The industry regulator will allow energy networks to plough at least £40bn into the green energy revolution and make higher returns on their investments, after companies threatened an unprecedented rebellion against its plans to save homes £20 a year on their energy bills.
Ofgem’s plans, set out on Tuesday, will halve the savings energy bill payers can expect over the next five years to £10 a year after softening the crackdown on energy company profits it proposed over the summer.
The regulator has given the green light for investments in electricity grid upgrades, which are paid for through energy bills, to climb by a fifth compared with its earlier proposals which sought to limit spending to £25bn.
Ofgem will also allow the companies to make returns of 4.3% on their energy network investments, up from its early plan to cut them to a record low of 3.9% but still well below the returns of 7-8% allowed over recent years.
The proposals sparked fierce opposition among energy network companies, which called on Ofgem to rethink its proposals or risk an investigation by the Competition and Markets Authority.
The Ofgem chief executive, Jonathan Brearley, said the plans would allow companies to attract investment into Britain’s green revolution but would also include a new limit on how much they can pay to shareholders and provide £132mto help protect vulnerable customers.
“Our £40bn package massively boosts clean energy investment,” he said. “This will ensure that our network companies can deliver on the climate change ambitions laid out by the prime minister last week, while maintaining world-leading levels of reliability.”
The regulator will allow companies to invest more than £40bn if they can make the case for it.
“These costs must fall fairly for consumers,” he added. “We are reducing the amount paid to shareholders so that they are closer to current market levels. This means that companies can attract the vital investment we need while making sure that consumers don’t pay more than is necessary to achieve this.”
The new plan was welcomed by consumer group Citizens Advice as “genuine progress” in balancing the tension between the need to invest in tackling the climate crisis and to protect consumers.
Alistair Cromwell, the group’s acting chief executive, said: “For too long network companies were able to make excessive profits, not because they were efficient firms, but simply because previous price controls were too generous.”
“Although we are pleased with this progress, we’ve argued that Ofgem could have gone further in limiting shareholder returns and still believe that to be the case,” he added.
The network companies – National Grid, SSE and Scottish Power – said they will review the new plans before responding in full. SSE and Scottish Power remain “disappointed” with the rate of return offered on their investments.