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(Bloomberg) — The UK energy regulator set out a plan to increase the returns that investors can get on equity put into grid companies helping underpin a huge push to upgrade critical infrastructure during the next five years.
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Ofgem proposed a cost of equity of 6% for private investment in grid companies, according to its draft determinations for the 2026-2031 period. That compares to 4.55% for the previous five years. National Grid Plc, SSEN Transmission and Scottish Power were among the utilities submitting plans that requested as much as 6.9% in returns.
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SSE said Ofgem’s proposals for returns were “not commensurate with globally competitive market rates, robust market evidence, and the significant business risks of investing in electricity transmission,” in a statement.
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The UK’s grid is regulated, meaning Ofgem decides what returns transmission operators can make, how much capital investment can be spent and the size of the incentives linked to performance. It walks a fine line in making decisions that encourage companies to invest toward reaching net zero targets while still protecting consumers from soaring bills to pay for those upgrades.
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Ofgem’s proposals allow companies to spend £24.2 billion, which is around 26% lower than the plans proposed by the companies.
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The plans are estimated to increase network charges on bills by £104 by 2031.
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“The sooner we build the network we need, and invest to strengthen our resilience, the lower the cost for bill payers will be in the future,” Ofgem chief executive Officer Jonathan Brearley said.
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The importance of investment in this type of critical infrastructure has come to the forefront after the April blackout in Spain and Portugal. Ofgem said the plans to upgrade the grid would include the overhaul of 4,400 kilometers of overhead lines and would allow 126 gigawatts of clean power generation to be connected to the grid by 2030.
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