UK power distributor warns of blackouts after Ofgem regulation changes

Matthew Farmer 2 September 2020 (Last Updated September 2nd, 2020 17:30)

The CEO of UK power distribution company National Grid has warned that new regulations could discourage infrastructure investment, risking blackouts.

UK power distributor warns of blackouts after Ofgem regulation changes
National Grid operates the UK’s high voltage power networks, but has strongly opposed upcoming changes to regulation. Credit: National Grid.

The CEO of UK power distribution company National Grid has warned that new Ofgem regulations could discourage infrastructure investment, risking blackouts.

John Pettigrew criticised the UK power regulator Ofgem and its changes to infrastructure investment ahead of the end of consultations on Friday. Speaking to The Times, he spoke of fears that power lines would ‘decay’ and that new funding systems would not prevent this.

Ofgem introduced price caps on British electricity bills in 2013. These are set to expire in 2021, and Ofgem’s proposed replacement regulations would change infrastructure investment mechanisms. This has proven unpopular with energy distributors.

To provide savings to consumers, Ofgem wants to reduce the returns networks can make from projects. At the same time, it would provide more than $33.3bn (£25bn) of funding for infrastructure projects upfront. Chief executive Jonathan Brearley said at the time that this would make “a fair deal for consumers, cutting returns to the network companies to an unprecedented low level while making room for investment to drive a clean, green and resilient recovery.”

In his interview, Pettigrew said: “It is deeply concerning for us because ultimately you’re increasing the risk on the network. The risk of a loss of supply increases as a result of not spending as much on asset health, because the assets are deteriorating as they age.”

Ofgem tells National Grid: “We will not spend millions on bad proposals”

Pettigrew said he was concerned about the consistency of power supply for some major cities. Specifically, he highlighted a proposed project for Sheffield in North East England, where more than 500,000 people are served by two power lines.

National Grid planned to replace one of these in works costing $53.4 (£40m). Ofgem rejected this proposal, saying National Grid had not demonstrated the need for the works.

An Ofgem spokesperson said: “National Grid has failed to demonstrate the need to replace this cable, citing, for example, a single survey from 2015 as evidence to justify spending a proposed £40 million of consumers’ money on this repair. So we have left the door open for them to come back to us with better evidence and, if they provide it, we, of course, stand ready to fund this repair.

“Maintaining a strong and reliable network for consumers is our top priority, and wherever network companies have demonstrated they need vital funding to do this we have given them the go-ahead.

“We will not green-light spending billions of consumers’ money on poor or poorly evidenced proposals. However, we have left the door open for companies to come back to us with more evidence on the work they need funding for.

“We now expect them to come forward with better-evidenced plans, and stand ready to deliver funding when they do so.”

National Grid says it has proposed infrastructure works with a value of more than $4bn (£3bn), but that Ofgem rejected more than 80% of these.

Industry consultations on the new RIIO-2 price control structure end this week, and utility companies Scottish Power and SSE have also objected to the plans

In August, Ofgem ordered an investigation into National Grid’s power balancing systems, after a period of unusually high balancing costs. When the UK enforced a national lockdown to limit the spread of Covid-19, electricity use patterns shifted significantly, and National Grid’s cost of levelling rose to 39% greater than predicted.