Ofgem unveils £25bn plan to boost renewables and slash energy firm profits

Ofgem said it would set tougher targets for private energy firms with regards to customer service, safety, reliability and going further, faster, on green energy.

There will also be a package of around £10bn in additional funding which is only available for clean energy investment, but companies will need to apply on a project-by-project basis to receive any share of that money.

The proposals will see average earnings for private energy firms halved, which should save around £3.3bn, and it will also cut £8bn from their spending plans for projects which Ofgem believes haven’t been sufficiently justified.

“In short, less of consumers’ money will go towards company profits and more towards building a better, greener network for the future,” Ofgem said in its consultation.

It follows a law passed last year that commits the UK to reaching ‘net zero’ carbon emissions by 2050, in which a green energy transition will play a major role.

Ofgem expects households to save around £20 a year on their gas and electricity bills under its proposals, which are set to come into force from next year.

It said the UK already has one of the most reliable electricity grids, with around half the number of power cuts compared to the European average, but that transition to greener forms of energy needed to be made as quickly as possible.

“Strong evidence from water regulation and Ofgem’s offshore transmission regime shows that investors will accept lower returns and continue to invest robustly in the sector,” Ofgem said.

Unsurprisingly, the proposals were not well received by some of Britain’s biggest energy networks, which will see their profits cut. National Grid said it will be pressing for changes that will incentivise investment and protect consumers ahead of Ofgem’s final decision in December this year.

“We are extremely disappointed with this draft determination, which risks undermining the process established by Ofgem. This proposal leaves us concerned as to our ability to deliver resilient and reliable networks and jeopardises the delivery of the energy transition and the green recovery.”

Meanwhile, SSE said it is “disappointed and deeply concerned”. Rob McDonald, managing director of subsidiary SSEN Transmission, said: “Whilst our stakeholder-endorsed and evidence-based business plan was in step with the Government’s low-carbon investment ambition, Ofgem’s first pass at a settlement resembles a worrying return to austerity.

“Ofgem’s draft determination is a barrier towards achieving net-zero and damaging to the green economic recovery.”

However, the move won support from Citizens Advice chief executive Dame Gillian Guy: “Today’s announcement is another step closer to a price control that stops network companies from overcharging energy customers by billions of pounds,” she said.

“These decisions are extremely technical, but they matter. Ofgem has struck the right balance between shareholder returns and value for money for energy customers, while making sure networks can continue to attract investment.”

A final decision will be made in December after the energy companies have had time to provide feedback.