Energy Firms Accuse Ofgem of Putting Climate Goals At Risk

The energy regulator, Ofgem, has been accused by energy firms of risking Britain's climate goals by attempting to cut £20 off annual home energy bills through clamping down on green investor returns.

The watchdog is pushing to halve company returns over the next five years via a green investment plan worth £25bn that aims to prepare the energy infrastructure in Britain for a low-carbon future.

Jonathan Brearley, chief executive of Ofgem, said: “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.”

After consumer groups and MPs criticised the watchdog for allowing energy companies to take home ‘eyewatering’ profits at consumer’s expense, the proposed returns would halve what the energy networks currently make for the maintenance and upgrading of the country’s energy system.

However, big players in the sector, such as Scottish Power, National Grid, and SSE, claim that capping investor returns at 3.95% would make investors less likely to invest in the UK, which would subsequently slow down Britain’s energy transition.

Additionally, there are concerns regarding the regulator’s decision to cut the total investment permitted for new electricity grid projects to between £5.9bn and £9.1bn over the next five years.

This is considerably less than the £9.6bn invested over the previous five years, and far off from the £10.8bn the industry says is needed in order to keep up with the demand as electric cars, heat pumps, and hobs all increase in usage.

Executive director of National Grid, Nicola Shaw, described the situation as ‘very disappointing’ as Ofgem had opted for ‘short-term gain’ for consumers, but at the cost of risking ‘all the work needed to reach net zero’.

Addressing the claims that reduced investment returns would slow down Britain’s move towards cleaner energy, Brearley said: “Quite frankly, at this stage of the process, this is the sort of thing that companies often say. Ofgem are here to deliver a greener and fairer energy system, and we are passionate about supporting the green economic recovery.”

Brearley said that in coming to their decision, ‘extensive analysis’ had been done by the regulator in order to figure out ‘a fair balance between investment and customers’, which included an assessment of the rate of return investors would see from investing in projects outside of the UK.