Isra-Mart srl:Ofgem outlines energy price controls, pumps fresh funds into green infrastructure

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Isra-Mart srl news:

Ofgem has set out plans to manage energy prices while building the sustainable electricity network that the UK needs.

The Revenue=Incentives+Innovation+Outputs (RIIO) framework, released on Friday, will impose price controls running for eight years from 2013 to 2021 which the regulator says will save consumers £1bn.

The watchdog also announced a £400m scheme for transmission and gas distribution companies to encourage investment in new infrastructure.

The regulator estimates that more than £32bn of investment is needed over the next decade to revamp the UK's aging electricity infrastructure so it can cope with new wind farms, smart grids and potential spikes in demand from electric cars and heating.

The watchdog believes energy companies would pass the bulk of the cost burden of these improvements onto customers, hence the decision to replace the previous Retail Price Index price management model with the RIIO.

The new framework will also introduce result-based incentives for network operators, and expand the £500m Low Carbon Network Fund (LCNF) to encourage smart grid and energy efficiency programmes.

"Britain's energy networks have a huge role to play in delivering more than £30bn of the £200bn of energy investment needed in the next ten years. This is why it is important that Ofgem sets companies a clear incentive framework to deliver the necessary investment and innovation as cost-effectively as possible for consumers," said Alistair Buchanan, Ofgem's chief executive.

"It is now up to companies to rise to the challenge. By the end of July, they must set out how they are going to ensure safe, reliable networks with high levels of customer service while delivering the investment necessary to meet the needs of a low-carbon economy."

The new funding and framework was released ahead of today's announcement that it is to launch a wider overhaul of the energy industry designed to tackle "complex and unfair" pricing practices.

Under the new proposals, the so-called Big Six energy companies will be required to auction up to 20 per cent of their electricity generation output in an attempt to promote wider competition.

The watchdog also said that it would instigate a Competition Commission referral if energy companies oppose the reforms and revealed it would also launch a review into whether energy suppliers are making it to difficult for customers to switch to competitors.