPI model, but Britain now faces an "investment hurdle" to replace its infrastructure.
Under new proposals, network companies will have their performance measured against how well they deliver customer satisfaction and safety.
The regulator also said it would expand its £500 million Low Carbon Networks Fund to cover all gas and electricity regulated networks.
The fund, which supports projects that try out new eco-friendly technology, previously only applied to distribution network operators, such as EDF Energy, Southern Electric and Western Power Distribution.
- 1 Cyclist in Russia narrowly misses being hit by car and lorry
- 2 'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
- 3 What are your fingerprint words?
- 4 Gary Lineker involved in Twitter row after presenter rubbishes claims he will be warned by BBC over foul-mouthed tweets
- 5 Pink Floyd new album: Band unveil cover art for first record in 20 years
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
Labour Party conference: Ed Balls to set out plan to freeze child benefit to balance books
£16500 - £20000 Per Annum: Clearwater People Solutions Ltd: We are currently r...
£100 - £125 per day: Randstad Education Crawley: KS2 PPA Teacher currently nee...
£40000 - £45000 per annum + pension, healthcare,25 days: Ashdown Group: An est...
£28000 per annum: Ashdown Group: IT Software Application Support Analyst - Imm...