REG-OFGEM POSSIBLE £1 BILLION INJECTION INTO GRID INVESTMENT

com:20091103:RnsC8506B
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RNS Number : 8506B  
  
OFGEM  
  
03 November 2009  
  
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Press Release  
  
TUESDAY NOVEMBER 3 2009  
  
REGULATOR PROPOSES POSSIBLE £1bn INJECTION INTO GREEN GRID INVESTMENT  
  
 
 * Ofgem proposes a common sense approach to ensure investment to support 
emission reduction plans while shielding customers from unnecessary costs 
 * By 2012, funding could deliver 20 per cent of aten-year investmentprogramme. 
 * 90 per cent of this investment is targeted at Scotland  
  
Energy regulator Ofgem has proposed funding arrangements of up to £1 billion 
over the next two years for electricity transmission grid projects that are 
vital in Britain's bid to combat climate change.  
  
This initiative addresses the need for investment in transmission infrastructure 
to connect new wind farms and other renewable generation. The regulator has 
proposed arrangements that are pitched to ensure progress for the most urgently 
needed projects, while protecting the consumer from unnecessary costs.   
  
The proposed arrangements, could amount to a 20 per cent down payment on the 
investment needed over the next ten years if all projects meet planning and 
other criteria for funding. Some 90 per cent of that investment is earmarked for 
Scotland. This underlines Ofgem's commitment to helping the achievement of 
sustainable development.    
  
The remaining 80 per cent of the ten-year investment programme will fall into a 
period of new regulatory controls which come into play when the current controls 
run out in 2012. Ofgem will decide on arrangements for that investment once the 
new regime is in place. This will avoid the risk of committing to arrangements 
that expose consumers to unnecessary costs.  
  
Ofgem chief executive Alistair Buchanan said: "Ofgem has put forward a plan that 
could inject up to £1 billion into national electricity grid investment. This is 
needed urgently to handle the growth in wind power and other renewable 
generation that is arising from Britain's drive to curb climate changing 
emissions."  
  
Based on the current investment plans of the transmission companies, Government 
targets for reducing carbon emissions by 2020 could require investment in 
electricity transmission totalling about £5 billion over the next ten years. 
Today's proposals could deliver up to a fifth of that sum by 2012 if all 
projects go ahead.   
  
Meanwhile preparations are underway for the next period of regulatory controls 
(price controls) for the energy transmission companies. And a project analysing 
the regime governing all of Ofgem's regulatory controls will conclude in 2010. 
This project - RPI-X@20 - could change radically the way all networks, including 
transmission grids, are regulated in future.   
  
Notes to editors  
  
1. The three electricity transmission companies are National Grid Electricity 
Transmission Limited (NGET), SP Transmission Limited (SPTL) and Scottish 
Hydro-Electric Transmission Limited (SHETL). They are subject to controls on 
their revenue (price controls) which are reviewed every five years. The current 
price control - Transmission Price Control Review 4 (TPCR4) runs to 31 March 
2012.  
  
2. Ofgem is in the last stages of a two-year review of the 20-year-old incentive 
regime that forms the basis of its regulatory thinking. The regime ties revenue 
and expenditure growth to the retail price index (RPI) plus or minus X 
percentage points. That scheme has delivered cost reductions and better service 
to consumers. The review RPI-X@20 will consider all options to make sure the 
future regime is fit for purpose in the current energy market conditions.  
  
3. The transmission companies have put forward proposals for 20 transmission 
investment projects spread over the next ten years totalling some £5 billon. 
They will add more than 60 per cent to the total regulatory asset value of the 
companies. About £1 billion relates to the transmission companies' latest 
estimates of costs up to 2012 on projects which could commence construction 
before the end of TPCR4.  
  
4. Ofgem's initial proposals published today address the need to allow funding 
of critical projects, while recognising the uncertainty surrounding the need for 
some of the investments and the prospect of change which may arise as a result 
of the RPI-X@20 review.  Ofgem proposes to fund costs incurred up to the end of 
TPCR4 in relation to specific projects, with future funding to be addressed as 
part of the next price control review process. We will continue to scrutinise 
the case for funding individual projects and review the companies' cost 
estimates before setting out our final proposals this winter.  
  
5. In determining the scope of funding for individual projects we will consider 
the prevailing needs for the project and the current state of progress by the 
transmission company. We propose to identify a list of projects which will be 
eligible for funding.  
  
6. Ofgem is the Office of the Gas and Electricity Markets, which supports the 
Gas and Electricity Markets Authority, the regulator of the gas and electricity 
industries in Great Britain. The Authority's powers and duties are largely 
provided for in statute, principally the Gas Act 1986, the Electricity Act 1989, 
the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002, the 
Energy Act 2004 as well as arising from directly effective European Community 
legislation.  
  
For further press information contact:  
  
Trevor Loveday     020 7901 7288 / 07887 652 252  
  
Chris Lock               0207 901 7225 / 07766 511470   
  
 
This information is provided by RNS  
  
The company news service from the London Stock Exchange  
  
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