1st Jul 2025 09:59
(Alliance News) - National Grid PLC and SSE PLC on Tuesday pledged to continue to work with Ofgem after the industry regulator published its draft determination for price controls and spending between 2026 to 2031.
Britain's energy watchdog has given the provisional green light to an initial GBP24 billion of investment to upgrade UK energy infrastructure over the RIIO-3 period between 2026/27 and 2030/31.
Over GBP15 billion will ensure the continued safe operation of Great Britain’s gas transmission and distribution networks, Ofgem said.
A further GBP8.9 billion is set to be committed to the nation's high-voltage electricity network, which Ofgem said will power the biggest expansion of the grid since the 1960s, with another GBP1.3 billion being earmarked.
This includes GBP4.2 billion for National Grid and GBP3.1 billion for SSE, Ofgem said.
Ofgem said it has set a provisional cost of equity allowance for private investment of 6% (at 60% gearing) over the five-year period, down from 6.5 to 6.9%, which companies argued for in their business plans.
"This strikes the right balance between unlocking investment, cutting barriers to 2030-delivery and fair deal for consumers," the regulator said.
Ofgem said it has applied tough cost controls, demanded higher value-for-money where proposed spending is not justified and inefficient, and set tougher delivery targets on key service areas.
National Grid said it was "pleased" to see Ofgem continuing to recognise the need for significant levels of investment in networks, and the requirement for an investable framework to support its delivery.
The firm continues to expect to invest around GBP60 billion over the five years to March 2029 across the group.
National Grid said it will review the draft determination to assess whether it delivers an "investable overall financial package."
"We note that progress is needed on incentive opportunities which are both good for consumers and support investability, and we will work with Ofgem to provide further information where requested to support our capital investment plans," it added.
But SSEN Transmission, which is 75%-owned by SSE, felt the draft determination did "not go far enough" to deliver the framework required to unlock the "unprecedented levels of investment needed to deliver lower and more stable bills."
SSE said the approach to setting baseline total expenditure allowances fails to fund the investment required for a clean power system by 2030.
In addition, the company said the proposed cost of equity is not "commensurate with globally competitive market rates, robust market evidence, and the significant business risks of investing in electricity transmission."
It also pushed back on the proposed capitalisation rate, and asset lives, which "do not provide adequate cash flow measures given the significant increase in uncertainty mechanism expenditure required."
SSE said the proposed incentive regime is at an "early stage" and requires "further development" to give "sufficient confidence this will be a balanced and investable package that incentivises strong performance and delivers for consumers."
SSE committed to keep working constructively with Ofgem.
Shares in National Grid were up 1.5% at 1,077.50 pence each in London on Tuesday morning. SSE was 0.9% higher at 1,846.50p.
The funding proposed by Ofgem is meant to allow 80 major energy infrastructure projects to be completed by 2030, part of an estimated GBP80 billion investment scheme to boost electricity network capacity, "protecting UK households from the volatile international gas markets," Ofgem added.
"This record investment will deliver a homegrown energy system that is better for Britain and better for customers. It will ensure the system has greater resilience against shocks from volatile gas prices we don’t control," said Ofgem Chief Executive Jonathan Brearley.
However, Ofgem said the investment in its entirety is predicted to increase network charges on bills by GBP104 by 2031.
The draft determinations are now published for consultation with final decisions to be made by the end of 2025.
By Jeremy Cutler, Alliance News reporter
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