National Grid has attacked Ofgem over plans to limit the amount that it can charge customers for connecting EDF’s new nuclear plant at Hinkley Point to the electricity grid.
The cost of the connection will be passed on to consumers in their energy bills over 25 years, but the energy regulator said that it would cap the returns available to the company, a move that Ofgem claims will save consumers more than £100 million.
Shares in National Grid, a regulated monopoly, fell by more than 2 per cent after the announcement. The company said that the plans were “very disappointing,” and added: “These parameters do not, in our view, offer the level of returns that would allow sustainable investment in the UK energy sector needed to deliver good outcomes for both customers and investors.”
National Grid said that Ofgem had “significantly overestimated the potential consumer savings in its consultation” and that it would “consider all options available to us” if the plan were to proceed.
The Hinkley Seabank plan is an essential upgrade to the power network needed to transmit electricity from the new plant in Somerset — which will meet 7 per cent of the UK’s demand — to the rest of the country.
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The 35-mile project involves new substations, underground cables and pylons that use a design intended to have less impact on the landscape.
Ofgem said that it would consider imposing a “competition proxy” model, which simulates the effect of the project being put out to tender. By implementing the measure, the regulator is hoping to achieve cost savings similar to those in the offshore wind sector, where grid connections are put out to tender.
It comes less than a year after Ofgem vowed to rein in profits at energy network companies. It is due to launch a review of the present regulatory pricing regime, which is not applicable to the Hinkley Point project, and has signalled that the next price control period, starting in 2021, will be tougher.