Britain will need to spend £32 billion ($51 billion) re-wiring and piping its electricity and natural gas transmission network in the next 10 years, as part of efforts to decarbonise the country’s energy system, according to regulator Ofgem.
Connecting up wind farms, gas, nuclear and small-scale renewables as they come online will drive some of this spending, Ofgem said, along with the need for ‘smarter’ networks.
More than £200 billion will need to be spent in total in the next decade, with installation of power plants making up the bulk of the financing requirements. However, £32 billion will go on “pipes and wires”, Ofgem said – double the rate of investment in the UK’s transmission networks of the last 20 years. This represents around 75% of the total value of the current industry, of £43 billion.
Ofgem has changed its regulatory framework for energy network operators in order to facilitate this investment, with the changes to be implemented in the next round of price controls on gas and electricity networks in 2013.
The ‘Revenue=Incentives+Innovation+Outputs’ (RIIO) model will set eight-year price controls for network operators, rewarding those who innovate and imposing financial penalties on those who fail to meet performance targets.
Consumers will still see their electricity and gas bills go up, Ofgem concedes – with the entire £200 billion low-carbon investment programme set to increase utility bills around 14-25%. However, the regulator claims its RIIO model will slice £1 billion from the investment needed in the next 10 years, compared to the requirement under the previous ‘RPI-X’ formula. RPI-X set price controls based on the retail price index, which tracks the rate of inflation, subtracting ‘X’ – an efficiency factor.
“The RIIO model will ensure that efficiency and innovation are hard-wired into the network companies. This means the benefits of the green economy, like more skilled jobs delivering smarter networks to allow householders to run solar energy and other types of microgeneration, will be delivered,” said Ofgem chief executive Alistair Buchanan. “However there will be no gold plating of the networks at customers’ expense.”
By. Jess McCabe