Major projects to improve the UK’s gas and electricity networks will add an average of £15 to household bills within a decade, the regulator warned today.
Ofgem believes £22 billion has to be spent on “critical infrastructure projects” such as laying undersea cables linking Scotland with England and Wales.
The cost of this investment will mean consumers, who already face a typical dual fuel bill of £1,310, will see tariffs lift by an average of £7 in 2013, rising to £15 in 2021.
But National Grid, which runs much of the network, slammed the proposals, saying they do not go far enough to incentivise energy companies to carry out the work needed.
And a consumer watchdog warned the prices would condemn more Welsh families to fuel poverty.
Consumer Focus Wales (CFW) say though the investments is “necessary” the costs of funding it will fall disproportionately on the one in three or 34% of Welsh families already living in fuel poverty.
CFW policy manager Lindsey Kearton said long-term trend energy prices rises, plus hikes associated with improving the grid will be a double blow for low-income families.
Ms Kearton said: “While that infrastructure investment is needed the way the costs are re-covered needs to be re-thought.”
The Government defines fuel poverty as where households need to spend more than 10% of their income on fuel to stay warm.
The investment over eight years between 2013 and 2021 will include major projects such as a sub-sea electricity cable linking Wales with England and Scotland and could create 7,000 jobs.
Rural conservation groups also condemned the plans, arguing more money should have been included to allow existing pylon-carried electricity cables to be buried underground in National Parks.
There have been protests over plans for a massive expansion of pylon-carried cables in Mid Wales.
A spokesman for the Campaign for the Protection of Rural England said Ofgem had proposed only £100m for under-grounding existing power lines in National Parks and AONBs, and £470m for undergrounding new power lines.
Tom Leveridge, Senior Energy Campaigners for CPRE, says: “Although we welcome the increase in funds to allow undergrounding of up to 10 percent of new power lines, we are disappointed at the lack of ambition to get pylons out of our most valued landscapes.
“Time and again the public say they don’t want to see pylons in National Parks and not enough is being done to make this happen.”
The National Grid wanted to invest more than £30bn, but Ofgem wouldn’t allow this because consumers would have faced still larger bills.
A spokesperson said: “It’s already clear that there are several important areas where Ofgem’s proposals differ substantially from National Grid’s comprehensive business plan submissions for both transmission and gas distribution.
“While the information currently available is limited, we believe these initial proposals will not appropriate incentivise the essential investments necessary to provide safe, reliable networks for the UK consumer and avoid delays to the achievement of the UK’s environmental targets.”
Scott Byrom, an energy market expert with moneysupermarket.com, said the measures could put as much as £200 on gas and electricity bills, taking them up to well over £1,500 a year.
Mr Byrom, whose firm has a base in Ewloe, North Wales, said: “I remember going back just a few years and you were looking at about £700 to £800 for a dual fuel (bill).”
Ofgem say they are holding down prices by only allowing the National Grid to claw back only the cost of their investment plus 4.5%.
National Grid had been arguing for a 7% return on any investment it makes.
Ofgem chairman Lord Mogg said by restricting the National Grid to a 4.5% return it would force the company to improve its performance and drive efficient investment.
He said: “Though Ofgem’s price controls we are driving improvements in company performance to ensure costs are kept as low as possible for consumers by incentivising efficient investment and penalising poor performance.”
Ofgem say their plans will allow around 80,000 fuel poor households to be connected to the gas distribution network.