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Households to face higher energy bills under new Ofgem scheme

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16/07/2012
Ofgem has today announced its proposals to upgrade the UK's electricity and gas networks over the next eight years to the tune of £22bn, but consumers face higher bills.

The energy watchdog plans to invest £17bn in grid upgrades between April 2013 and 2021, with a further £5bn that could be authorised over a ‘price control period’ if thought necessary.

Lord Mogg, Ofgem chairman, said: “Britain faces an unprecedented need to invest to replace ageing infrastructure, meet environmental targets and deliver secure supplies. This needs to be carried out at a time of global financial uncertainty, which makes attracting investment difficult but possible.”

The proposed investment is said to include the upgrade and renewal of the high voltage electricity network in England and Wales and the high pressure gas networks across Britain.

These networks are operated by National Grid and the package is set to fund major projects such as new sub-sea electricity cables linking England/Wales and Scotland.

An estimated £7 billion would help to ensure that our low pressure gas networks, which deliver gas to homes and businesses, remain safe and reliable.

In addition, Ofgem say that the proposals will enable the gas distribution companies to connect around 80,000 fuel poor households to the gas network.

The scheme is also expected to create about 7,000 jobs, and is widely regarded as essential to the UK’s plans to slash carbon emissions and increase renewable energy generation capacity, however, according to uSwitch, will add an extra £11 a year on average to household bills.

Ann Robinson, director of consumer policy at uSwitch.com, says: “This is the start of a significant investment programme for our nation’s energy infrastructure. The work is vital, but it will also come at a cost to consumers, which is why the Government must ensure that households get value for money and that every effort is made to keep the cost of energy at an affordable level.

However the scheme has come under fire from grid operator National Grid which has stated that Ofgem’s proposals are not ambitious enough and will put the UK’s grid reliability and environmental targets at risk.

In a statement it said: “It is already clear that there are several important areas where Ofgem’s proposals differ substantially from National Grid’s comprehensive business plan submissions for both transmission and gas distribution.”

“While the information currently available is limited, we believe that these initial proposals will not appropriately incentivise the essential investments necessary to provide safe, reliable networks for the UK consumer and avoid delays to the achievement of the UK’s environmental targets.”

uSwitch has also highlighted that despite an additional £11 pounds to household bills may not seem high enough to warrant too much concern from the average household, the reality of rising prices is something all consumers should consider for future budget planning.

Robinson added: “However, it is welcome that as part of this investment more homes will be connected to the gas network – this will be a significant step in reducing fuel poverty as it will reduce their energy costs.

But for consumers generally they should see this announcement as an early indication of where their fuel bills will be heading over the next few years. It’s important that they start to protect themselves by using less energy and paying the lowest possible price for the energy they do use. By learning to manage our energy bills in this way we can start to keep a lid on these costs.”

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