UK utilities can spend £22.2bn to bolster their networks

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(Bloomberg) —

Energy network companies in the UK will have 22.2 billion pounds ($26.6 billion) to spend on strengthening local networks as the country becomes more electrified.

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Although this is a huge sum, it is 12% less than what the six major network companies had offered. The budget will cover everything from service and maintenance to upgrades to 14 local area networks for the next five years, regulator Ofgem said in a statement on Wednesday.

Utilities including SSE Plc, Iberdrola SA’s Scottish Power and National Grid Plc are at the forefront of the country’s electrification drive, as they are the power lines at which electric car charging stations and local renewable energy plants are connected.

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« The energy economy has changed, with clean renewables like wind and solar proving cheaper than expensive imported gas, » said Akshay Kaul, Ofgem’s acting director of infrastructure and security. at SupplyGroup. « These new sources of low-carbon generation will also need to be connected to an extended electricity grid to meet the growing demand for electricity with millions of additional electric heat pumps in homes and electric vehicles on the road. »

These local links operate at a lower voltage than the backbone of the transmission lines which, for example, carry electricity from wind farms in Scotland to demand centers further south.

Networks are desirable investments because price control provides certainty about returns. Last week, SSE sold a 25% stake in its distribution business to the Ontario Teachers’ Pension Plan Board for around £1.5 billion.

The latest price check sets lower returns for investors compared to the previous period’s 6%, Ofgem said without giving further details.

The price check runs from April 1 next year to March 31, 2028.