UPDATE:Ofgem Proposes Changes To Spur UK Low-CO2 Network Investment

26th Jul 2010 13:20

(Recasts lede, adds details.) By Selina Williams Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Britain's energy regulator Ofgem Monday proposed a new price control model to meet the GBP32 billion investment needed over the next decade in low-carbon energy networks as more nuclear power, renewables and smart meters are incorporated into the system. The new model, which includes extending the price control to eight years from five years, is designed to give long-term certainty to investors and keep costs for consumers as low as possible as the U.K. strives to meet stringent European Union targets to boost renewables and cut greenhouse gas emissions by 2020. Under the plans put out to consultation by Ofgem, companies that innovate and invest efficiently will be rewarded, while companies which perform badly for consumers with lower returns on their investment will be punished. "If Britain's energy networks are going to meet their challenge of delivering a low carbon economy then we need them to have innovation in their DNA," Ofgem Chief Executive Alistair Buchanan said in a statement. "To bring about this change Ofgem is seeking to make regulations "smarter" by placing more emphasis on financial incentives to deliver efficient innovation and investment over a longer timescale," he added. The GBP32 billion is part of the GBP200 billion that Ofgem estimates needs to be invested in the next 10 years to secure sustainable energy supplies at an affordable price for consumers. Ofgem has estimated that the cost of delivering the GBP200 billion investment could push energy bills up by 14% to 25% by 2020. The investment in energy networks covers connections of new low-carbon electricity generation such as nuclear power, wind power and other renewables, as well as upgrades of power networks to incorporate smart meters and potentially electric cars and electric heat. For gas distribution networks the investment could include new pipeline links between the U.K. and continental Europe to allow for greater imports to compensate for dwindling domestic supplies in the future. Under the new proposals, companies that perform well would be allowed to earn more revenues, whereas those that don't will earn less. The precise details of the incentive regime and the required performance targets will be worked out during the price control review period which is due to start in 2013. The final proposals will be published in September and then be gradually implemented over the next two price controls for gas distribution and electricity transmission. "With all the fundamental changes going on in the energy industry in the coming decades, now is the right time for a fundamental review of the way the industry is regulated," said Steve Holliday, chief executive of U.K. gas and electricity network operator National Grid PLC (NG.LN). Website: www.ofgem.gov.uk -By Selina Williams, Dow Jones Newswires +44 207 842 9262; [email protected] (END) Dow Jones Newswires July 26, 2010 08:20 ET (12:20 GMT)