Energy network renewal will raise consumer power bills over 10 years

THE cost of "rewiring" Britain's energy network could add an average £6 a year to consumers' dual fuel bills over the next decade, the industry regulator said yesterday.

Ofgem said 32 billion worth of investment in pipes and wires was required across the country, twice that seen in the past 20 years, to secure supplies to households and to move to a low-carbon economy.

The watchdog said a hike in bills would support a revamping of Britain's "ageing networks", mostly built in the 1950s and 1960s.

Energy networks need replacing as demand increases and consumers change the way they use energy - such as charging electric cars overnight, Ofgem said.

Ofgem, the Office of the Gas and Electricity Markets, promotes competition in energy wholesale and supply markets and regulates them so there is adequate investment in the networks.

The regulator also revealed a new pricing model, which it said represented the "biggest change to the regulatory framework for 20 years".

The new model moves away from previous inflation-tied controls to an incentive-driven approach that rewards more efficient companies. Ofgem added that the proposals could save consumers up to 1 billion.

Ofgem chief executive Alistair Buchanan told the BBC Radio 4 Today programme the investment would be supported by a 6 per cent increase on the current average household's total annual electricity and gas bill over the next decade.

He added: "It is going to be basically 6 a year over the next ten years."

The warning followed a report from Ofgem last week which indicated that bills could increase as suppliers were seeing big rises in wholesale costs.

The watchdog expects wholesale prices to increase by 13 per cent by next spring, which, if passed on in full, would see annual gas bills surge by around 81 to 706.

Ofgem's new pricing model will set pricing controls every eight years, rather than the current five-year period, and will offer incentives to efficient companies while clamping down on poorly performing firms.

Buchanan said the model would "ensure investment but at a fair price for consumers" and would "financially penalise laggards" in the industry.

He added it would deliver the benefits of a green economy, such as more skilled jobs in areas such as solar energy installation.

Investment is required to meet new sources of energy generation, such as offshore and onshore windfarms and new nuclear power stations, Ofgem said.

The regulator said "smarter networks" were required to deal with more complex methods of supply such as energy recycling methods including combined heat and power generation.