Ofgem confirms tighter controls coming for local grid networks

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Power regulator Ofgem has confirmed that its new regime for electrical distribution networks that come it from 2023 would reduce returns for investors.


Ofgem said it wants to strengthen the local network system to cope with up to an expected 11mln electric vehicles and demand for a new generation of home heating systems that can produce power as well as use it.


The regulator also said it wants a fairer balance between shareholders and consumers.


Electricity distribution networks (DNOs), such as SSE PLC (LON:SSE), which transport electricity locally to Britain’s homes and businesses, have a crucial role in reducing carbon emissions and meeting the government’s targets, it added.


Ofgem said the new RIIO-ED2 price controls framework for 14 DNOs will also increase flexibility and digitalisation.


A new GBP450mln strategic innovation fund is being set up that DNOs can access with more funding also possible in future. at a lower cost than current technology allowed, it added.


Final details on the cost of capital for the DNOs, which determines how much money they can make, would be taken in the first quarter 2021, Ofgem said.


“However, in common with our approach to the other RIIO-2 price controls we still expect to see lower returns for investors in RIIO-ED2,” it added.


Local grid costs for consumers are around GBP90 a year for an average UK customer, the regulator said.


Britain has promised to cut emissions by 68% over 1990 levels by 2030 and to be net zero by 2050.

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