Ofgem approves £28bn package for energy transmission networks

(Sharecast News) - Ofgem approved a £28bn funding package for Britain's gas and electricity networks for the RIIO-3 price control period on Thursday, prompting cautious initial responses from network operators National Grid and SSE's SSEN Transmission. The energy regulator said the settlement, covering 2026 to 2031, would maintain "world class" resilience, expand grid capacity to support electrification and underpin an estimated £90 billion of total network investment by 2031.

Around £17.8bn of the initial package would go into maintaining gas networks, with £10.3bn earmarked for electricity transmission projects including new power lines, substations and associated works.

Ofgem said the programme would ultimately add about £108 to a typical dual-fuel household bill by 2031 - £48 for gas and £60 for electricity - but argued that earlier investment in grid expansion would reduce constraint costs and reliance on imported gas, cutting bills by around £80 compared with a "do nothing" scenario and leaving a net increase of roughly £30, or less than £3 a month.

"The funding announced today will keep Britain's energy network among the safest, most secure and resilient in the world," said Ofgem chief executive Jonathan Brearley.

"The investment will support the transition to new forms of energy and support new industrial customers to help drive economic growth and insulate us from volatile gas prices."

He stressed that "this is not investment at any price", adding "every pound must deliver value for consumers. Ofgem will hold network companies accountable for delivering on time and on budget, and we make no apologies for the efficiency challenge we're setting as the industry scales up investment."

The regulator said it had subjected transmission owners, National Gas and gas distributors to "rigorous" scrutiny, trimming about £4.5bn, or 15%, from the companies' initial £33bn proposals through challenges on efficiency and by rejecting bids not deemed in consumers' interests.

It said the final package included changes to limit the impact of recent high inflation on network company returns and to smooth the profile of network charge increases for suppliers and end users between 2026 and 2031.

Ofgem also highlighted potential benefits for energy-intensive industry, saying steelworks and similar users could see bills 10% to 15% lower than they would have been without RIIO-3, once lower wholesale prices and government support schemes were taken into account.

National Grid said it welcomed Ofgem's recognition of the need for "significant investment into the electricity transmission sector to continue to deliver world leading reliability whilst nearly doubling the amount of power we can transfer around the country".

Ofgem's RIIO-T3 final determination for National Grid Electricity Transmission, also covering April 2026 to March 2031, includes a real allowed cost of equity of 6.12% at 60% gearing.

The company said it would now review the full package, including the incentive regime and totex mechanisms, to judge whether the framework was "investable and workable" and allowed high-performing networks to earn "a globally competitive overall return" while progressing projects at the pace expected by stakeholders.

It said it expected to announce its formal response after Ofgem publishes licence modifications, which were due to be finalised in February, triggering a 20-working-day appeal window.

SSE's SSEN Transmission, which operates the high-voltage network in the north of Scotland, struck a similar tone, calling the settlement "critical" for securing clean, affordable power and for unlocking wider economic benefits.

The firm said the investment enabled by RIIO-T3 would help "reduce reliance on imported energy from overseas, remove grid bottlenecks and strengthen energy security, as well as acting as a major catalyst for economic growth, jobs and supply chain investments across the UK".

It said it welcomed improvements to baseline totex and updates to Ofgem's proposed financial and incentive parameters, but cautioned that a detailed assessment was needed to determine "the overall investability of the package".

SSEN Transmission added that it remained committed to working with Ofgem to secure "an investible, financeable and ambitious price control settlement which underpins the unprecedented levels of investment required to deliver clean power, energy security and lower bills for current and future generations."

At 1044 GMT, shares in National Grid were down 0.61% at 1,136.5p, while those in SSE were off 2.11% at 2,180p.

Reporting by Josh White for Sharecast.com.