Regulator Ofgem (the Office of Gas and Electricity Markets) this week announced proposals costing up to £22bn which will include the creation of an estimated 7,000 jobs, mainly in the construction supply chain.
Britain’s high pressure gas and high-voltage electricity networks, operated by the National Grid, will be upgraded thanks to initial funding of £17bn, with a further £5bn of capital potentially released over the course of the price control period between 2013 and 2021.
The money would be used to fund major projects such as new sub-sea electricity cables linking England and Wales with Scotland and the gas mains replacement programme, with a potential 80,000 homes added to the gas network.
Ofgem unveiled a new RIIO model, Revenue = Incentives + Innovation + Outputs, in 2010, whose measures included lengthening price controls from five to eight years, a stronger incentive scheme for network companies and giving companies greater power in delivering large schemes.
At the time chief executive Alistair Buchanan said: “£32bn of the £200bn investment challenge Ofgem has identified falls to the regulated energy networks and is within our statutory remit. That is why RIIO will ensure we attract this investment, but at a fair price for consumers.
"RIIO also gives consumers and network users a bigger voice in what they want network companies to deliver and then rewards companies that take the initiative and deliver this efficiently, while financially penalising laggards and subjecting them to closer regulatory scrutiny."
Ofgem chairman Lord Mogg (left) said on 16 July 2012: "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.
"In addition, through RIIO price controls we are driving improvements in company performance to ensure costs are kept as low as possible for consumers by incentivising efficient investment and penalising poor performance.
"Our ‘vanilla’ weighted average cost of capital of around 4.5% (6.7-7% cost of equity) achieves these criteria."
The eight-week consultation on the plans will open and initial proposals for RIIO-T1 & GD1 will be published on 27 July. There will be an eight week consultation period with responses required by 21 September.
Ofgem intends to publish the final proposals in December 2012 and undertake the statutory consultation on the licence changes implementing those proposals in the new year.