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Energy bills could fall £100 as regulator targets firms’ big profits

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
09/07/2020

Energy customers could save £100 on their bills as part of the regulator’s five-year investment programme which includes proposals to halve network company returns.

Ofgem is proposing £25bn of upfront funding to transform the UK’s energy networks, delivering greener and cleaner energy to help meet the government target of net zero emissions by 2050.

As part of its five-year investment programme which also looks to balance costs with value for consumers, Ofgem proposes to nearly halve network companies’ allowed rate of return, so that less of consumers’ money goes towards their profits.

The regulator said this would save £3.3bn over the next five years for gas and transmission sectors alone.

Further, it is also proposing to cut over £8bn from companies’ spending plans by setting efficiency targets and disallowing unjustified costs.

This would lead to an expected £20 fall in network charges on bills per household a year, so £100 over the five-year period.

Jonathan Brearley, Ofgem’s chief executive, said: “Ofgem is working to deliver a greener, fairer energy system for consumers. This is why we are striking a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for around £25bn of investment needed to drive a clean, green and resilient recovery.

“Now more than ever, we need to make sure that every pound on consumers’ bills goes further. Less of your money will go towards company shareholders, and more into improving the network to power the economy and to fight climate change.

“Ofgem’s stable and predictable regulatory regime will continue to attract the investment Britain needs to go further and faster on decarbonisation.”

Richard Neudegg, head of regulation at comparison site Uswitch.com, said: “The amount of profit that network companies have been allowed to make in recent years has been a matter of significant controversy, given our energy suppliers have to pass on these charges to our bills.

“Ofgem has to balance making sure these monopoly companies can’t take too much profit out of the system, with the need to allow them to invest in things that will make our energy network greener. Transforming the energy system to contribute to meeting net zero emissions by 2050 will not come cheap.

“Ofgem’s proposal would lead to a big cut in network company returns, but most of this will go into green investment. The net impact on consumer bills should be £20 a year in 2021.”

Neudegg added there’s still some way to go in finalising these proposals, but they’re a “step in the right direction”.