8th Dec 2020 09:32
(Alliance News) - SSE PLC and National Grid PLC on Tuesday both responded to news from Ofgem that it will not be cutting the amount energy networks can give to shareholders by as much as originally planned.
Shares in National Grid were up 1.7% at 874.60 pence in London in morning trading while SSE shares were up 2.7% at 1,399.89p.
The British energy regulator will allow network companies to pay a return on equity of 4.3% to their investors between 2021 and 2026. This forms part of the final determinations of Ofgem's RIIO-2 network price control.
The 4.3% figure is much lower than the high returns of between 7% and 8% that are currently allowed, but does exceed the originally planned 3.95% that energy networks were told they could be facing in Ofgem's preliminary decision in July.
Ofgem also announced a GBP30 billion spending package, up from GBP25 billion in its July proposal.
The regulator explained that: "Following its challenge to them, companies submitted much better evidence on their spending plans enabling Ofgem to green-light more funding for crucial service, maintenance, upgrades and repairs."
Additionally, it is making further funding available for future green energy projects. At present, companies have indicated that GBP10 billion of these projects might be in the pipeline, but "there is no limit on the additional funding that could be provided, subject only to companies making good business cases."
Over the course of RIIO-2, customers will save GBP2.3 billion, equivalent to an average bill reduction of about GBP10 pre-inflation.
Funding for vulnerable customers is GBP132 million, with the vulnerability and carbon monoxide safety allowance doubles from draft determinations to GBP60 million.
In a separate price price control, Ofgem is also boosting funding for the electricity system operator to make sure it is ready to operate a zero carbon emissions electricity system as soon as 2026.
SSEN Transmission, part of Peth, Scotland-based FTSE 100 utility SSE, expressed some positivity but also some concerns.
SSEN Transmission said: "Following an initial review of Ofgem's final determinations, SSEN Transmission welcomes the positive movement in total expenditure to GBP2.1 billion. Further work is required to assess whether this level of total expenditure is commensurate with delivering the outputs stakeholders demanded and the investment required to deliver governments' net zero targets."
"However, SSEN Transmission is very disappointed that Ofgem has not fully reflected the robust evidence - particularly that from the Competition & Markets Authority, or CMA, provisional findings of the PR19 water price control appeal - in setting the financial parameters for RIIO-T2, which SSEN Transmission expected to be at least in line with the CMA's provisional findings."
SSEN Transmission is awaiting more material from Ofgem and will keep reviewing this material as it is published. It also said it would "keep all options open" when it comes to securing a price control settlement that meets stakeholder needs and balances bisk and reward.
Rob McDonald, managing director of SSEN Transmission, said: "We were greatly encouraged by the broad support for our stakeholder-led business plan throughout Ofgem's consultative process and cautiously welcome Ofgem's movement on a number of fronts. However, at this stage in our assessment, we continue to have concerns and will need to reflect further as we review and analyse the full settlement in the round over the coming weeks."
FTSE 100 electricity and gas utility company National Grid PLC, which is based in London, said it will be reviewing the full package of the final determination in detail "to see whether it delivers sufficient investment to maintain resilient and reliable networks."
National Grid will also assess whether the final determination provides the necessary flexibility for delivering critical infrastructure needed for net zero in the UK and "provides an appropriate overall financial package."
National Grid said: "We expect Ofgem to publish its statutory consultation on the proposed licence modifications required to implement the final determination shortly. The consultation period will be followed by a period for Ofgem to consider responses, at the end of which Ofgem will publish its decision to modify the licences.
"Relevant parties have 20 working days from the day on which the decision to modify the licences is published to appeal any part of the proposed licence modifications to the Competition & Markets Authority. Given the current expected timeline, we anticipate that we will make any final decision on whether to accept or appeal the licence modifications implementing Ofgem's final determination to the CMA no earlier than late February 2021."
By Anna Farley; [email protected]
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