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National Grid and Ofgem agree cost controls

Will customers face rising prices after Ofgem caps National Grid investment.

wind turbinesThe National Grid has agreed price controls with energy regulator Ofgem, which will see £24.8 billion pounds of investment spending on UK transmission infrastructure over the next eight years.

After much speculation, the National Grid said it has decided to accept Ofgem’s decision to cap its spending on gas distribution networks at £6.9 billion.

However, this is 20% lower than the level the National Grid had previously said was necessary and has led to speculation that customers will once again suffer as a result of a corporate deal.

Knock-on effect

Analysts have warned that Ofgem’s revised £38 billion programme to connect wind farms and power stations to the electricity grid and replace old gas pipes will likely mean that household energy bills will rise by a further £12 a year over the next ten years.

The nation is on verge of making billions of pounds of investment in new power plants, nuclear reactors and wind farms to meet climate change targets and replace ageing infrastructure, but in order to connect these new plants the National Grid will need to make significant investment.

The coalition’s desire to keep costs down for customers meant that negotiations between Ofgem and the National Grid were tough, and some have claimed that the compromise benefits no one.

Under the new controls, the network operator can spend £24.8 billion, including £19 billion for electricity and £5.8 billion for gas transmission, as well as a further £6.9 billion for gas distribution.

According to the National Grid, the value of its UK regulated assets will increase by 80% on the current £22 billion over the next eight years due to investment in infrastructure, but unions have claimed that the caps could lead to job losses and even endanger lives.

Severe consequences

The GMB says the decision was “inevitable” but it will mean that 3,000 jobs will go across the gas sector and the gas mains replacement programme, which is intended to enhance safety, will be slashed.

“Less investment will give rise to a less safe gas industry and not a penny off people’s bills,” said Gary Smith, GMB national secretary for energy and utilities.

“This 20% cut in investment by Ofgem will cause more gas leaks and gas workers aren’t going to be able to cope with gas escapes if it gets cold. An increased risk of loss of life as a direct result is inevitable.

The GMB has now called for Ofgem to be scrapped and replaced by system of regulation that focuses on “making sure customers don’t get ripped off” while ensuring there is sufficient investment in jobs, skills and safety to “keep the country safe and warm”.