Ofgem has unveiled proposals for a new regulatory framework in the UK for energy network companies starting in 2021.
The UK energy regulator said the changes are expected to result in lower returns for the companies and major savings for consumers.
The plans include more scope for opening up “high value” network upgrades to competition, which would build on the success of Ofgem's tendering regime for offshore wind links.
A targeted innovation support programme is proposed to “support strategic challenges across the sector”, as well as involving third parties in trialling new business models.
Ofgem also plans for a default five-year price control regime instead of the current eight-year period because “predicting some investment needs during the energy transition is harder over a longer period”.
The cost of equity range – the amount network companies pay shareholders – is set to be between 3% and 5%, and Ofgem also plans to refine how it sets the cost of debt so that consumers continue to benefit from low interest rates.
Measures would be put in place to ensure consumers do not pay for capacity that is not used and can share the benefits of efficiency savings and innovation.
Network companies’ business plans for the next price controls would also be put under further scrutiny with the setting up of independent user and consumer engagement groups to “challenge” companies’ proposals and “ensure that they reflect what consumers want and are willing to pay for”.
The cost of equity plans alone could save £5bn or about £15-£25 per year for household consumers, Ofgem said.
Stakeholders have until 2 May to respond to the proposals, after which Ofgem will finalise the framework in the summer.
Companies will submit business plans by autumn 2019, with Ofgem’s final view on price control allowances to be published by the end of 2020.
Ofgem senior partner for networks Jonathan Brearley said: “Ofgem’s stable regulatory regime allows companies to attract investment from around the world on behalf of consumers in Great Britain at the lowest cost.
“We will capitalise on this by getting network companies to work harder to deliver better value for consumers in the next price controls.”