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Ofgem to allocate £25bn to support transition to green energy network

Published July 16, 2020

Ofgem is to allocate £25 billion upfront expenditure to maintain and operate the UK’s gas distribution and gas and electricity transmission networks. 

The energy industry regulator is also to make up to £10 billion in funding available to encourage energy companies to upgrade their infrastructure to provide emissions-free energy 

This £10 bilion net zero investment would be accompanied by controls on the prices that network companies can charge consumers.  Ofgem is proposing the lowest ever rate of return on capital for the sector, which is expected to force companies to adopt more efficient working practices. The regulator will only approve decarbonisation measures that conform with these restrictions. 

Jonathan Brearley, Ofgem’s chief executive, said: “Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we are striking a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for around £25 billion of investment needed to drive a clean, green, and resilient recovery.” 

A new Strategic Innovation Fund will also be set up to provide £630m to drive research and development into green energy projects, such as hydrogen infrastructure. 

Ofgem’s announcement comes a week after the Committee on Climate Change published a report  outlining the vital need for network investment. Among its recommendations, the CCC said the government’s delayed National Infrastructure Strategy, should prioritise early funding for energy efficiency in buildings; electric vehicle charging infrastructure; and hydrogen production and 

carbon storage infrastructure.  

Carbon Brief rounded up the UK energy companies’ criticisms of the proposals.  According to BBC News, the return that energy firms will be allowed to make from their investments will be nearly halved. National Grid told Reuters that it is disappointed by the proposals, saying they “jeopardised the delivery of the energy transition.” And SSE told the Times that it is “disappointed and deeply concerned” by the announcement. Rob McDonald, managing director of its subsidiary SSEN Transmission, said: “Ofgem’s draft determination is a barrier towards achieving net-zero and damaging to the green economic recovery.” 

Tags gas net zero investment Ofgem