Households face a double whammy on energy bills this week as regulators approve plans to overhaul the UK’s power infrastructure and Whitehall prepares to unveil multi-billion pound wind farm subsidies – with costs falling on consumers.
Energy bills could rise by up to £20 a year under plans to help fund infrastructure improvements by National Grid, which are set to be approved by Ofgem today. The company is looking to spend up to £44bn transforming the UK’s pipes and cables, and argues it needs a 7.5pc rate of return for the bulk of its investment.
The industry watchdog is expected to outline how much National Grid can charge, which will determine by how much energy bills are likely to rise. National Grid suggested its proposals could increase yearly bills by between £15 and £20. Ofgem could set strict funding terms and limit the cost of equity to 7pc or less, demanding National Grid deliver plans at a lower cost.
Elsewhere, a long-awaited government announcement could come this week on the size of wind farm subsidies over the next four years, expected to run into billions of pounds. The move would benefit energy companies but mean the cost is added on to household electricity bills.
A row between the Treasury and the Department for Energy and Climate Change over the level of subsidies could see the decision delayed until after the summer parliamentary recess, however.
While today’s Ofgem proposals on transforming energy infrastructure are “initial”, with final plans due later in the year, the regulator is expected to take a tough line on National Grid.
Analysts at Investec have warned Ofgem is unlikely to allow National Grid to charge consumers what it wants, adding it could need to raise further capital by 2015. As a result, Investec is expecting a 10pc dividend cut in 2013-14.
A separate report today by the Aldersgate Group warns just 5pc of businesses expect UK energy prices to be lower than rival economies in 2015.
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