Energy grid investment of £28bn to push up household bills

Household energy bills will rise to help fund a £28bn investment in the UK’s energy network.

Energy regulator Ofgem has approved the funding in a five-year plan to improve electricity and gas grids. The money will go towards maintaining gas networks and strengthening the electricity transmission network.

The work is estimated to add £108 to energy bills by 2031.

But Ofgem said people would end up saving about £80 more than they otherwise would, as the investment will help lower the reliance on imported gas and make wholesale energy cheaper, leading to a net energy bill rise of about £30 a year.

Companies that run energy networks – including power lines, cables and gas pipes – are separate from suppliers.

This plan sets the framework for how they deliver a safe and secure supply, and the cost controls they face for five years, from next year.

Ofgem chief executive Jonathan Brearley said the investment “will keep Britain’s energy network among the safest, most secure and resilient in the world”.

Speaking to BBC Breakfast, Mr Brearley said the UK needed to move away from its dependence on gas.

“Gas has a really big part to play in our energy system for some time but we need to diversify our risk,” he said.

Spreading the risk means “we’ll be much better at electricity prices in the future and that will protect people’s bills”.

Of the £108 Ofgem says will be added to energy bills, £48 will be for gas and £60 for electricity.

But the regulator said the investment would deliver about £80 worth of savings, including £50 in savings alone from the energy grid expansion.

Mr Brearley said the £108 added to bills by 2031 “will go up over the five years, so it’s not all happening at once”.

“It’s about 2-3% on bills in April and increases roughly in a straight line from there.”

That would mean an additional £40-£50 from April.

A Department for Energy Security and Net Zero spokesperson said: “Upgrading our gas and electricity networks after years of underinvestment is essential to keep the lights on and ensure energy security for our country.”

Energy bills remain relatively high, and are set to go up slightly in January after Ofgem separately announced a small rise to its price cap, which will increase a typical household’s bill by £3 a year.

The regulator’s investment announcement also comes after a government pledge in the Budget to remove certain costs, which will cut about £150 from a typical annual energy bill.

The investments approved by Ofgem include £17.8bn for the gas network. That includes funding for cyber security and gas pipe replacement.

The £10.3bn in electricity funding will go towards projects including replacing ageing infrastructure, investing in new transmission lines and reinforcing the electricity grid so power can be moved around the network.

Ofgem said the investment would also reduce inefficiencies in the system such as offshore windfarms being paid billions a year to switch off as the grid cannot take their power.

At the moment, when it is very windy, the electricity grid cannot cope with the amount of energy generated by the UK’s offshore windfarms as there are not enough cables to transmit it.

Speaking ahead of Ofgem’s announcement, Scottish Power chief executive Keith Anderson told the BBC’s Today programme the removal of constraints in the system was important.

“It will give us a system that is fit for purpose for the country for the 21st Century,” he said.

National Gas owns and operates Britain’s gas transmission network, and will receive funding through the Ofgem plan.

Its chief executive Jon Butterworth welcomed the investment, saying it confirmed “the critical role that the gas transmission system plays in Britain’s energy security now and for decades to come”.

He said the company would undertake a detailed review of the decision in the coming weeks to ensure that it also “supports the country’s clean energy ambitions”.

Lawrence Slade, chief executive of the Energy Networks Association, said Ofgem’s announcement was “a significant point in our plans for delivering an electricity transmission network that will supply the clean, more affordable and secure energy the country needs for future growth”.

Energy UK chief executive Dhara Vyas said the increased investment was critical, but the added cost for businesses and households needed to be considered by the government so that it was funded “in the fairest way possible” and with certainty around future costs.

Greenpeace UK’s senior climate adviser, Charlie Kronick, said the energy grid was “no longer fit for purpose” and needed immediate, vital upgrades. But he added there must be “robust safeguards and strong regulation” to protect bill payers and provide value for money.

Simon Francis from campaign group End Fuel Poverty Coalition echoed the concerns from Greenpeace, saying network and transmission companies should not be handed a blank cheque and should come with “proper scrutiny”.