UK regulator Ofgem has been warned it must move further to address power industry concerns over grid charges or risk losing out on the investments needed to meet the nation’s net zero ambitions.

Ofgem watered down earlier proposals to reduce future returns available to network operators after a backlash from the industry, but was told the revised plan could still undermine the massive infrastructure spending needed to accommodate vast quantities of offshore wind and other renewables.

The regulator said that from next April it plans to set baseline returns that network companies are allowed to make at 4.3% for five years.

That is a big drop from the 7-8% under the current regulatory regime, but an improvement on the 3.95% proposed by Ofgem in early-July.

The original plan had caused uproar amongst the UK’s power distributors which had warned it would jeopardise delivery of the energy transition and make net-zero by 2050 unachievable.

The regulator also gave its go-ahead to increased investment over the five-year period from 2021-2026, including £30bn ($40bn) in upfront funding from companies to deliver a clean and reliable energy system.

Ofgem said companies had indicated that a further £10bn of spending was under consideration for UK green energy projects, including such projects as grid reinforcement along the east coast of England to anticipate the increased volumes offshore wind being developed to reach the UK’s new 40GW by 2030 target. The regulator said there is no limit on the additional funding that could be provided, only subject to companies making good business cases.

“Our £40bn package massively boosts clean energy investment,” said Ofgem chief executive Jonathan Brearley. “This will ensure that our network companies can deliver on the climate change ambitions laid out by the prime minister, whilst maintaining world-leading levels of reliability.

“These costs must fall fairly for consumers. We are reducing the amount paid to shareholders so that they are closer to current market levels. This means that companies can attract the vital investment we need whilst making sure that consumers don’t pay more than is necessary to achieve this.”

However, UK industry body RenewableUK said Ofgem must move closer towards a system of grid charges that will attract more investment in new renewable energy infrastructure.

The plans are still treating net-zero as if it is a future aspiration.

“The plans are still treating net-zero as if it is a future aspiration or even an uncertainty,” said Rebecca Williams, RenewableUK’s head of policy and regulation.

Williams said it is now vitally important that Ofgem’s legal duties and responsibilities are linked more firmly and more specifically to achieving the UK’s legally-binding net-zero target, not least because this will achieve decarbonisation at the lowest cost to consumers as renewables are the cheapest sources of new power.

“It’s good to see that Ofgem recognises the importance of attracting investment to connect offshore wind farms along the east coast of England, as well as higher levels of renewable capacity in Scotland including onshore wind, but it’s still unclear whether grid charges will be set at the right level to bring forward the investment that’s needed.”

Rob McDonald, managing director of SSEN Transmission said it is “greatly encouraged by the broad support for our stakeholder-led business plan throughout Ofgem’s consultative process” and cautiously welcomes the regulator’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.

“In doing so, we will work constructively with Ofgem and other stakeholders as we consider our options and remain ready to invest the billions required to build a network for net-zero, subject to an acceptable and investible overall price control settlement.”

Transition

Concerns remain: UK regulator warned to move further on grid charges or risk net zero failure