Ofgem has unveiled plans to boost investment in local electricity grids in a bid to support the uptake of electric vehicles, small-scale renewables, storage and clean heating.
The energy market regulator has set out its working assumptions on the financial package that will be applied for the next round of price controls for local electricity networks (DNOs) starting in April 2023.
Ofgem said the new price controls for the DNOs, known as RIIO-ED2, are designed to boost green investment.
The update will help networks to create more flexible local grids that can balance demand and supply for electricity more effectively by connecting more small-scale renewables and storage.
The new price controls also aim to bring shareholder returns down, while ensuring customers pay a fair price with networks attracting the green investment they need.
Under Ofgem’s new plans, investor returns will be lowered to 4.4% – that is on average a third lower than under the previous price control.
Jonathan Brearley, Ofgem’s Chief Executive, said: “Our price control for local electricity networks paves the way for turning Britain’s streets green, unlocking the investment needed to support the UK, Scottish and Welsh Government climate change targets, particularly around the electrification of transport.
“We’re driving local electricity networks to help make sure that every watt of energy produced from plant to plug is better used, for example by ramping up their use of battery storage, saving bills and the planet.
“At the same time, these financial arrangements will significantly cut investor returns to make sure consumers pay a fair price for energy whilst networks attract the investment they need to be safe and green.”
Ross Easton, Director of External Affairs at Energy Networks Association, commented: “The proposals outlined today will take time to review in detail.
“However, as Ofgem states, it is vital that the next regulatory period for the electricity distribution network companies allows the networks to attract the significant investment needed to deliver net zero.”