New rules to restrict spending by network operators risk plunging the UK grid into blackout chaos, National Grid has warned.
Tensions between energy regulator Ofgem and the public companies that run the UK’s electricity grid have reached fever pitch in recent weeks, following the release in July of Ofgem proposals to slash returns energy firms like National Grid can make on investments.
Network operators maintain the pipes and wires that supply heat and power across the country. Ofgem wants to cut the baseline rate of return these companies can make from 7-8 per cent to 3.95 per cent from April 2021. Some £8bn of proposed spending on infrastructure projects would also be cut under the plans, after Ofgem concluded energy firms had not done enough to prove the schemes represented value for money.
Network operators have responded furiously to the proposals, claiming the restrictions threaten the stability of the UK energy system and the transition to green power.
National Grid said it had “serious concerns”, arguing the plans are not in the best interests of its customers.
In a consultation response published on Monday, National Grid warned the rules would leave it struggling to make the network investments needed to avoid future blackouts. The new rules would also choke off investment in net zero grid technologies, it warned.
“The impacts of these proposals are to create unnecessary delay and uncertainty to the delivery of projects supporting net zero, perverse incentives to delay low carbon connections and avoidable regulatory burden and transaction costs,” National Grid warned in an accompanying letter to Ofgem CEO Jonathan Brierly.
Wales & West Utilities also joined the row this week. The privately owned company warned the proposed rule changes would stop £194m worth of essential work. This could threaten the firm’s health and safety compliance and its ability to prepare for the net zero transition, it warned.
Ofgem insists the reforms do not threaten the UK’s net zero ambitions. It says the new return rates will bring energy markets in line with similar sectors such as water. A final decision on whether to proceed will be made by Ofgem in December.