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Britain’s energy watchdog proposes power price controls
Global Banking & Finance Review®
Company
By Bozorgmehr Sharafedin
LONDON (Reuters) – Britain’s energy watchdog has proposed price controls for electricity distribution network companies for the next five years that it said would drive investment in homegrown supplies and deliver cheaper power without increasing consumer bills.
Energy disruption and wider market turmoil linked to gas and oil exporter Russia’s invasion of Ukraine has this year led to a surge in prices, straining business and households across Europe.
Akshay Kaul, Ofgem interim director for the Infrastructure and Security of Supply Group, said in Wednesday’s statement the plan would help to ensure Britain “is no longer at the mercy of international energy prices or geopolitical events”.
The controls, which will run from April 1, 2023, to 2028, require six electricity distribution network companies to focus investment towards “more homegrown, cleaner, cheaper, and secure sources of energy”.
Ofgem said it expected the proposal to increase the use of renewables, including wind and solar energy, backed up by expanded nuclear and hydrogen-generated energy.
Known as RIIO-ED2 (Revenue = Incentives + Innovation + Outputs for electricity distribution), the proposal sets the level of investment Ofgem allows local electricity distribution networks to make in the five-year period.
The cost of the work is recovered through the network charges on consumer bills and by limiting network profits and increasing efficiencies, Ofgem said.
The regulator said its proposals, which are subject to a consultation, has ensured that major investment in the network can be delivered without any increase in network charges on bills, which will remain at an average of 100 pounds ($119.74) per year per customer.
The distribution network operators are UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West and National Grid Electricity Distribution
SSEN Distribution, part of British power generator and network operator SSE, said on Wednesday that Ofgem has allowed it 3.59 billion pounds of baseline total expenditure for the five-year period.
The total allowed expenditure for the six companies was around 22 billion pounds, Ofgem said.
($1 = 0.8351 pounds)
(Reporting by Bozorgmehr Sharafedin, Editing by Louise Heavens and Barbara Lewis)
Price controls are regulatory measures that set a maximum price that companies can charge for their services. In the energy sector, these controls aim to protect consumers from excessive charges while ensuring companies can invest in infrastructure.
Renewable energy comes from natural sources that are replenished constantly, such as solar, wind, and hydroelectric power. It is considered more sustainable and environmentally friendly compared to fossil fuels.
The electricity distribution network is the system of wires, substations, and transformers that delivers electricity from transmission systems to consumers. It ensures that electricity reaches homes and businesses safely.
RIIO-ED2 stands for Revenue = Incentives + Innovation + Outputs for electricity distribution. It is a regulatory framework set by Ofgem to determine the allowed revenue for electricity distribution companies over a specified period.
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